In considering whether overseas insolvency orders can be enforced automatically under the common law where the English defendant has not submitted to jurisdiction overseas, or alternatively under the Cross-Border Insolvency Regulations 2006 (CBIR), the court decided they could not.
By a majority of four to one, with Supreme Court Justice Lord Clarke dissenting, the appeal made by Eurofinance SA and the Roman family, was allowed.
The decision is conservative.
It would have been radical to have upheld the decision of the Court of Appeal (CoA), which significantly, if fleetingly, altered the legal landscape relating to multi-jurisdictional insolvencies.
The CoA purported to treat overseas bankruptcy judgments as a unique category of judgment capable of automatic enforcement. In so doing it relied on the decision of the Privy Council in Cambridge Gas2 (2 Cambridge Gas Transportation Corp. v Official Committee of Unsecured Creditors of Navigation Holdings plc  UKPC 26,  IAC) and Lord Hoffman’s statements in HIH3 (re HIH Casualty and General Insurance Ltd  UKHL 21,  I WLR 852 ), in particular where he said that “the primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the 18th century”.
The Supreme Court was asked to determine whether bankruptcy orders are a separate category of judgment.
Eurofinance SA successfully argued that the common law requires classification of foreign judgments, a bankruptcy order is an in personam judgment and not a Cambridge Gas type of order because it seeks to establish rights, not just enforce them, therefore Rule 43 of Dicey4 applies and the New York court has no jurisdiction. Nor do the CBIR provide for enforcement.
Lord Collins, giving the leading judgment, provided a detailed summary of the applicable legislation and case law before providing his judgment, with which Lords Walker and Sumption agreed.
There is no reason to treat a bankruptcy avoidance judgment differently to any other type of judgment obtainable by an office holder.
If rule 43 was inapplicable then courts in every case would have to consider the nexus between the insolvency and the foreign court and the judgment debtor and the foreign court, an arduous requirement.
The court found that Cambridge Gas and Lord Hoffman’s statements in HIH were not justification for the CoA’s decision and Cambridge Gas had been wrongly decided – though Lord Mance was not prepared to address this and Lord Clarke did not agree.
The court decided that a change in this area of law should be legislated for. The CoA decision could be detrimental to UK business and there would be no prejudice in allowing the appeal. It found that the CBIR do not provide for enforcement.
In the New Cap5 case heard at the same time, the court decided that Section 426 of the Insolvency Act 1986 was not concerned with enforcement.
There were a number of fundamental issues for the insolvency community under consideration.
The court had to balance private international law and insolvency, many of whose practitioners would have welcomed automatic enforcement. This has far-reaching implications for major cross-border insolvency such as Lehman and Madoff.
If the CoA decision had been upheld, it would have been unclear which parts of which insolvency processes overseas would be automatically enforceable.
The respondents progressively reduced the extent of the New York order which they sought to enforce so as to align it with English claw back provisions.
However, English defendants, in order to defend themselves, would potentially have to appear in all overseas proceedings, thereby incurring significant costs and exposing themselves to jurisdiction for any other claims brought against them.
As for the principle of universalism, recognised by Lord Hoffman and others as being modified in England, the interests of creditors have not been promoted at the expense of third party rights.
In supporting universalist aspirations and bemoaning this judgment, certain lawyers in the insolvency community have suggested that we have somehow lost an opportunity to reinforce London’s position as a leading international dispute resolution centre, particularly for bankruptcy cases, and that the highest court has taken a large backward step.
However, the decision of the CoA would not have enhanced London’s – or England’s – position per se. There could not have been any forum shopping because enforcement would always require the presence of potential defendants.
It should also be noted that in the vast majority of cases defendants to adversary proceedings and other proceedings brought by office-holders overseas will have submitted to that jurisdiction.
It may be that a brake has been applied to the universalist tendency. This does not necessarily mean that the principle has been abandoned.
Lord Collins merely recognised that it was not for the court to change the law. Legislators will continue to consider the position. The EC regulation 6 is under review. The CBIR will also be reviewed. It may be that amendments to these regulations will address this issue.
A more immediate consequence of this judgment is to the Madoff trustee, Mr Picard, who seeks to recover assets for his estate from offshore. Mr Picard made detailed written submissions to
the Supreme Court as to why the Court of Appeal decision should be upheld. Two Gibraltar funds, Asphalia and Vizcaya, made written submissions as to why it should not be upheld, explaining that they were not direct investors in Madoff. There are other proceedings in offshore jurisdictions brought by Mr Picard. I understand one has recently been argued in Cayman on the basis that Cambridge Gas was good law. Judgment has been deferred.
This decision is not an end to the development of universalism in England which appears inexorable but it has balanced all interests. It is a victory for certainty.
Patrick Elliot, partner, Brown Rudnick represented Eurofinance SA in the case
The legal line up:
For the appellant Eurofinance: XXIV Old Buildings’ Marcus Staff, instructed by Brown Rudnick partner Patrick Elliot.
For the appellant AE Grant & Ors: South Square’s Robin Knowles QC and Blair Leahy, instructed by Edwards Wildman partner David Kendall.
For the respondent Rubin & Lan: South Square’s Robin Dicker QC and Tom Smith, instructed by Chadbourne & Parke partner John Verrill.
For the respondent New Cap Reinsurance: South Square’s Gabriel Moss QC and Barry Isaacs QC, instructed by Mayer Brown partner Devi Shah
For intervenor Irving H Picard: Blackstone Chambers’ Pushpinder Saini QC and Adrian Briggs leading Shaheed Fatima of the same set alongside South Square’s Ian Fletcher and Stephen Robins, instructed by Taylor Wessing partner Nick Moser for Irving H Picard as trustee in respect of the consolidated liquidation of the business of Bernard L Madoff Investment Securities LLC and Bernard L Madoff.