Unsettling settlements

If the Supreme Court upholds Rubin, it will turn London into ’disputes central’, but UK businesses risk being exposed to fresh uncertainties.

The Supreme Court will next month decide whether foreign court rulings in insolvency matters can be enforced in England and Wales in a case that litigators believe could enshrine a move towards a universal approach to cross-border insolvency cases.

In examining New Cap Reinsurance Corp & Rubin & Lan v Eurofinance SA & Anor & AE Grant & Ors the Supreme Court will decide whether the liquidator of insolvent Australian reinsurance company New Cap Re can enforce in England an insolvency judgment for the ­payment of money obtained in an Australian Court.

Should the case be successful it would reinforce London’s objective of becoming the leading international dispute resolution centre and show a judicial willingness for international cooperation. It could, however, also expose UK businesses to the uncertainties of foreign court decisions.

Beer to eternity

According to Dundas & Wilson partner John Verrill, the case began with a chat over a beer in Amsterdam. Verill says that during his discussion with David Rubin, the appointed ­receiver of UK-domiciled trust company Eurofinance, questions were raised about how best to deal with the company’s insolvency.

While it was domiciled in London, Eurofinance traded substantially in the US through a Ponzi scheme. What was needed was a cost-efficient method of unwinding the company through the courts.

Verrill recalls: “I suggested we could perhaps do it by Chapter 11. We put together a possible argument and decided to run with it.”

In other words, money from debtors could be recognised and ­enforced under the UN Commission on International Trade Law (Uncitral) Model Law on Cross-Border ­Insolvency. This would mean that cases could be brought in the US and enforced in England and Wales ­without a separate trial having to
be heard.

The concept was so novel that it has travelled through the judicial ranks to the Supreme Court and attracted ­attention from receivers in Australia as well as those responsible for unwinding the Madoff Ponzi scheme.

“I never dreamt it would end up in the House of Lords – the Supreme Court didn’t even exist when the case started,” says Verill. “We could set legal precedent, but it’s putting the legal architecture in place to get there that I enjoy most.”

The challenge to the July 2010 Court of Appeal (CoA) ruling is being led by Brown Rudnick partner Patrick Elliot and Edwards Wildman Palmer partner David Kendall, instructed for AE Grant & EuroFinance.

Kendall says the CoA ruling, which recognised US Chapter 11 bankruptcy proceedings as well as the enforcement of US clawback proceedings for the first time, is simply wrong.

“I don’t think there’s any other case in which a liquidator got a judgment for money and the English courts recognised that, even though there is no jurisdiction over the defendant,” he says. “So the wider impact – if Rubin is held to be right – will be that if you’re an English company and you get involved in a process with overseas liquidators, you’re probably going to have to appear and contest in the ­jurisdiction of the ­liquidator.”

Place value

Yet Verill, who is supported by Mayer Brown partner Devi Shah, the instructed lawyer for joint respondent New Cap Re, says that if the Supreme Court upholds the decision, it will be a leap forward for international insolvency cases in a global economy.

“It would make it a convenient forum for regulating antecedent transactions, which is horrendously complicated,” Verill argues. “It’ll make sense to have a relatively ­sophisticated forward-looking ruling to send the right message.

“We’d then lead Caribbean jurisdictions in this approach, to make some of them less bankruptcy-remote than they feel they should be. It could be a giant step forward ­because any common law assistance the courts here can provide will ­inform implementation in jurisdictions where people have yet to ­embrace it.”

It is for this reason that Irving ­Picard, trustee of Bernard L Madoff  Investment Securities, has hired ­Taylor Wessing partner Nick Moser to intervene in Rubin. It will extend the reach of the New York court to London and therefore into the offshore jurisdictions where Madoff is believed to have stashed his missing millions.

Moser says: “Where [Picard] is ­trying to assert New York bankruptcy law, the Rubin judgment will mean enforcement in those jurisdictions will be possible.”
Moser believes that further cooperation between courts can only be a positive step for London’s High Court, as well as beneficial for international business. He suggests that lenders could more clearly assess the downside of lending if the outcome of where the insolvency can be is made obvious from the start. This, he says, would be good for the global economy.

“The ability of lenders to assess the likely risk to the company is much more reliable,” Moser comments. “If Rubin is upheld it will be a huge leap forward.”
Shah says the case is about recognising that once a company has gone insolvent it is sensible, fair and efficient to have one lot of proceedings in one jurisdiction, enforceable around the world.

She says: “[New Cap Re] is a big reinsurer doing business all over the world. The case means they can make an application in Australia and it will be enforceable in England, even if the target didn’t participate in the proceedings. The alternative is that you’d need to bring proceedings in different jurisdictions and the same issues would have to be determined in each court.”

London calling

Moreover, says Moser, the long-term impact could be that more insolvency proceedings are launched in London because of its jurisdictional reach.
“The US and Canadian courts are leading the way, but this potentially heralds an era of more foreign lawyers coming here to then be able to enforce the law of any country,” he says.

Kendall, however, believes it could have the opposite effect, encouraging non-UK based lawyers not to litigate in London because foreign proceedings would be enforceable here ­without the case being heard here.

“This is looking at foreign insolvency and exposing the UK to risk,” he says. “Until Rubin, the liquidator would have to come here to give the UK some level of comfort and certainty about how proceedings would progress in the UK legal system. Now they would be subject to whatever ­jurisdiction the liquidator is in.”
According to Verrill, the status quo is out of touch with the global economy and cases spinning out of the global recession.

“It doesn’t take into account the modern commercial world where people can move cash at the click of a mouse,” he says. “We don’t feel it’s valid in the modern age and [we think] it acts as a bar to enforcing bankruptcy judgments for the benefit of collective remedy.”

Edwards Wildman partner David Kendall adds: “Whichever way it goes, in terms of private international law it will be a significant decision.”

As The Lawyer went to press, more intervenors emerged. Maitland Chambers’ Michael Driscoll is believed to have been instructed for one, while another intervenor waits in the wings.

Should the Supreme Court decide to reverse the CoA decision it will upset what appears to be a universal approach to insolvency proceedings commenced overseas. Yet if it ­endorses the CoA, the court will pave the way for greater efficiency in cross-border bankruptcy cases.

The legal line-up

For the appellant Eurofinance

XXIV Old Buildings’ Marcus Staff instructed by Brown Rudnick partner Patrick Elliot

South Square’s Robin Knowles QC and Blair Leahy for AE Grant & Ors instructed by Edwards Wildman partner David Kendall

For the respondent Rubin & Lan

South Square’s Robin Dicker QC and Tom Smith instructed by Dundas & Wilson 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’s Pushpinder Singh 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

The battle of South Square

The case will see South Square trot out its finest to do battle.

Robin Knowles QC is expected to lead for the appellants, with Brown Rudnick’s Patrick Elliot instructing junior Marcus Staff of XXIV Old Buildings.
Called to the bar in 1982, Knowles took silk in 1999 and has since been awarded a CBE for his contribution to pro bono services. He is chair of the Bar
Pro Bono unit.

In recent years his highest profile case has come through an instruction from Quinn Emanuel Urquhart & Sullivan partner Richard East, appearing for a
group of junior lenders tied up in a dispute concerning the restructuring of European Directories.

Knowles will face his set-mates Robin Dicker QC and Gabriel Moss QC, instructed by Dundas & Wilson and Mayer Brown.

The pair have been at the forefront of developing insolvency law and both are involved in disputes spinning out of the collapse of Lehman Brothers.

They will go head-to-head in the Supreme Court later this year in the pensions liabilities dispute Nortel & Lehman Brothers v The Pensions Regulator.
Dicker is to join forces with Wilberforce Chambers’ Paul Newman QC, appearing for the Lehman administrator, which is appealing the case alongside the administrator of Nortel.

Moss, meanwhile, has been instructed by Travers Smith partner Anna Gray for the Lehman pension fund trustees and for the board of the Pension Protection Fund.