Vizcaya Partners Limited v Picard and another [2016] UKPC 5

Privy Council advice that addresses what is required for foreign judgements

In Vizcaya Partners Limited v Picard and another [2016] UKPC 5, the Privy Council considered the enforcement of foreign judgments at common law, where enforcement is based on the judgment debtor having agreed to submit to the foreign court giving judgment. In particular, they dealt with the controversial question of whether the agreement to submit could be implied or inferred, or if it must be express.

The Privy Council’s advice was written by Lord Collins, the general editor of Dicey, Morris & Collins, Conflict of Laws, who had retired from the Supreme Court in 2011. His Lordship put the debate to rest, saying at [56] that the agreement to submit to the jurisdiction could be express or implied, but it must be an actual submission. This requirement of the debtor’s agreement being actual reconciled many of the apparently contradictory authorities on the question, not having been emphasised since 18751. His Lordship said at [58] that the agreement may be implied as a matter of fact or law (the two types of implied terms), but because it must be actual, the agreement cannot be implied from matters indicating there is no actual agreement, such as the mere fact of the debtor being a shareholder in a foreign company or member of a foreign partnership.

The advice highlights the difference between a court having jurisdiction and a party agreeing to submit to the jurisdiction. It stresses the need for adequate expert legal evidence as to the terms implied in contracts by law in the foreign country. It also confirms the advisability of having parties state in agreements that they submit to the jurisdiction of the particular court, if one party might need to enforce against the other in a common law country or one with statutory reciprocal enforcement arrangements.

The facts

Picard had obtained judgment against Vizcaya in the New York Bankruptcy Court in default of appearance and attempted to enforce in Gibraltar. Picard was the insolvency trustee of Bernard L Madoff Investment Securities LLC (BLMIS), a New York corporation used in Madoff’s fraudulent Ponzi scheme in which Vizcaya had invested some US$328m. Before the fraud was discovered, BLMIS had repaid Vizcaya US$180m for which the trustee obtained judgment under anti-avoidance provisions of the US Bankruptcy Code.

Enforcement was sought based on Dicey’s “Fourth Case”2 which says that judgment in personam of a foreign court may be enforced in the United Kingdom if the judgment debtor had, before the commencement of the proceedings, agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of the court or of the courts of that country. The order entering the default judgment recited that “the Trustee made a proper prima facie showing of personal jurisdiction”.

The trustee claimed the New York Bankruptcy Court had jurisdiction over Vizcaya because relevant agreements were deemed to be entered into and were to be performed in New York State; the Vizcaya and BLMIS bank accounts were held in New York, with funds being transferred from Vizcaya to BLMIS for trading activities in New York; and Vizcaya purposefully availed itself of the benefits of conducting transactions in New York, out of which the action arose. Under the New York long arm statute, CPLR 302(a)(1) the maintenance of a securities account in New York was a sufficient basis for finding personal jurisdiction for claims arising out of “transaction of business”.

Express or implied submission

Opinion has been divided for many years as to whether that agreement must be express, or if it can be implied or inferred. Dicey changed its view over the course of 80 years, in 1896 saying the debtor could expressly or implicitly contract to submit, but since 1973 saying the agreement to submit must be express and cannot be implied. In 1894, contrary to Dicey’s statement only two years later, Lord Selbourne LC speaking for the Privy Council3 said the obligation could not be implied; 70 years later, Diplock J4 said it was clear law that the submission could be express or implied.

Actual submission

After reviewing the contradictory authorities over that period, Lord Collins said at [55] that it was necessary to step back and consider the question as a matter of principle and authority. He then stated these five principles:

  1. the question is whether the judgment debtor agreed to submit to the jurisdiction of the foreign court;
  2. the agreement does not have to be contractual in nature. The real question is whether the judgment debtor consented in advance to the jurisdiction of the foreign court5;
  3. it is commonplace that a contractual agreement or a consent may be implied or inferred;
  4. there is no reason in principle why the position should be any different in the case of a contractual agreement or consent to the jurisdiction of a foreign court;
  5. the authorities which deny the possibility of an implied agreementreally meant that there had to be an actual agreement7 (or consent).

This expression of an actual agreement comes from Lord Cairns LC in Copin v Adamson in 1875 and has not been fastened on since as the unifying feature of the principle. By identifying this as the central question, Lord Collins was able to reconcile most of the earlier authorities on whether the agreement had to be express or could be implied. To do so required an examination of the types of implied terms in English contract law and which of those could be said to create or be part of an actual agreement.

Implied terms

There are two classes of implied terms in English domestic law8 – those implied as a matter of fact from the circumstances to give effect to the intention of the parties9; and those implied as a matter of law as a necessary incident of the relationship, such as the obligation of confidentiality in banking contracts10. Because there has to be an actual agreement, the agreement or contractual term cannot be implied or inferred from such facts as the debtor being a shareholder in a foreign company or a member of a foreign partnership; the contract having been made or performed in the foreign country or governed by the law of the foreign country; or the result of the contract being governed by the foreign law giving the foreign court jurisdiction under its own law.

His Lordship then considered the implication of the distinction between the types of implied terms on the conflict of laws. He said at [59] that the characterisation of whether there has been a submission to the jurisdiction of the foreign court for the purposes of enforcement of foreign judgments depends on English law11 which in the present context meant that there must have been an agreement to submit to the jurisdiction of the foreign court, and that agreement may arise through an implied term.

Legal expert evidence

The role of an expert on foreign law differs depending on the nature of the implied terms. For terms implied as a matter of fact, the role of the expert is to prove the rules of construction of the foreign law, and it is then for the court to interpret the contract in accordance with those rules12. This is because where the applicable law of the contract is foreign law, questions of interpretation13 (including whether terms are implied as a matter of fact) and questions of whether any terms are implied by law are governed by the applicable law14. With terms implied by law, the role of the expert is to give an opinion on whether a particular term is so implied.

Whether there has been a submission to the jurisdiction of the foreign court for the purposes of enforcement of foreign judgments depends on the law of the enforcing country15. In this case that meant that there had to be an agreement to submit to the jurisdiction of the foreign court, and that agreement could arise through an implied term.

Legal expert evidence was tendered on the trustee’s rights under certain agreements (not relevant to the appeal) and on New York law as to jurisdiction. That evidence did not establish that the choice of New York law as the governing law of the contract carried with it an agreement to submit to the jurisdiction of the New York court. On the facts, therefore, there was no actual implied agreement to submit to the jurisdiction of the New York Bankruptcy Court.

Implications

One would expect Australia and other common law countries to follow the Supreme Court’s approach when the opportunity arises as it is more a synthesis and explanation of the previous authorities rather than a departure from them. It refocuses attention on the essential question rather than the secondary one of whether the agreement is express or implied.

Where countries follow the Vizcaya approach of requiring an actual agreement to submit to the jurisdiction, it would obviously be better to have the express submission in the agreement being sued upon. Absent such a clear submission, the implication must come from the law, or from facts which indicate an actual agreement. Where the implication is from the law, clear and complete expert evidence needs to be given in the enforcing court as to the basis of the implied agreement. For example, if the implied term is based on the legal proposition that the jurisdiction of the judgment court follows choice of that jurisdiction, the expert evidence needs to go so far as to say so.

Foreign Judgments Act

Vizcaya may have implications for registration of foreign judgments in Australia under the Foreign Judgments Act 1991 (Cth), as well as under the common law. Briefly, judgments of certain countries may be registered in Australia under that Act subject to being set aside under s 7. One of the statutory grounds for setting aside is if the courts of the country of the original court did not have jurisdiction: s 7(2)(a)(iv). One of the ways in which those courts “are taken to have had jurisdiction” is “if the judgment debtor was a defendant in the original court and had agreed, in respect of the subject matter of the proceedings, before the proceedings commenced, to submit to the jurisdiction of that court or of the courts of the country of that court”.

If the creditor is relying on such an agreement to found jurisdiction, Vizcayacould be used to argue that that agreement had to be actual, whether express or implied. There is nothing express in the Act stating how that agreement must have been formed. It is open to argument that the wording is a restatement of the common law which has been uncertain for some time but now has been clarified. In de Santis v Russo, McPherson JA said “the categories of cases in which a registered judgment may be set aside under s 7(2)(a), although not identical, bear a close resemblance to those identified by Buckley LJ in Emanuel v Symon [1908] 1 KB 302, 309, as those in which the courts would at common law enforce a foreign judgment”. His Honour citedOwens Bank Ltd v Bracco16 where it was said that Parliament “is to be taken to have intended that such questions be decided by reference to the common law …”.

Other aspects of whether the debtor has agreed to submit have been held to be determined by the common law of the enforcing country. InPrivatbrauerei Erdinger Weissrau Werner Brombach GMBH v World Brands Australia Pty Ltd17a Master held that the question of whether a term was incorporated into a contract by being part of the documentation or by a course of dealing was determined by Australian common law for the purpose of deciding whether the debtor had agreed to submit. It follows that it is credibly arguable that whether a debtor has agreed to submit to the jurisdiction of the foreign court for the purposes of the Foreign Judgments Act will be determined by the Vizcaya test.

The Privy Council has therefore somewhat eased the test under both the common law and the Foreign Judgments Act for showing that a judgment debtor has agreed to submit to the jurisdiction of the court giving judgment by allowing the agreement to be implied provided it is an actual agreement.