In Vizcaya Partners Ltd v Picard and another, the Privy Council recently held that anagreement to submit to the jurisdiction of a foreign court can arise through an implied term but there must be actual agreement (or consent). However, simply agreeing that an agreement should be governed by foreign law did not amount to agreement to the corresponding jurisdiction.
The appeal arose out of the fraudulent Ponzi scheme operated by Bernard Madoff through his company Bernard L Madoff Investment Securities LLC (BLMIS), a New York corporation.
In 2008, after Madoff's fraud came to light, Irving Picard (Trustee) was appointed as trustee in BLMIS' liquidation in the New York Bankruptcy Court. The Trustee began proceedings under the anti-avoidance provisions of the US Bankruptcy Code against investors who had been repaid before the fraud was discovered. Amongst those investors was the appellant, Vizcaya Partners Limited (Vizcaya), a BVI company which carried on business as an investment fund. Over a six year period between 2002 and 2008, Vizcaya had invested about US$323m with BLMIS, US$180m of which was repaid before the fraud was discovered. The contractual arrangements between Vizcaya and BLMIS were governed by New York law.
In 2009, the Trustee obtained a New York judgment in default of appearance against Vizcaya for recovery of the US$180m. US$74 million of this had been transferred to Gibraltar and the Trustee sought to enforce the default judgment in Gibraltar.
Vizcaya challenged the enforcement of the default judgment on the basis that the New York court did not have jurisdiction over it. It failed at first instance and, partially, in the Gibraltar Court of Appeal. It then appealed to the Judicial Committee of the Privy Council, which hears final appeals from many Commonwealth countries and British overseas territories, including Gibraltar.
The issue before the Privy Council was whether the Trustee had a real prospect of succeeding on the claim that the New York default judgment for US$180m should be enforced in Gibraltar against Vizcaya on the basis that Vizcaya had agreed to submit to the jurisdiction of the New York Bankruptcy Court.
English common law applies in Gibraltar. At common law, foreign judgments will, generally speaking, be recognised and enforced if the foreign court is deemed to have jurisdiction by English private international law. Jurisdiction must be consensual or territorial in nature. InRubin and Eurofinance, the Supreme Court decided that the court would not adopt any more liberal rules in respect of the enforcement of insolvency cases. A foreign judgment is therefore enforceable against a judgment debtor who (1) has made a submission to the foreign court by appearing in the proceedings or (2) made a prior submission to the foreign court by, for example entering into a jurisdiction agreement. Opinion has been divided for many years as to whether an agreement to submit to the jurisdiction of the foreign court must be express, or whether it can also be implied or inferred.
Decision: The principles.
At common law, can a submission to the jurisdiction of a foreign court be implied or inferred and if so, how can the implication or inference arise?
Having referred to the various conflicting authorities and commentary, the Privy Council held that the real question was whether the judgment debtor consented in advance to the jurisdiction of the foreign court, whether by contract or otherwise. It is commonplace that a contractual agreement or consent may be implied or inferred and the Privy Council saw 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. Further, the Privy Council found that, on analysis in context, the authorities which denied the possibility of an implied agreement really meant only that there had to be an actual agreement (or consent). It followed that submission to the jurisdiction of a foreign court could be implied.
As a result of the requirement for active agreement or consent, however, the Privy Council commented that the agreement cannot be implied or inferred only because:
- The judgment debtor was a shareholder in a foreign company;
- The contract was made in a foreign country;
- The contract was governed by the law of a foreign country;
- The contract was to be performed in the foreign country; or
- The foreign court had jurisdiction under its own law because the contract was governed by the law of that country.
To succeed in this case, therefore, the Trustee would have to show that Vizcaya had agreed to the New York courts' jurisdiction through a term in the contract between Vizcaya and BLMIS, implied either in fact and law.
- Terms implied as a matter of fact are terms implied by the circumstances in order to give effect to the intention of the parties. Where a contract was governed by foreign law, the English court would construe the contract in the light of the circumstances using the foreign rules of construction.
- Terms implied by law are implied into classes of contractual relationship as a necessary incident of the relationship concerned e.g. the obligation of confidentiality in banking contracts or in arbitration agreements. Where a contract was governed by foreign law, the English court would determine whether the relevant foreign law would imply the relevant term.
Decision: Applying the principles.
Did Vizcaya actually agree or consent to submit to the foreign jurisdiction?
The Trustee claimed that the New York Bankruptcy court had jurisdiction over Vizcaya because:
- The choice of New York law to govern the contract was effective to apply that law to all matters relating to the relationship between BMLIS and Vizcaya;
- The contractual relationship would have been governed by New York law even in the absence of an express choice;
- Vizcaya agreed to the jurisdiction (or specific jurisdiction) of the New York courts by agreeing to documents which established an agency relationship and by carrying on business in New York (or transacting business in New York); and
- Specific jurisdiction is established under the New York Civil Practice Law and Rules over a non-domiciliary who transacts any business within New York.
However, the Privy Council concluded that there was no suggestion that, under New York law, there was a term implied as a matter of fact or law that Vizcaya consented to the jurisdiction of the New York court. The statement that Vizcaya agreed to the jurisdiction of the New York court by agreeing to New York as the governing law and by transacting business in New York was no more than factors justifying the assumption of jurisdiction under the New York CPLR. The Privy Council therefore held that there was "no basis in the evidence for the assertion that there was a contractual term that Vizcaya submitted to the New York jurisdiction".
Even if a jurisdiction agreement had been found to be implied as a matter of fact or law, the Privy Council concluded that it would not apply to these proceedings anyway. This was because there was no evidence of any rules of interpretation under New York law which could lead to the conclusion that any implied submission would apply to insolvency proceedings. Vizcaya's appeal was therefore allowed.
The case was in fact settled after the hearing of the appeal but before judgment. However, because the appeal raised issues of general importance, the Privy Council exercised its power to give judgment notwithstanding the settlement. By holding that agreement or consent to the jurisdiction of a foreign court can be express or implied, provided that there is real agreement or consent, the decision resolves various conflicting authorities and commentary over the last 100 years. While this potentially increases the likelihood that parties will be found to have submitted to the jurisdiction of a foreign court (perhaps inadvertently), the Privy Council's comments on drawing inferences from surrounding facts or circumstances will not be enough to demonstrate a party has submitted to the jurisdiction of a foreign court may act as a brake on too broad interpretation.