New Cap Re v Grant  

[2012] UKSC 46

The decision in these cases in the United Kingdom Supreme Court will be of enduring importance for off-shore insolvency jurisdictions.  The Court has affirmed that to be enforceable at common law, any judgment of a foreign court either for payment of money or the 'turnover' or vesting of assets outside its territorial jurisdiction must comply with the jurisdictional rules of English private international law.  There is no special rule for judgments in insolvency proceedings.

The gist

In brief, unless the judgment debtor was a claimant or counterclaimant in the relevant proceedings:

  • A judgment in personam for money or delivery of assets is enforceable under English private international law only if the defendant was present, resident or domiciled in the state of the forum when the proceedings were commenced, or submitted to its jurisdiction by voluntarily appearing in the proceedings or by some other method, such as a jurisdiction clause in a contract or proving in a liquidation.
  • If the judgment is a judgment in rem affecting property outside that state, it is enforceable only if the defendant submitted to the jurisdiction of the forum.
  • There is no special rule relating to judgments in insolvency matters.
  • Neither the UNCITRAL Model Law on Insolvency nor the UK Cross Border Insolvency Regulation (CBIR) contain any provision enabling the enforcement of judgments given in a foreign state (although the EU Regulation on Insolvency does).

The majority judgment (given by Lord Collins of Mapesbury, the third author of Dicey, Morris and Collins, Conflicts of Laws 14th edition (Dicey)) affirms in stark terms that the criteria for enforcement of a judgment at common law are those set out in Dicey Rule 36 (in the 15th edition Rule 43).  This rule is a distillation of the English case law, which has appeared in that work since the first edition in 1896, and appeared with minor variations in each edition since.

The proceedings

Rubin and Lan were appointed by the High Court in England as receivers of the property of "The Consumers Trust", with a view to enabling the Trust to secure Chapter 11 protection in the US.  The Trust required this protection because it had become insolvent by unsuccessfully carrying on in the US and Canada a business of "sales promotions" owned and operated by a related BVI company, Eurofinance SA.  The promotions involved consumers' receiving vouchers from merchants entitling them to a rebate from the Trust of up to 100% of the price of goods sold, but payable three years after the original purchase, and only on passing certain tests of memory and comprehension.  The Trust was insufficiently funded by Eurofinance from the business.  Numerous States investigated the business and the Attorney General of Missouri took consumer protection proceedings resulting in a substantial judgment.

The Chapter 11 scheme for liquidation of the Trust involved the appointment of the receivers as foreign representatives of the debtor by the US Bankruptcy Court, and their authorisation to apply to the Chancery Division in London for recognition of the Chapter 11 scheme as foreign main proceedings under the CBIR.  The receivers were required in particular to seek the assistance of the High Court in prosecuting litigation, including the enforcement of judgments of the US Bankruptcy Court.  The judgment in issue in the appeal was a default and summary judgment against Eurofinance and one of its promoters.  The judge at first instance recognised the Chapter 11 proceedings and the receivers as foreign representatives but refused to enforce the judgment.  The Court of Appeal held that the judgment was enforceable.

New Cap was formerly licensed as an insurer in Australia, and did not conduct insurance business anywhere else.  Grant was a representative of an insurance syndicate at Lloyds of London who had been reinsured by New Cap.  The reinsurances permitted New Cap to commute the obligations of New Cap on payment of lump sums to the syndicate.  Commutation payments were made to the syndicate shortly before New Cap was placed in administration, and then wound up voluntarily, in Australia.  The liquidator sought repayment of the commutation payments as unfair preferences of and "voidable transactions" with the syndicate.  The syndicate did not submit to the jurisdiction of the Supreme Court of New South Wales, but that Court held that the Australian legislation gave it jurisdiction, and gave judgment against it in its absence.  The syndicate was ordered to repay the commutation payments to the liquidator.

The New South Wales Court issued a letter of request to the High Court in England seeking permission for the liquidator to commence new proceedings in England for relief under the Australian legislation (pursuant to s 426 of the UK Insolvency Act 1986), but, once the Court of Appeal had declared the Rubin judgment enforceable, the liquidator proceeded to seek enforcement of the judgment either under s 426 or at common law and succeeded at first instance and on appeal.  As the Court of Appeal were bound to follow Rubin they held that the Australian judgment could be enforced (a) under the UK Foreign Judgments (Reciprocal Enforcement) Act 1933; and (b) under s 426 (which was not excluded by s 6 of the 1933 Act), but (c) not at common law by reason of s 6.  They also held that it was unnecessary to decide whether the statutory power had displaced common law powers of enforcement.

Judgments in insolvency matters: is there a special rule?

The appellants argued that the Dicey rule defining the jurisdiction of a foreign court so as to render its judgment in personam enforceable did not apply to the Rubin or New Cap judgments.  They did so on the basis of the decision of the UK Privy Council on appeal from the High Court of the Isle of Man in Cambridge Gas Transportation Corp v Navigator Holdings plc (Creditors Committee) [2007] 1 AC 508.  Lord Collins's judgment contains an extended critique of this decision, in which the advice of the Privy Council was delivered by Lord Hoffmann.  The subject of universalism of insolvency proceedings was also considered by the same judge in re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852.

The decision in Cambridge related to a Chapter 11 scheme for Navigator Holdings plc, incorporated in the Isle of Man.  Navigator was 70% owned by Cambridge, incorporated in the Cayman Islands.  The scheme required that title to the Navigator common stock vest in the creditors' committee to the exclusion of the original investors (the owners of Cambridge), so that sales of the assets of the group could take place for the benefit of the creditors.  This plan was the subject of the request of the US Bankruptcy Court to the High Court of the Isle of Man for enforcement of the vesting of the Navigator shares.

No-one suggested that the Chapter 11 plan could be enforced in rem against the shares: they were property outside the US (situate in the Isle of Man) and it was held at first instance that Cambridge had not submitted to the jurisdiction of the US Court.  This holding was not appealed.  Accordingly there could be no enforceable judgment in rem.

Equally the plan could not be enforced at common law as a judgment in personam by reason of the absence of personal jurisdiction over Cambridge.  But Lord Hoffmann reasoned that a judgment giving effect to an insolvency scheme was a judgment neither in personam nor in rem, but a collective proceeding which does not establish rights in themselves but enforces the consequences of the insolvency (personal or corporate).

He further reasoned that in consequence of the principle of universality of bankruptcy proceedings (adopted by English law) leading to judicial assistance of foreign courts, the Manx Court was entitled to assist by acting as it would in a domestic insolvency.  Yet further, the US Chapter 11 plan could have been achieved in a scheme of arrangement under the Isle of Man Companies Act. A shareholder (Cambridge) may be bound by such a scheme because the company has entered into it.  Navigator had instigated the Chapter 11 plan, and Cambridge as a shareholder would be bound by it even though not a party to the Chapter 11 proceedings.

The status of Cambridge

Lord Collins (with whom Lords Walker and Sumption agreed) stated without qualification that Cambridge was wrongly decided.  He said (para 45):

At this point it is necessary to point out that the opinion in Cambridge Gas does not articulate any reason for holding that, in the eyes of the Manx court, the US Bankruptcy Court had international jurisdiction in either of two relevant senses.

The first relevant sense was the jurisdiction of the US Bankruptcy Court.  Its jurisdiction under Chapter 11 is over "debtors", who qualify by residing, or having a domicile, or a place of business, or property in the US.  The English law regards the US Bankruptcy Court's jurisdiction, in a case like Cambridge, as derived from the submission of the debtor to the jurisdiction by initiating the proceedings.

The other sense was the jurisdiction over Cambridge or its shares in Navigator Holdings.  There is no basis for the US jurisdiction other than submission to the jurisdiction in the case of that company or its Isle of Man property, which had not happened.

The Cambridge judgment certainly was not a judgment in personam.  It had all the characteristics of a judgment in rem.

The dissents

Lord Mance said that he did not subscribe to the view of the majority that Cambridge was wrongly decided, and reserved his opinion.  He explained that the question had not been argued before the Supreme Court in the present cases.  The decision could be seen as simply the distribution of the assets of the insolvent company (Navigator) by means of a vesting of shares in Navigator (rather than its shares in its subsidiaries).  The shareholders in Cambridge (the original investors) had no interest of any value to protect, as the shares in Cambridge, like its shares in Navigator, were worthless.

Lord Clarke dissented entirely from the majority.  He took the view that the Cambridge order, being an order in rem, could nevertheless be an order for distribution of assets in bankruptcy.  It would be enforceable at common law by giving effect to the principle of "modified universalism" referred to by Lord Hoffmann in re HIH, and, as he accepted, extending the common law.  Agreeing with the Court of Appeal in Rubin and New Cap, he proposed that the Dicey rule should be modified to render enforceable a judgment given in avoidance proceedings in bankruptcy.

The effects for BVI and Cayman Islands

These decisions reinstate the necessity for a foreign insolvency office holder to demonstrate that the foreign court had jurisdiction over the defendant in accordance with English private international law, in cases involving both reversal of preferences, and turnover of assets.

In addition, the construction of the relevant articles of the UNCITRAL Model Law and the UK CBIR against enforcement suggest that neither in BVI nor the Cayman Islands will a judgment of a foreign bankruptcy court be directly enforceable.

Part XVIII of the BVI Insolvency Act 2003 enacts UNCITRAL in the BVI but there are no plans to bring it into force in the near future. In the meantime, s.467 of that Act relating to judicial assistance contains nothing which would justify the Court going beyond the reasoning in Rubin and allowing direct enforcement of a foreign insolvency judgment Section 241 of the Cayman Islands Companies Law (2012 revision) is potentially wider, in that the turnover of assets of the debtor is expressly referred to.

In both jurisdictions, the making of such ancillary orders would be a fresh exercise of the jurisdiction of the respective Courts.  In no case, now that the Supreme Court has closed off the possibility of common law enforcement of judgments in foreign insolvency proceedings, will such a judgment be directly enforceable at common law unless there has been submission to the jurisdiction of the foreign court.

This result should be welcome: certainty is restored to offshore entities and their directors; a legitimate decision not to contest foreign insolvency proceedings will not carry the risk of direct enforcement of a default judgment without the intervention of the local Court to determine the merits.