Important clarification was provided today to the insolvency world as the UK Supreme Court in the conjoined appeals in Rubin and New Cap rejected the modified universalist doctrine that established common law rules as to the enforcement of foreign judgments do not (or should not) apply to insolvency orders.
Giving the leading judgment, and overturning the Court of Appeal, Lord Collins reaffirmed the application of the common law rules on the enforcement of foreign judgments to insolvency orders. There is no separate rule for judgments given in insolvency proceedings. So to enforce foreign insolvency orders at common law in England, foreign officeholders will have to show that the judgment debtor:
- was present in the foreign jurisdiction at the time proceedings were instituted;
- was the claimant or counter-claimant in the foreign proceedings;
- had submitted to the foreign proceedings by voluntarily appearing; or
- had submitted to the foreign proceedings by agreement.
This test is set out in Rule 43 (formerly Rule 36) of the leading work on Conflict of Laws, Dicey, Morris and Collins.
The fundamental question before the Supreme Court was: "As a matter of policy, should the court, in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to liquidators, trustees in bankruptcy, receivers and other officeholders, than the traditional common law rule...[i.e. Rule 43] or should it be left to legislation preceded by any necessary consultation?"
Declining to devise that kind of universalist rule, the Supreme Court by a majority of 4-1 preferred the latter course.
The effect of the judgment is to re-assert the importance of the territorial limits of foreign jurisdiction in insolvency proceedings, with the consequence that any insolvency exception will require implementation of treaties such as the UNCITRAL Model Law or changes to local legislation.
Harneys have also prepared a detailed note explaining the potential impact of this decision in both the BVI and Cayman, which have taken quite different statutory approaches - but in both jurisdictions the decision is likely to be seen as welcome news for offshore jurisdictions, which will not be subjected to a form of long-arm jurisdiction as would have resulted had the Court of Appeal's decision been upheld.
A team from Harneys was involved in the appeal for clients who were interested interveners. The Supreme Court's decision was relevant to the enforcement of US Bankruptcy Court orders in the Madoff bankruptcy in both Gibraltar and Cayman, where proceedings had been adjourned pending the result.
The full judgment is available here.