• Judgment was handed down in long-running bankruptcy proceedings against Kevin Stanford, a well-known businessman who founded fashion brands such as All Saints and Karen Millen (with his former wife of that name).
  • The focus below is on the petition of Islandsbanki HF (“IB”).

Background

The Debtor

1.As explained in the judgment [1], Mr Stanford’s exceptional success from the 1980s until about 2008 has been “transformed into insolvency”. From about 2012, he has been embroiled in large litigation in Luxembourg with Kaupthing ehf upon which he relies for his change in fortunes. Kaupthing ehf claims a debt of over £460 million against Mr Stanford. Mr Stanford alleges fraud and contends that this caused his demise, asserting that a successful outcome in that litigation will secure him at least £50 million.

The Three Petitions

2. Three separate petitions were presented by creditors, and were opposed by Mr Stanford, as follows: a. IB - Mr Stanford argued that execution of IB’s Icelandic judgment debt was invalid due to errors in the writ and its execution, such that there had not been unsatisfied execution for the purposes s. 268(1)(b) of the Insolvency Act 1986 (“the Act”); and that execution had been commenced prior to the expiry of the period under the Lugano Convention/CPR 74 for appealing the order registering the Icelandic judgment in England b. HMRC - Mr Stanford argued that HMRC’s petition was an abuse of process by reason of inter alia extortion on the part of revenue officers at HMRC. He also argued that the petition should be dismissed because bankruptcy would jeopardise the outcome of the extant proceedings in Luxembourg c. Shineclear Holdings Limited – The Debtor opposed the petition for a debt of c.£6 million on complex grounds of abuse or process and estoppel arising out  of dealings between Mr Stanford and Kaupthing efh (a related party of Shineclear Holdings Limited).

Procedural History

3.The procedural history was protracted given the three separate petitions and featured numerous interim appeals and reviews of decisions under s.375 of the Act before the final hearings.

4.The petitions had proceeded separately with IB’s to be heard first (having been adjourned a number of times). An order was then made (in IB’s absence) to jointly case manage the three petitions. This was set aside by the order of Chief ICC Judge Briggs dated 1 August 2018. The Debtor then applied to review that decision, which was dismissed by Deputy (and former Chief) ICC Judge Baister, with IB’s petition then listed to be heard first.

5.IB’s petition was finally heard on 20 December 2018 before ICC Judges Jones for half a day. At the end of the hearing, the Judge decided to adjourn the hearing of the petition and list it for hearing with HMRC’s later petition. That decision was successfully appealed by IB– see Islandsbanki HF v Kevin Stanford [2019] EWHC 307 (Ch.) (Carr J.) - see here

6.There were also various procedural issues, and reviews and appeals, in the other petitions.

IB’s petition

7.IB’s petition was first presented in April 2017. It was founded on proving unsatisfied execution. It was based on an unpaid Icelandic judgment for c.£1.3 million arising from the Debtor’s failure to repay a loan. The petition was disputed on procedural grounds. The main ones are explained below.

The Lugano Convention and Execution Prior to the Expiry of the Appeal Period

8.That first issue was whether there was “unsatisfied execution” when IB’s execution occurred (by a writ of control) within the time limit prohibiting execution prescribed by the revised Lugano Convention 2007 (“the Lugano Convention”) reflected in CPR 74 and the registration order made in this case, which tied to the period for appealing the registration.  

9.IB submitted that the premature execution was a procedural defect which could be waived or otherwise cured under inter alia CPR Part 3 to do justice to the reality of the situation noting how matters had moved on over several years. It emphasised the lack of prejudice caused to Mr Stanford, who subsequently became aware of the registration order and writ, and did not apply to set either aside. It also relied on an agreement with Mr Stanford where he acknowledged that the Icelandic judgment was enforceable in England. Above all, it submitted that Mr Stanford has never said what his grounds of appeal would be to the registration order.

10.The Judge held that the origins of the prohibition in the registration order and CPR 74 determined the issue. Article 47(3) of the Lugano Convention provides that:

“During the time specified for an appeal pursuant to Article 43(5) against the declaration of enforceability and until any such appeal has been determined, no measures of enforcement may be taken other than protective measures against the property of the party against whom enforcement is sought

11.Article 43(5) further provides: “An appeal against the declaration of enforceability is to be lodged within one month of service thereof …”.

12.The Civil Jurisdiction and Judgments Regulations 2009 inserted the Article 47(3) prohibition within section 4A of the Civil Jurisdiction and Judgments Act 1982 as follows:  

4A Enforcement of judgments, other than maintenance orders, under the Lugano Convention (1) …  (2) A judgment … registered under the Lugano Convention shall, for the purposes of its enforcement, be of the same force and effect, the registering court shall have in relation to its enforcement the same powers, and proceedings for or with respect to its enforcement may be taken, as if the judgment had been originally given by the registering court and had (where relevant) been entered.  (3) Subsection (2) is subject to Article 47(3) of the Lugano Convention (restriction on enforcement where appeal pending or time for appeal unexpired), to section 7 (interest on registered judgments) and to any provision made by rules of court as to the manner in which and conditions subject to which a judgment registered under the Lugano Convention may be enforced.”  (emphasised added).

13.IB submitted that this confirmed jurisdiction in the CPR, including under CPR 3, to permit the Court to waive this defect given the lack of prejudice. It relied on case law where CPR 3.10 had been used to waive a defect in a writ. The Debtor emphasised that the breach was not of the kind that was appropriate to cure noting it was a breach of the Lugano Convention.  

Decision

14.ICC Judge Jones held [25] that the reference to section 4A(2) being subject also to “Article 47(3) … section 7 … and … rules of court as to the manner in which and conditions subject to which a judgment registered under the Lugano Convention may be enforced” was not to be construed as enabling Rules of Court to override or otherwise alter the agreement between signatories to the treaty. The power to make rules was to give effect to the Lugano Convention as “This was both its ordinary meaning and a purposive construction.” [25]

15.He held [26] there was a binding prohibition against enforcement until the time for appeal has expired. He held that there was no jurisdiction to enforce during the prohibited appeal period unless the protective measure exception applies (which it did not on the facts). Breach of the prohibition could not be described as a procedural defect under the Rules. He further held that, even if he was wrong, the Court should not exercise its power under CPR 3 to invalidate the execution to circumvent the Lugano Convention nor exercise any inherent power to abridge time or to waive or ignore the breach.

16.He held that [27]:

The Convention has enabled the European Union and the other signatories to reach agreement for (amongst other matters) judgment recognition and enforcement within each other’s jurisdiction but subject to its precise terms. One of the terms agreed is that “no measures of enforcement” shall take place during the appeal period for a declaration of enforceability for a foreign judgment (subject to the “protective measure” exception which does not apply here) and there is no provision within the revised Lugano Convention to abridge time.”

17.The Judge concluded that there no enforcement for the purposes of s.268(1)(b) of the Act as the writ was invalid. IB was therefore unable to establish that Mr Stanford was unable to pay his debts in accordance with the requirements of that provision.

18.The Judge, however, found in favour of IB in relation to defects alleged in the writ itself and the manner of its execution raised by Mr Stanford. [33-35] The Judge held that he was bound by the ratio of in the decision cited to him of Jacobs J. in Skarzynski v Chalford Property Company Ltd [2001] BPIR 673 that “returned” in s.268(1)(b) of the Act did not have a technical meaning and required only proof that the execution or other process failed to satisfy the debt, and that it should not be undermined by technical procedural irregularities. [19-20] The Debtor had argued that the Court of Appeal’s decision in Re A Debtor (No 340 of 1992) [1996] 2 All ER 211 of Millet LJ applied on the facts of the execution here and showed that the defects in question should not be waived.

19.As noted above, the Judge then gave a judgment in HMRC’s petition and made Mr Stanford bankrupt on that petition. [39-93]. The Judge later varied his decision on 13 March 2019 such that HMRC was not substituted but rather its petition was granted separately following IB’s petition being dismissed, such that the “look-back” date would start from the date of HMRC’s petition, rather than the earlier date of the petition of IB.

Commentary

20.The case was highly unusual as it featured three separate petitions for bankruptcy (rather than one lead petitioner with supporting creditors). It involved novel procedural questions arising from this and others, such as whether substitution could be granted by abridging time limits.

21.The petitions also raised complex points of law. In terms of IB’s petition, the judgment considered the much less well-trodden basis for establishing bankruptcy under s.268(1)(b) of the Act of unsatisfied execution (as opposed to relying on a statutory demand) on what was said to be conflicting authority on the manner of execution. 

22. Further, it raised an important point of wider relevance (on which there was little to no legal guidance) concerning the interpretation of the Lugano Convention and its interaction with the CPR generally and in terms of the prohibition on execution of an order registering a foreign judgment until the appeal period had expired. This may also influence comparable registration/recognition of foreign judgment provisions.

A copy of the judgment can be found here.