Black Letter Over “Judicial Innovation”

In the eagerly-awaited United Kingdom (“UK”) Supreme Court judgment with regard to the conjoined appeals of Rubin v Eurofinance SA and New Cap Reinsurance Corpn Ltd v Grant [2012] UKSC 46, the Law Lords rejected a proposed “modified universalist doctrine” which sought to disapply the established common law rules on the enforcement of foreign judgments in insolvency proceedings. The decision has far reaching effects for many jurisdictions outside the UK, including Hong Kong, the British Virgin Islands (“BVI”) and the Cayman Islands. 

The Supreme Court decision is of enormous significance to insolvency practitioners and re-asserts the importance of the territorial limits of foreign jurisdiction. It also suggests that any changes must be implemented through legislation rather than “judicial innovation”.

This article focuses on Rubin which considered the common law position under English law and whether proceedings made by the United States Bankruptcy Court for the Southern District of New York (the “US Bankruptcy Court”) to set aside or adjust prior transactions (“avoidance proceedings”) should be recognized and enforced as judgments of the English courts. New Cap dealt with the question of enforcement through assistance under section 426 of the English Insolvency Act 1986, for whose purposes Australia is a relevant country.

Rubin Facts

Eurofinance SA (a BVI company) was set up by the second appellant in the Rubin appeal, Adrian Roman. Eurofinance set up The Consumers Trust (“TCT”) under an English-law governed trust deed. TCT was established to carry on a sales promotion scheme in the US and Canada open to purchasers of white goods.

The scheme folded in around 2005, at which time it held around US$10 million (HK$77.5 million) in bank accounts in the US and Canada. Proceedings were brought by the Attorney General of Missouri under Missouri’s consumer legislation which settled for significant sums. However, when it became clear that other claims would likely materialize, Adrian Roman applied to the English High Court for receivers to be appointed over TCT (the “Receivers”). The Receivers then applied to the US Bankruptcy Court for protection under Chapter 11 of the US Code (“Chapter 11”) and TCT was placed into Chapter 11 proceedings in New York as nearly all of its 60,000 creditors were located in the US or Canada as were its assets.

As part of the Chapter 11 proceedings, 10 claims were issued in the US Bankruptcy Court regarding various sums said to have been unlawfully paid away from TCT on various grounds including unjust enrichment, fraudulent transfers and transactions liable to be set aside as unfair preferences. The respondents to the avoidance proceedings (ie the transferees) did not take part in the proceedings at all and did not fall under the in personam jurisdiction of the US Bankruptcy Court. Summary and default claims were given in the Receivers’ favour in respect of each of these claims (the “US judgments”).

The Receivers then applied to the English High Court under the Cross Border Insolvency Regulations 2006 for orders seeking (i) recognition that the US bankruptcy proceedings were “the main foreign proceedings”; (ii) recognition that the Receivers were “foreign representatives”; and (iii) the enforcement of the US judgments by the English courts as English judgments.

The High Court decision

Nicholas Strauss QC, sitting as Deputy Judge of the High Court, made an order recognizing the Chapter 11 proceedings (including the avoidance proceedings) as the main foreign insolvency proceedings and also recognizing the Receivers as foreign representatives but refused to enforce the US judgments.

In the learned judge’s view, the US judgments established the debtor’s rights as against a person (ie in personam) and, following Lord Hoffmann in Cambridge Gas v Official Committee of Unsecured Creditors Navigator Holdings plc [2006] UKPC 26 (“Cambridge Gas”), held:

“at common law, an English court could not accede to a request by a foreign insolvency court to enforce a judgment in personam [ie against a person] contrary to the rules of English private international law”.

The “rules of English private international law” to which the Judge referred were those set out by Rule 43 (formerly Rule 36) of Dicey & Morris, The Conflict of Laws, namely that, where a judgment debtor took no part in the proceedings; was never present in the jurisdiction; and never agreed to submit to the jurisdiction, the foreign judgment could not be entered in England at common law. The Receivers appealed the decision to the English Court of Appeal.

The Court of Appeal (“CA”) Decision

The CA overturned the High Court decision and referred to Lord Hoffmann’s dicta in Cambridge Gas which set out the distinction between judgments establishing the existence of rights against people and rights over property in comparison to judgments in bankruptcy proceedings which do not determine or establish the existence of rights but rather provide a mechanism of collective execution against the debtor’s property by creditors whose rights have been established or admitted. Essentially, the CA espoused the modified universalist doctrine of recognition of foreign judgment in insolvency proceedings.

It considered whether avoidance provisions under US legislation should be characterized as part of the bankruptcy proceedings – that is, whether they were part of collective proceedings to enforce rights and not to establish them and therefore the judgments could be enforced despite falling foul of the rule in Dicey & Morris applying to non-insolvency judgments. It was held that the avoidance provisions in English and US law (including those relied on in the US judgments) were “integral to and are central to the collective nature of bankruptcy and are not merely incidental procedural matters”.

The Decision of the UK Supreme Court

In the leading judgment given by Lord Collins, the Supreme Court overturned the CA’s decision and re-stated the application of common law rules on the enforcement of foreign judgments to insolvency orders. Lord Collins confirmed that, contrary to the CA’s decision, there was no separate rule for judgments in insolvency proceedings. Rather, in order to enforce foreign insolvency orders at common law in England, foreign office holders must show that the judgment debtor was:

  1. present in the jurisdiction at the time the proceedings were instituted;
  2. the claimant or the counterclaimant in the foreign proceedings;
  3. had submitted to the jurisdiction of the foreign proceedings by voluntarily appearing; or
  4. had submitted to the foreign proceedings by agreement.

Lord Collins stated that a fundamental question was that of policy – namely, was it up to the court “in the interests of universality of insolvency proceedings, [to] 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 embodied in the Dicey Rule, or should it be left to legislation preceded by any necessary consultation?” [at 91]. The Supreme Court (with Lord Clarke dissenting) found that such a question “had all the hallmarks of legislation, is a matter for the legislature and not for judicial innovation” [at 129].

The Supreme Court’s reasoning can be summarized as follows:

  1. There was no difference in principle between a foreign judgment against a debtor on a substantial debt due to a company in liquidation and a foreign judgment against a creditor for repayment of a preferential payment and, as such, adopting an insolvency exception to the common law rule would offer the debtor an unwarranted procedural advantage.
  2. If there was to be a different rule for the enforcement of foreign judgments in insolvency proceedings, the court would have to develop two jurisdictional rules: first, whether there is the requisite nexus between the insolvency and the foreign court; and second, whether there is the requisite nexus between the judgment debtor and the foreign court. The respondents argued that these issues should be determined under the discretion of the English courts to assist in foreign proceedings rather than applying the black letter, common law rules for the enforcement of judgments. The Supreme Court disagreed and held that the black letter law approach had more certainty.
  3. It would be unlikely that there would be any serious injustice if the court declined to sanction a departure from the traditional rule.
  4. The House of Lords held that Cambridge Gas was wrongly decided, as it related to a US order asserting rights over property (the ownership of shares by a third party not falling under the jurisdiction of the US court) rather than rights over a person.
  5. The Cross Border Insolvency Regulations 2006 were not designed to provide for the reciprocal enforcement of judgments.

Although not of course binding in Hong Kong, it seems likely that the Courts of Hong Kong will find their Lordships’ reasoning compelling and persuasive. Of course the proposition is yet to be tested and it is possible that the Hong Kong courts will take a different view. Importantly Hong Kong liquidators and their lawyers will have to consider carefully whether to seek to enforce a foreign judgment in Hong Kong under traditional common law principles or instead, in reliance of a universalist approach. Equally, Hong Kong liquidators and lawyers increasingly have to enforce Hong Kong judgments against asset and holding companies in the BVI and the Cayman Islands. The likely effect of Rubin in both those jurisdictions is that there will be less reliance on existing, and somewhat limited, insolvency recognition legislation and a return to common law enforcement.


Managing Partner, Harneys’ Asia
Leading offshore litigator, senior tactician and thought leader

Ian specialises in restructuring, insolvency, shareholders’ disputes and contentious trusts and has extensive experience in cross-border and conflict of laws dilemmas. He has been involved in every major recent restructuring involving offshore entities in the region and some of Asia’s highest value contentious estate litigation.
Ian is consistently recognized as a leading lawyer in Chambers, Legal 500, Who’s Who Legal and Global Restructuring Review. He was also selected to appear in Citywealth’s Top 100 trust litigators in 2020 and has featured in ALB’s Offshore Client Choice List for the last five years.