Guernsey: The Enforceability Of Foreign Insolvency Judgments In Guernsey

In its recent judgment in Rubin v Eurofinance S.A.; New Cap Reinsurance Corpn. v Grant [2012] UKSC 46 (Rubin), the UK Supreme Court considered the extent to which the English courts should recognise and enforce a judgment made in non-EU foreign insolvency proceedings. The Supreme Court ruled that there is no separate rule at common law in England for foreign insolvency judgments, and that the English courts will not enforce a foreign insolvency judgment where the English creditor was not present in nor had submitted to the foreign court.

As a result of this decision (which will be persuasive in the Guernsey courts), Guernsey businesses with foreign counterparties may breathe a sigh of relief. Foreign insolvency judgments against Guernsey businesses, including funds and other investment companies that carry on investment activities in foreign jurisdictions, may only be recognised and enforced in Guernsey under the statutory regime relating to the reciprocal enforcement of foreign judgments or traditional common law principles.

The Supreme Court Decision in Rubin

The Supreme Court judgment dealt with two conjoined appeals, namely Rubin v Eurofinance S.A and New Cap Reinsurance Corpn Ltd v Grant. The main issue for consideration before the Supreme Court was whether, and to what extent, a judgment of a foreign insolvency court in relation to avoidance claims available in that jurisdiction (e.g. claims to claw back unfair preferences or transactions at an undervalue) would be enforced in England where the defendant had not submitted to the jurisdiction of the foreign court. In particular the Supreme Court was asked to consider whether, following the decision of Lord Hoffman in the Privy Council in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC (Cambridge Gas), such a judgment constituted a special category which fell outside of the scope of traditional English common law rules relating to the enforceability of foreign in personam judgments (i.e. judgments against the person, as opposed to an in rem judgment attaching to property).

Under the English common law, a foreign court has jurisdiction to give judgment in personam capable of enforcement where the person against whom it was given was present in or submitted to the jurisdiction of the foreign court. The precise circumstances in which such a person will be held to have submitted to the jurisdiction of the foreign court is beyond the scope of this article; however submission will typically involve voluntarily participation in the foreign proceedings or being present in the foreign country where the proceedings are instituted.

In Cambridge Gas, the Privy Council (on appeal from the Isle of Man Court of Appeal) stated that bankruptcy proceedings did not constitute judgments in rem or in personam but instead constituted a special category of judgment peculiar to insolvency proceedings. Ultimately, the majority of the Supreme Court in Rubin held that the decision in Cambridge Gas was wrong and stated that there was no reason to adopt a more liberal rule as regards foreign insolvency judgments in avoidance proceedings in the interest of universality.

The Supreme Court held that there was no difference in principle between a foreign judgment against i) a debtor on a substantial debt due to the company in liquidation based on normal contractual and tortious principles, and ii) a creditor based on avoidance type claims. Secondly, the Supreme Court held that such a distinction would in any event require the court to develop new jurisdictional rules determining the nexus between insolvency and the foreign court and the judgment debtor and the foreign court. Lord Collins, in the leading judgment, stated that "There is a reason for the limited scope of the Dicey rule and that is that there is no expectation of reciprocity". The Supreme Court stated that a change in the settled law of enforcement of foreign judgments is properly a matter for the legislature.

Therefore there is no separate rule at common law in England for foreign insolvency judgments (whether in rem or in personam). It is likely that the Guernsey court, which has in modern jurisprudence adopted English principles of private international law and accords considerable weight to decisions of the UK Supreme Court where Guernsey law follows the English common law, will see the decision in Rubin as persuasive absent public policy considerations peculiar to the Island. A test case is eagerly awaited.

The Guernsey Cross-Border Insolvency Regime in light of Rubin

Guernsey is neither part of the UK nor a member of the EU. Therefore the English Cross Border Insolvency Regulations and the EC Regulation on Insolvency Proceedings do not apply in Guernsey. Guernsey has not adopted the UNCITRAL Model Law and does not have a specific statutory regime dealing with cross-border judicial co-operation in insolvency proceedings. It should be noted that neither Rubin nor New Cap concerned any issues arising under the EU law.

The Insolvency Act 1986 (Guernsey) Order 1989 extended the operation of sub-sections 426(4), (5), (10) and (11) of the English Insolvency Act 1986 (the 1986 Act) to the Bailiwick of Guernsey, the effect of which is that Guernsey's Royal Court may assist courts of the UK, the Bailiwick of Jersey and the Isle of Man having jurisdiction in relation to insolvency law.

Importantly, the majority of the Supreme Court in Rubin held that subsections 426(4) and (5) of the 1986 Act are not concerned with the enforcement of judgments but are restricted to facilitating the provision of assistance to designated foreign courts exercising jurisdiction in relation to insolvency proceedings. It is submitted that the Guernsey courts may be persuaded to adopt a similar interpretation.

In light of the above, a party who has obtained a judgment in foreign insolvency proceedings may either enforce it in Guernsey at common law (following English principles of private international law) or under The Judgments (Reciprocal Enforcement) Law, 1957 (the 1957 Law).

If the foreign judgment is made by a prescribed court of one of the jurisdictions approved by the 1957 Law, then the 1957 Law must be applied (i.e. there is no option to use the common law). In circumstances where the 1957 Law does not apply, the foreign insolvency judgment must be enforced at common law. An analysis of those principles is beyond the scope of this article. Expert advice should be obtained from a qualified legal practitioner

Conclusion

The extent to which foreign insolvency judgments will be enforced against Guernsey businesses by the Guernsey courts will necessarily have strategic implications as regards the extent to which those businesses elect to participate in foreign insolvency proceedings.

Guernsey businesses can draw comfort from the Supreme Court decision in Rubin as foreign officeholders should have no expectation that a judgment obtained in foreign insolvency proceedings will be enforced on the basis of universal reciprocity, in circumstances where the Guernsey business was not present in or had not submitted to the jurisdiction of the foreign court.

As originally appeared in Contact Magazine – March 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.