Issues in Recognition and Enforcement of Foreign Insolvency Judgments a An Australian Perspective
Judicial Insolvency Network Conference
Singapore
10-11 October 2016
1. Introduction
This is not a topic for the faint-hearted involving, as it does, the intersection of insolvency law, conflict of laws principles, general notions of comity and an overlay of statutory and international provisions. By and large, however, it is best approached in a methodical fashion leaving to the end some of the messier issues which can arise. For the purposes of this discussion I will, if I may, start with just a few remarks about what might be encompassed in the notion of a foreign insolvency judgment.
2. Foreign Insolvency Judgments
It is best to approach this task negatively by inquiring what a foreign insolvency judgment is not. It is not, for present purposes, a judgment which has arisen out of rights which existed prior to any external administration, and does not include judgments such as traditional judgments in tort or contract procured by an entity or its external administrator. Nor do foreign insolvency judgments include particular orders which might be made in the course of an insolvency proceeding, such as orders for examination or the production of documents.
Rather, what is involved in the notion is some form of judgment in personam or in rem deriving from the operation of an insolvency law. Familiar examples will include claims for the recovery of preferences or the setting aside of voidable dispositions. What they all have in common is the fact that, but for the intercession of an insolvency administration of one kind or another, they would not exist. As the Privy Council explained in Cambridge Gas Transport Corporation v The Official Committee of Unsecured Creditors (of Navigator Holdings PLC) [2006] UKPC 26; [2007] 1 AC 508 at [14]- [15] the purpose of bankruptcy proceedings is to provide aa mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established.a It is proceedings of that kind which result in what may conveniently be referred to as foreign insolvency judgments.
Theoretically, there are four ways in which such judgments might be enforced in Australia. These are: (a) by registration under the Foreign Judgments Act 1991 (Cth); (b) at common law; (c) pursuant to s 581 of the Corporations Act 2001 (Cth), which provides for assistance to be given to foreign courts in cases of external administration; and, (d) under the Model Law, to which Australia has given effect by means of the Cross-Border Insolvency Act 2008 (Cth). For completeness, it should be noted that there are special arrangements between New Zealand and Australia about the enforcement of judgments, which are sui generis and which arise from the very close relationship of the two nations. They are beyond the scope of this paper and are not discussed further.
It is useful then to examine each of these four avenues separately.
3. Foreign Judgments Act
This Act provides a regime for the registration of foreign judgments in relation to nations which the Governor-General is satisfied accord substantial reciprocity to Australian judgments. Proclamations have been made in relation to the Courts of a number of nations including the United Kingdom, Hong Kong and Singapore[] but, significantly, not the United States. A foreign judgment to which the Act applies may be registered with an Australian Court provided the fairly rudimentary requirements under Court rules as to eligibility are met.
Most important for the present discussion are the provisions regulating when registration may be set aside. This is dealt with in s 7. Leaving aside immaterial aspects of that provision, a registered judgment must be set aside under s 7(2) in the following circumstances:
7 Setting aside a registered judgment
...
(2) Where a judgment debtor duly applies to have the registration of the judgment set aside, the court:(a) must set the registration of that judgment aside if it is satisfied:
(i) that the judgment is not, or has ceased to be, a judgment to which this Part applies; or
(ii) that the judgment was registered for an amount greater than the amount payable under it at the date of registration; or
(iii) that the judgment was registered in contravention of this Act; or
(iv) that the courts of the country of the original court had no jurisdiction in the circumstances of the case; or(v) that the judgment debtor, being the defendant in the proceedings in the original court, did not (whether or not process had been duly served on the judgment debtor in accordance with the law of the country of the original court) receive notice of those proceedings in sufficient time to enable the judgment debtor to defend the proceedings and did not appear; or
(vi) that the judgment was obtained by fraud; or
(vii) that the judgment has been reversed on appeal or otherwise set aside in the courts of the country of the original court; or
(viii) that the rights under the judgment are not vested in the person by whom the application for registration was made; or
(ix) that the judgment has been discharged; or
(x) that the judgment has been wholly satisfied; or
(xi) that the enforcement of the judgment, not being a judgment under which an amount of money is payable in respect of New Zealand tax, would be contrary to public policy; ora|
Insofar as judgments in personam are concerned, s 7(3)(a) specifies when a foreign Court is taken to have jurisdiction:
7 Setting aside a registered judgment
...
(3) For the purposes of subparagraph (2)(a)(iv) and subject to subsection (4), the courts of the country of the original court are taken to have had jurisdiction:(a) in the case of a judgment given in an action in personam:
(i) if the judgment debtor voluntarily submitted to the jurisdiction of the original court; or
(ii) if the judgment debtor was plaintiff in, or counter-claimed in, the proceedings in the original court; or
(iii) if the judgment debtor was a defendant in the original court and had agreed, in respect of the subject matter of the proceedings, before the proceedings commenced, to submit to the jurisdiction of that court or of the courts of the country of that court; or
(iv) if the judgment debtor was a defendant in the original court and, at the time when the proceedings were instituted, resided in, or (being a body corporate) had its principal place of business in, the country of that court; or
(v) if the judgment debtor was a defendant in the original court and the proceedings in that court were in respect of a transaction effected through or at an office or place of business that the judgment debtor had in the country of that court; ora|
a|
This will be familiar to many of you, as it reflects a mode of reciprocal enforcement prevalent through much of the common law world. It will be apparent from s 7(2) that the fact that a judgment is a foreign insolvency judgement is not, in itself, a ground for setting aside its registration under the Foreign Judgments Act. So long, therefore, as the foreign insolvency judgment has been given by one of the Courts on the list set out above, it may, generally speaking, be and remain registered.
The more interesting issues come into view when either the Act does not apply or where, despite its application in principle, the requirements of s 7(2) are not otherwise met. In the case, therefore, of foreign insolvency judgments which fall, for either of those reasons, between cracks in the Foreign Judgments Act, it is necessary to look to other avenues for enforcement.
4. Common Law
The Foreign Judgments Act does not purport to oust the common law. According to a leading Australian text, a foreign judgment may be enforced at common
law where:
- the foreign court exercised jurisdiction in the ainternational sensea;
- the judgment is final and conclusive;
- the parties are the same; and
- if the judgment is in personam it is for a fixed or readily calculable sum obtained within the last twelve years.
(see Davis, Bell and Brereton Nyghas Conflict of Laws in Australia 9th Ed, at p. 896).
Jurisdiction in the international sense will arise where:
- the presence or residence of the defendant in the foreign jurisdiction is established; or
- there has been a voluntary submission to that jurisdiction.
Again, this is fairly standard in most common law jurisdictions.
Let us have a look then at some familiar problems which can arise. Take for example, a plaintiff liquidator who obtains judgment in New York on a preference claim against a United Kingdom company conducting business in New York. The judgment cannot be registered under the Foreign Judgments Act, for the United States does not fall within the compass of that statute. It can, however, be enforced at common law, since the New York court plainly had jurisdiction in the international sense.
Now let us consider a different scenario, consisting of a slightly modified antipodean reversal of the facts in New Cap which is reported with Rubin v Eurofinance SA [2012] UKSC 46; [2013] 1 AC 236. Let us assume that Company A is a United Kingdom company conducting business as a manufacturer of widgets in the United Kingdom. It is insured for product liability risk with an Australian insurer under contracts made in Australia governed by Australian law. The Australian insurer, conducts business only in Australia and has no link to the United Kingdom. Company A decides to increase its cover and pays a large additional premium to the insurer, after which it is almost immediately wound up in insolvency in the United Kingdom and a liquidator appointed there. The liquidator, pursuing a preference claim before the Courts of the United Kingdom, obtains leave to sue the Australian insurer outside the jurisdiction and serves the originating process on the insurer in Australia. This is possible because, as a matter of United Kingdom domestic law, the claim is within the jurisdiction of the High Court. However, as a matter of Australian common law, the High Court does not have jurisdiction in the international sense discussed above, because the insurer is not present or resident there, and has not submitted to the jurisdiction of the High Court. Since the insurer does not appear, the liquidator proceeds to obtain default judgment.
In this case, service cannot be effected under the Foreign Judgments Act because the requirements of s 7(3) are not met, and it cannot be enforced at common law either.
At this point, it is worth examining the assistance provisions.
5. Corporations Act 2001, s 581
Section 581 provides:
581 Courts to act in aid of each other
(1) All courts having jurisdiction in matters arising under this Act, the Judges of those courts and the officers of, or under the control of, those courts must severally act in aid of, and be auxiliary to, each other in all external administration matters.
(2) In all external administration matters, the Court:(a) must act in aid of, and be auxiliary to, the courts of:
(i) external Territories; and
(ii) States that are not in this jurisdiction; and
(iii) prescribed countries;
that have jurisdiction in external administration matters; and(b) may act in aid of, and be auxiliary to, the courts of other countries that have jurisdiction in external administration matters.
(3) Where a letter of request from a court of an external Territory, or of a country other than Australia, requesting aid in an external administration matter is filed in the Court, the Court may exercise such powers with respect to the matter as it could exercise if the matter had arisen in its own jurisdiction.
(4) The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter.
Subsection (2) is mandatory: the Court must aid the Courts of aprescribed countriesa. Subsection (3) is discretion any: the Court may aid the Courts of other countries. The prescribed countries include Canada, Malaysia, Singapore, the United Kingdom and the United States. It is usual for s 581 to be enlivened by a request made by a foreign Court (as occurred in New Cap), but this is not a jurisdictional requirement.
The question then on our example is whether s 581(2) could be used to enforce the judgment of the High Court. In the United Kingdom,
we know the answer to this question in relation to the corresponding issue which arose on the facts of New Cap. The equivalent provision a s 426 of the Insolvency Act 1986 a cannot be used to achieve the enforcement of a foreign judgment just because that judgment is insolvency derived. In Rubin, Lord Collins explained that s 426 could be used to enforce a foreign insolvency judgment which could not be enforced under the
United Kingdom equivalent of the Foreign Judgments Act.
Prior to Rubin, the English Court of Appeal had explained that s 426 made available to the forum Court for the purpose of assisting the foreign
Court, the forum Courtas own general jurisdiction and powers, the insolvency law of England and Wales, and so much of the law of
the relevant foreign state as corresponded to that law: see Hughes v Hannover RA1/4ckwersicherungs-Aktiengesellschaft [1997] 1 BCLC 497. As Lord Collins noted in Rubin (at 221), this is quite a broad grant of jurisdiction. But it is difficult to see that it encompassed enforcement of a foreign
judgment, and the Supreme Court held in Rubin that it did not.
This question has yet to be determined by an Australian Court, but in my view it is likely to be decided the same way as it was in Rubin. This is so for a few reasons. First, our understanding of what s 581 does appears to be broadly in line with what the Court of Appeal thought in Hughes. Without any particular controversy, Hughes was recently followed by the Victorian Court of Appeal in Legend International Holding Inc (in liq) v Indian Farmers Fertilizer Cooperative Ltd [2016] VSCA 151 at [18]- [19], [30]. Secondly, textually it is unlikely that the general language of s 581 would be construed under principles of Australian statutory interpretation as outflanking the specific regime of the Foreign Judgments Act. Thirdly, Rubin is likely to be considered persuasive authority in this context: Goodwin v Phillips [1908] HCA 55; (1908) 7 CLR 1 at 14.
It is probable, therefore, that if the question were to arise in Australia, s 581 could not be utilised to enforce a foreign insolvency judgment. Resort would, therefore, need to be made to the Model Law.
6. The Model Law
That leaves the Model Law. Australia gave effect to the Model Law by means of the Cross-Border Insolvency Act 2008 (Cth). It gives the Model Law the force of Australian law: s 6. To return to our example for a moment, on the facts assumed, it is very likely that Company A has its centre of main interest in the United Kingdom, and we may assume that the United Kingdom winding up would be recognised as a foreign main proceeding under the Model Law. Can this fact be used to assist in the enforcement of the default judgment in the United Kingdom?
There are two possible paths. The first is Article 25. It provides:
CHAPTER IV. COOPERATION WITH FOREIGN COURTS AND
FOREIGN REPRESENTATIVES
Article 25
Cooperation and direct communication between a court of this
State and foreign courts or foreign representatives
- In matters referred to in article 1, the court shall cooperate to the maximum extent possible with foreign courts or foreign representatives, either directly or through a [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State].
- The court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.
This has to be read alongside Article 27:
Article 27
Forms of cooperation
Cooperation referred to in articles 25 and 26 may be implemented by any appropriate means, including:
(a) Appointment of a person or body to act at the direction of the court;
(b) Communication of information by any means considered appropriate by the court;
(c) Coordination of the administration and supervision of the debtoras assets and affairs;
(d) Approval or implementation by courts of agreements concerning the coordination of proceedings;
(e) Coordination of concurrent proceedings regarding the same debtor;
(f) [The enacting State may wish to list additional forms or examples of cooperation].
In Rubin, Lord Collins did not think that Article 25 or 27 extended to enforcement of foreign judgments. This appears, with respect, to be textually correct. Whilst the list in Art 27 is inclusive rather than exhaustive, the flavour of the items encompassed within it is not redolent of enforcement action. Lord Collins thought that it would be surprising if the Model Law were found to have included within it provision for the enforcement of foreign judgments when that degree of agreement had for many years eluded the Hague Conference on Private International Law.
I think this aspect of Rubin is also likely to be followed in Australia. It does look strained to extend Articles 25 and 27 into the arena of judgment enforcement. A distinguished Australian Judge, Reg Barrett, has expressed just such a view writing extra-curially: aCommentary on aCross Border Insolvency a Judicial Assistance in the Post-Hoffman Eraa at p.4.
Much more difficult, I think, are the issues raised by Art 21. It provides:
Article 21
Relief that may be granted upon recognition of a
foreign proceeding
1. Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:
(a) Staying the commencement or continuation of individual actions or individual proceedings concerning the debtoras assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1 (a) of article 20;
(b) Staying execution against the debtoras assets to the extent it has not been stayed under paragraph 1 (b) of article 20;
(c) Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1 (c) of article 20;
(d) Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtoras assets, affairs, rights, obligations or liabilities;
(e) Entrusting the administration or realization of all or part of the debtoras assets located in this State to the foreign representative or another person designated by the court;
(f) Extending relief granted under paragraph 1 of article 19;
(g) Granting any additional relief that may be available to [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] under the laws of this State.2. Upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtoras assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected.
3. In granting relief under the present article to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the law of this State, should be administered in the foreign non-main proceeding or concerns information required in that proceeding.
Relief under Art 21 is discretionary, but the materials surrounding Art 21 suggest that its discretionary ambit was intended to be broad in its application. In UNCITRALas Judicial Perspective on the Model Law (produced in 2012) this was said (at [139]):
The types of relief listed in Article 21, paragraph (1), are those most frequently used in insolvency proceedings; however, the list is not exhaustive. It is not intended to restrict the receiving court unnecessarily in its ability to grant any type of relief that is available and necessary under the law of the enacting State to meet the circumstances of a particular case.
This is also broadly in line with sentiments expressed in the UNCITRAL Guide to Enactment at [189]:
The types of relief listed in article 21, paragraph 1, are typical of the relief most frequently granted in insolvency proceedings; however, the list is not exhaustive and the court is not restricted unnecessarily in its ability to grant any type of relief that is available under the law of the enacting State and needed in the circumstances of the case.
One reading of these may suggest that Art 21 might be broad enough to sustain the enforcement of foreign insolvency judgments. Another reading might be that the reference to areliefa suggests curial steps occurring before and up to the granting of relief but not thereafter.
There is a very clear statement in Rubin that Art 21 does not support the enforcement of judgments on essentially the same basis as the reasoning about Arts 25 and 27. Reg Barrett in the piece mentioned above has, however, expressed the view that things may not be so straightforward in relation to Art 21.
It is very difficult to predict what the Australian High Court might do with this question. That difficulty reflects the fact that the resolution of the issue must pass through at least two prisms of interpretation. First, what is involved is the interpretation of a model law. The Courtas pronouncements on how double taxation treaties are to be construed suggest, at least in the commercial sphere, a willingness to engage with the international interpretative materials available. But, as is obvious, those materials are somewhat inconclusive. Superimposed on top of that is the desirability of ensuring that Art 21 receives a uniform interpretation internationally. This is likely to confer on Rubin considerable influence. That influence, however, may be somewhat attenuated given the controversy surrounding Rubin and its relationship with the Privy Councilas decision in Cambridge Gas.
Even after the intrepid judicial interpreter has wrestled with those issues, there then arises a second set of interpretational issues surrounding the relationship between the Cross-Border Insolvency Act and the Foreign Judgments Act. In this regard, it may be surprising that one can achieve under Art 21 what one cannot achieve under the Foreign Judgments Act. A possible balm to those pains may be afforded by the discretionary nature of relief under Art 21, for it is surely likely that no Court would lend its aid to enforce judgments arising under legal systems of dubious regularity.
Be that as it may, it will be seen that the Art 21 question is a veritable cornucopia of interpretational issues. What the position is in relation to it in Australia must remain, at this stage, unknown.
[1] The full list is Bahamas, British Virgin Islands, Cayman Islands, Dominica, Falkland islands, Fiji, France, Germany Gibraltar, Grenada, Hong Kong, Israel, Italy, Japan, Korea, Malawi, Montserrat, Papua New Guinea, Poland, St Helena, St Kitts, St Vincent and the Grenadines, Seychelles, Solomon Islands, Sri Lanka, Switzerland, Taiwan, Tonga, Tuvalu, United Kingdom, Western Samoa and some states in Canada (Alberta, British Columbia and Manitoba).