Enforcement of Foreign Insolvency Judgments in the English Courts

Ravi Aswani

In the Matter of New Cap Reinsurance Corporation Limited (In Liquidation) [2011] EWCA Civ 971

Many commercial and shipping lawyers will in recent years have had to turn their attention to insolvency cases at one time or another.  This recent decision of the Court of Appeal is an example of a topical insolvency case whose origins lie in the insurance context.

The Appellants were Lloyd’s syndicates who sought to challenge the decision of Lewison J who ordered that they should pay an Australian reinsurance company (and its liquidator who together were the Respondents) various sums as ordered by a court in Australia.  The basis of this application against them was that having obtained this Australian order, the Respondents sought to enforce it in the English courts under s426 of the Insolvency Act 1986 (and/or under common law).

The facts were simply that the reinsurance company had made various payments to the Appellants pursuant to liabilities under contracts of reinsurance but had then sought to recover the payments as preferential transactions at time when it was actually insolvent.  The Australian court made an order for recovery.

s426 of the Insolvency Act 1986 (“the 1986 Act”) is not specifically directed at the enforcement of foreign judgments but provides that UK courts exercising insolvency jurisdiction can provide assistance to other courts.  There is also however a specific statute, the Foreign Judgments (Reciprocal Enforcement) Act 1933 (“the 1933 Act”) which creates a procedure for registration of foreign judgments and their subsequent enforcement in the same way as judgments of UK courts.  This superseded the older action on a foreign judgment which was the common law position.  Where the 1933 Act does not apply, the common law position may still be directly relevant.

Lewison J held that the 1933 Act did not apply to orders made in insolvency proceedings, but he held that he could make an order as requested under s426 of the 1986 Act.  He further held that he had jurisdiction to make the same order under the common law jurisdiction.

The Appellants contended that Lewison J was wrong: (1) about the 1933 Act not applying; (2) about being able to make an order under s426; and, (3) about having jurisdiction at common law to make the same order as under s426.  It might be questioned what advantage the Appellants would have if the 1933 Act scheme did in fact apply – the answer on the facts appears to have been that there would be an application to set aside any registration order that might have been made under the 1933 Act (though that point itself remained subject to an appeal to be heard by the House of Lords next year in Rubin v Eurofinance SA [2010] EWCA Civ 895).  The Respondents resisted the appeal and contended that if the 1933 Act applied, a registration order would not be liable to be set aside.

The Court of Appeal first made some detailed observations on the legislative history and proper construction of the 1933 Act (and a related 1994 Order applying the 1933 Act’s regime to Australia).  The Court expressed its view that the 1933 Act did indeed apply to insolvency proceedings.

The Court then went on to consider the applicability of s426.  The Court noted that there were differences between the 1933 Act, which was concerned with a statutory entitlement to registration of a foreign judgment with a limited scope for the Court to exercise discretion in relation to that registration or setting aside, compared to the more general discretionary power in s426 to assist foreign courts in insolvency matters.  s6 of the 1933 Act specifically excludes proceedings (other than by way of registration) “for the recovery of a sum payable under a foreign judgment”.  If the Court were to exercise its discretion under s426 to grant an English judgment for the same amounts as per the Australian order (which is what happened at first instance) this would be possibly be inconsistent with s6.  Ultimately the Court considered that s6 did not have this effect, but any exercise of the s426 discretion where the 1933 Act was available would necessarily have to encompass an examination of why the 1933 Act had not been used.

The common law jurisdiction was not available where the 1933 Act applied (by virtue of the same s6) and the Court did not have to consider this in much detail.

This case answers a question which frequently arises in commercial cross border insolvency disputes – should a party seeking to rely upon a foreign order in the English Court go down the route of enforcement of foreign judgments or alternatively the route of assistance to foreign courts for insolvency matters.  Indeed, is this a purely academic question given that one way or another, the Court will give effect to a foreign order relating to insolvency?  It is not academic for (amongst others) the following reasons.  Firstly, under the 1933 Act registration is not an exercise of discretion but a matter of entitlement provided that the statutory tests are satisfied (there being only a limited discretionary basis on which to refuse or set aside registration).  By contrast, s426 contains a discretionary power the exercise of which will always be very fact specific.  Secondly, the 1933 Act contains a six year time limit for registration whereas there is no express limit of this type under s426.  However, on the Court’s approach, the fact that the 1933 Act time limit may have been allowed to expire would be a highly relevant factor in the exercise of any discretion under s426.

Thus, any party which wishes to obtain the assistance of the English Court in connection with a foreign judgment for the payment of sums of money made in the insolvency context should take the same approach as it would had that foreign judgment not been made in an insolvency context, i.e. seek to register it under the 1933 Act.  Provided that the statutory tests are met, that party is entitled as of right to recognition and subsequently enforcement of the foreign judgment.  If s426 is used where the 1933 Act is applicable, the Court will as part of the exercise of its discretion consider why the application was not made under the 1933 Act and this may have a (negatively) conclusive effect on the s426 application.  The party seeking to rely upon the foreign judgment may also find that the Court unexpectedly and unpredictably takes into account matters, as part of the exercise of its discretion under s426, which would have been irrelevant under the 1933 Act.

Although the Court of Appeal differed with Lewison J on the application of the 1933 Act, it held that the exercise of his discretion under s426 could not be faulted, even though Lewison J had concluded that the 1933 Act was not applicable.  (This meant that the appeal was on the facts dismissed.)

The question which remains to be conclusively answered is what the position is where the 1933 Act does not apply.  Based on the decision of the Court of Appeal in Rubin, the answer would appear to be that the jurisdiction of the foreign court would be recognised for the purposes of enforcement of the foreign judgment at common law.  Their Lordships will consider that point further next year.  It would further appear that where s426 is potentially applicable (it was not applicable in Rubin for geographical reasons), it could also be used.  In such circumstances, the discretion of the Court would not be affected by the 1933 Act regime which would not apply.  At common law, there is no entitlement to recognition or enforcement provided that any particular conditions are met, and an action on the foreign judgment would have to be brought.  Where the 1933 Act does apply, the Court will be vigilant in ensuring that the statutory conditions for recognition are not bypassed by a party seeking to invoke the Court’s broad discretion under s426.  Equally, the 1933 Act should be used where applicable to ensure that recognition is afforded as of right without risking an exercise of the Court’s discretion under s426.

Ravi Aswani