Issues in Recognition and Enforcement of Foreign Insolvency Judgments – An Australian Perspective

Judicial Insolvency Network Conference
Singapore
10-11 October 2016

RTF version

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) [2007] 1 AC 508 at [14]-[15] the purpose of  bankruptcy proceedings is to provide ‘a mechanism of collective execution  against the property of the debtor by creditors whose rights are admitted or  established.’  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^[1] 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; or

…

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;  or

…   

… 

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: 

1. the foreign court exercised jurisdiction in the  ‘international sense’; 
2. the judgment is final and conclusive; 
3. the parties are the same; and
4. 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 Nygh’s Conflict of Laws in  Australia 9th Ed, at p. 896).

Jurisdiction in  the international sense will arise where: 

1. the presence or residence of the defendant in the  foreign jurisdiction is established; or
2. 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 [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 ‘prescribed countries’.  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 – s 426 of the Insolvency Act 1986 – 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 Court’s 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 Rückwersicherungs-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) 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

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 debtor’s 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:  ‘Commentary on “Cross Border Insolvency –  Judicial Assistance in the Post-Hoffman Era’ 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 debtor’s 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 debtor’s 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 debtor’s assets, affairs, rights, obligations or  liabilities;
     
(e)    Entrusting  the administration or realization of all or part of the debtor’s 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 debtor’s 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 UNCITRAL’s 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 ‘relief’ 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 Court’s 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 Council’s 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.