UK Supreme Court Rejects Supreme Court of Canada’s Jurisdictional Test for Enforcing Foreign Judgments

The UK Supreme Court has rejected outright the Supreme Court of Canada’s “real and substantial connection” test for recognition and enforcement of foreign default judgments.

The UK decision in Rubin v. Eurofinance [2012] UKSC 46 arises from two appeals:  Rubin v Eurofinance SA (“Rubin”) and New Cap Reinsurance Corpn Ltd v Grant (“New Cap”), both dealing with the issue of whether an order or judgment of a foreign court (on these appeals the United States Bankruptcy Court for the Southern District of New York, and the New South Wales Supreme Court) in proceedings to adjust or set aside prior transactions, e.g, preferences or transactions at an undervalue (“avoidance proceedings”), will be recognised and enforced in England.

The appeals also address whether enforcement may be effected through the international assistance provisions of the UNCITRAL Model Law (implemented by the CrossBorder Insolvency Regulations 2006 (SI 2006/1030)  (“CBIR”)), which applies generally, or the assistance provisions of section 426 of the Insolvency Act 1986, which applies to a limited number of countries, including Australia. 

In Rubin, the US Federal Bankruptcy Court for the Southern District of New York (“the US Bankruptcy Court”) rendered a judgment in default of appearance for about US$10M under State and Federal law in respect of fraudulent conveyances and transfers,which was enforced in England at common law.

In New Cap, a default judgment of the New South Wales Supreme Court, Equity Division, for about US$8M in respect of unfair preferences under Australian law was enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (“the 1933 Act”), and, alternatively, pursuant to powers under section 426 of the Insolvency Act 1986.

In each appeal, the defendants were neither resident nor had submitted to the jurisdiction of the court issuing the default judgment. Both the receivers and the liquidator in Rubin and New Cap sought to enforce those judgments, which arose from underlying transactions arising in the UK.

In Rubin, at first instance, the respondents sought to enforce the entirety of the US Bankruptcy Court’s judgment, but before the English Court of Appeal they sought only an order for the enforcement of the parts of the judgment based on state or  federal avoidance laws, including fraudulent conveyance under State Fraudulent Conveyance Laws, and under federal law, namely fraudulent transfers under section 548(a) of 11 USC; liability of transferees of avoided transfers under section 550; fraudulent transfers under section 548(b) and liability of transferees of avoided transfers under section 550. The Court of Appeal (Ward and Wilson LJJ and Henderson J) allowed an appeal, and held that the judgment was enforceable: [2010] EWCA Civ 895, [2011] Ch 133.

In New Cap, both the High Court of England and Wales and the English Court of Appeal felt bound by the decision of the Court of Appeal in Rubin, the Court of Appeal concluding that the judgment was enforceable under either section 6 of the Foreign Judgments (Reciprocal Enforcement) Act 1933, which precluded application of the common law, or section 426 of the Insolvency Act 1986, which allowed for registration: [2011] EWCA Civ 971, [2012] 2 WLR 1095.

Essentially, the English Court of Appeal created a new category of foreign  “judgments in and for the purposes of the collective enforcement regime of the bankruptcy proceedings”.

The Supreme Court overturned the Court of Appeal judgment by a four to one majority, and held that judgments given in insolvency proceedings do not form a separate category of judgment outside the common law rules.

Of interest to Canadian international lawyers, is the explicit rejection by the UK Supreme Court of the “real and substantial connection” test in the context of recognition and enforcement of foreign (default) judgments, in favour of the traditional “Dicey Rule”. The “Dicey Rule” basically reflects the concepts of presence-based and consent-based jurisdiction, but eschews assumed jurisdiction. In other words, a foreign judgment is only enforceable if the defendant was either present in the foreign country, attorned to the jurisdiction by voluntarily appearing in the proceedings, or submitted to the jurisdiction in an exclusive jurisdiction/forum selection clause: Rule 43 (Dicey, Morris and Collins, Conflict of Laws, 15th ed, 2012, para 14R-054) states:

Lord Collins (Lord Walker and Lord Sumption concurring) writes,

108. The principles in the Dicey Rule have never received the express approval of the House of Lords or the UK Supreme Court and the leading decisions remain Adams v Cape Industries plc [1990] Ch 433 and the  older Court of Appeal authorities which it re-states or re-interprets. But there can be  no doubt that the references by the House of Lords in the context of foreign judgments to the foreign court of “competent jurisdiction” are implicit references to the common law rule: eg In re Henderson, Nouvion v Freeman (1890) 15 App Cas 1, 8; Owens Bank Ltd v Bracco [1992] 2 AC 443, 484.

109. The  Rubin  respondents question whether the rules remain sound in the modern world. It is true that the common law rule was rejected in Canada, at first in the context of the inter-provincial recognition of judgments. The Supreme Court of Canada held that the English rules developed in the 19th century for the recognition and enforcement of judgments of foreign  countries could not be transposed to the enforcement of judgments from sister provinces in a single country with a common market and a single citizenship. Instead a judgment given against a person outside the jurisdiction should be recognised and enforced if the subject matter of the action had a real and substantial connection with the province in which the judgment was given: Morguard Investments Ltd v De Savoye [1990] 3 SCR 1077, para 45. This approach was applied, by a majority, to foreign country judgments in Beals v Saldanha [2003] 3 SCR 416 (applied to the recognition of an English order convening meetings  in a scheme of arrangement in  Re Cavell Insurance Co (2006) 269 DLR (4th) 679 (Ont CA)).

110. There is no support in England for such an approach except in the field of family law. In Indyka v Indyka [1969] 1 AC 33 it was held that a foreign decree of divorce would be recognised at common law if there was a “real and substantial connection” between the petitioner (or the respondent) and the country where the divorce was obtained. This rule (now superseded by the Family Law Act 1986) was in part devised to avoid “limping marriages”, ie cases where the parties were regarded as divorced in one country but regarded as married in another country. It has never been adopted outside the family law sphere  in the context of foreign judgments.

The Rubin v. Eurofinance decision represents a retrenchment of a traditionally restrictive approach to jurisdiction simpliciter. Notably, the UK Supreme Court does not refer to the recent decision of the Supreme Court of Canada in Club Resorts Ltd. v. Van Breda, 2012 SCC  17, but does expressly cite and decline to follow Beals v. Saldanha2003 SCC 72 (CanLII), [2003] 3 S.C.R. 416 (S.C.C.). It remains unclear how the “real and substantial connection” test for assumed jurisdiction, as clarified in Van Breda, applies to the recognition and enforcement of foreign judgments. Certainly, the Supreme Court of Canada in Beals v. Saldanha did not engage in any substantive analysis, since the defendants in Beals v. Saldanha had previously attorned to the Florida court (by filing an initial defence, but failing to deliver an amended pleading to the amended Complaint) thereby obviating the need to address assumed jurisdiction.

The UK Supreme Court decision raises the spectre of a conflicts of law in the conflict of laws: Canadian courts continue to liberally recognize and enforce foreign, including UK. judgments; favouring a universalist approach to comity and reciprocity, while the UK does not. The United Kingdom and Canada are literally and figuratively an ‘ocean apart” when it comes to recognition and enforcement of foreign judgments; given the incongruity between the UK and Canadian approaches to multi-jurisdictional insolvency proceedings. How a Canadian court will now approach assumed jurisdiction over a UK defendant when the UK courts have spurned the “real and substantial connection” test for assumed jurisdiction is anyone’s guess. Will it be “business as usual” or will Canadian courts take a hard, second look?

Notably,  the Reciprocal Enforcement of Judgements (U.K.) Act, R.S.O. 1990, c. R-6 (as am.) excludes judgments which determine bankruptcy, insolvency or the winding up of companies or other legal persons. See my previous post: Enforcing UK Judgments in Ontario.

Moreover, as recently noted by Dalphond J.A. of the Quebec Court of Appeal in Marciano (Séquestre de), 2012 QCCA 1881 (CanLII) (Q.C.C.A.):

[69]        Part XIII, Cross-Border Insolvenciesss. 267-284 of the BIA, added in 1997, specifically provides mechanisms for dealing with foreign bankruptcy judgments aiming amongst other things, at promoting cooperation between authorities and to protect the value of the debtors’ property (s. 267 BIA). For Part XIII to apply, “a debtor must have ‘property in Canada’; it is unnecessary for the debtor to be a Canadian resident” (Houlden, Morawetz and Sarra, supra, at p. 7-377). [emphasis added]

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One Response to “UK Supreme Court Rejects Supreme Court of Canada’s Jurisdictional Test for Enforcing Foreign Judgments”

  1. Report #2: Has UKSC ‘dissed’ the Supreme Court of Canada? « Charon QC's UK Law Tour Says:

    [...] Antonin Pribetic (The Trial warrior blog):  The UK Supreme Court has rejected outright the Supreme Court of Canada’s “real and substantial … [...]

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