HEADER: THIS DOES NOT NEED TO BE UPDATED HOW STRONG AND HOW LONG IS THE GOLDEN THREAD? Jurisdictional issues in a globalised world

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1 HOW STRONG AND HOW LONG IS THE GOLDEN THREAD? Jurisdictional issues in a globalised world Anthony Dessain and Michael Wilkins This article reviews an article entitled The Golden Thread: universalism and assistance in international insolvency by Michael Crystal QC which was published in this Review in in the light of a decision of the Supreme Court in Rubin v Eurofinance SA: New Cap Reinsurance Corporation Ltd. v Grant 2 on 24 October 2012 and a later High Court decision on 12 April 2013 in HSBC Bank v Tambrook Jersey Ltd 3, which was itself subject to successful appeal. Mr Crystal s article discussed the merits of universality, which aims to provide a single procedure for the collection of the assets of a debtor and their distribution to creditors, over territoriality in insolvency proceedings, and concluded that Jersey had adopted the principles of modified universalism, thus following the essence of the Golden Thread. The article highlights recent developments in relation to the Golden Thread to show that it has its limitations, and to consider how Jersey has adapted to modified universality in bankruptcy matters. Introduction 1 An important article entitled The Golden Thread: Universalism and Assistance in International Insolvency by Michael Crystal, QC published in this Review in 2011deserves re-examination in the light of the recent decision of the Supreme Court in Rubin v Eurofinance SA; New Cap Reinsurance Corporation Ltd v Grant (Rubin/New Cap) 4 on 24 October 2012 and a later English High Court decision on 12 April 2013 in HSBC Bank v Tambrook Jersey Ltd (Tambrook) 5, which was subject to successful appeal on 1 May Mr Crystal s article discussed the merits of universality, which aims to provide a single procedure for the collection of the assets of a debtor and their distribution to creditors, over territoriality in insolvency 1 (2011) 15 J&G Law Rev [2012] UKSC 46; [2013] AC 236 (Rubin/New Cap). 3 [2013] EWHC 866 (Ch); [2013] EWCA 576 (CA); [2013] WLR (D) [2012] UKSC 46, [2013] AC 236; [2012] 2 BCLC [2013] EWHC 866 (Ch).

2 proceedings. He traced the history, concluding that the English courts had adopted a modified universality approach by way of a consistent line traceable back to a case in 1764 called Solomons v Ross. 6 Universality tended to favour British (rather than foreign) creditors in the 18th and 19th centuries when there was large British imperial trade abroad. The principle of universality has encouraged assistance between the courts of different nations so as to reduce duplication of effort, expense and delay in the interests of creditors. Mr Crystal concluded that Jersey had adopted the principles of modified universalism and assistance in international insolvencies and therefore followed the essence of the Golden Thread. He was well able to do so having been involved in a number of insolvency cases involving Jersey. 7 3 This article seeks to highlight recent developments in relation to this Golden Thread to show that it has its limitations, and to consider in greater depth how Jersey has adapted to modified universality in bankruptcy matters. It also explores the likely effect of associated developments in Jersey law. 4 One salient historical feature impacting upon the development of the principle of universality in Jersey is that the Island had limited imperial trade: but of course it now has international financial centre business and many attendant conflict of laws issues to address. 5 The principal issue goes to whether foreign judgments must or should be recognised and, if recognised, be enforced in another jurisdiction. If so, the question then arises: on what basis and to what extent? Should a foreign judgment be recognised and enforced in a bankruptcy situation when it would not, without more, be enforceable in the absence of a bankruptcy? Or (to put it another way) can the principle of universality in bankruptcy matters apply to give direct cross-jurisdictional effect? 6 Universality is generally considered a good principle as opposed to territoriality where creditors in one jurisdiction are treated more favourably simply as a result of assets or situs of persons being in, or 6 (1764) 1 H Bl Re a Debtor (Order in Aid No. 1 of 1979) ex p Viscount of the Royal Court of Jersey [1981] Ch 384; Re Intersub Ltd JLR 202; Johnson Matthey Bankers Ltd v Shamji JLR N 26 (2 May 1986); Minories Finance Ltd v Arya Holdings Ltd 1994 JLR 149.

3 attributable to, that jurisdiction. The former requires a greater degree of mutuality to be engaged by the legislature or judiciary. 8 7 Rubin/New Cap is a decision that has caused surprise in certain quarters and placed a brake on the extent to which universality can apply. As will be seen, it also doubted a Privy Council case on appeal from the Isle of Man, Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc. 9 8 The main finding in Rubin/New Cap in the Supreme Court was that orders in insolvency matters are either in personam or in rem but not sui generis in terms of the private international law rules of insolvency. Accordingly, if followed in Jersey, it means that an order in an insolvency matter should be treated like any other civil or commercial order. But will it? It is instructive to look and see how Jersey has treated foreign orders in, for example, matrimonial proceedings in relation to Jersey law trusts. The interaction of Jersey law trusts and insolvency is topical and an evolving subject The above also needs to be seen in the context of the case of Tambrook. The judgment of Mann, J refers to Re HIH Casualty & General Insurance Ltd 11 where Lord Hoffmann spoke of the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the eighteenth century. 10 In Tambrook, the High Court of England and Wales refused an application under s 426 of the Insolvency Act 1986 (of the UK) for an order for English administration of Tambrook Jersey Ltd (a Jersey company) following a letter of request from the Royal Court of Jersey. The request was refused on the sole ground that s 426 did not provide sufficient jurisdiction to the High Court to assist the Royal Court. 11 This judgment has now been overturned on appeal to permit a broad interpretation so as to encourage co-operation between prescribed courts and these issues merit review. 8 For a Jersey view of universality and territoriality see Chapter 6 and Commentary 7 of Dessain and Wilkins Jersey Insolvency and Asset Tracking (2012, 4th ed). 9 [2006] UKPC 26, [2007] 1 AC 508 ( Cambridge Gas ). 10 See Birt, Trusts and divorce courts an offshore perspective (2009) 13 J&G Law Rev [2008] UKHL 21, [2008] 1 WLR 852 at para 30.

4 12 Accordingly, the Golden Thread will also be considered in the light of this judgment and its effect on the line of Jersey cases starting with Re O.T. Computers Ltd In the first part of this article, we will discuss the question which was before the Supreme Court; the judgments leading to review by that court; the decision itself; and two important cases leading to it which dealt with the Golden Thread and which were analysed by the Supreme Court. 14 In Part II we will consider whether the Rubin/New Cap principles are likely to be followed in Jersey. Part III will discuss the Jersey position generally. In Part IV we will consider how the elements of Jersey law with regard to insolvency, trusts and foreign orders and judgments now knit together. Part V highlights some limitations in Jersey law, and in Part VI we comment on the implications of Tambrook. Part VII sets out the main guiding principles from all that has been said before, and Part VIII discusses the effect of the recent cases on universalism and territoriality and how the Golden Thread has been affected. PART I The question in the Supreme Court in Rubin/New Cap 15 The Supreme Court s ruling involved two conjoined appeals. 13, The question in Rubin/New Cap was put in this way: There are two appeals before the court: Rubin v Eurofinance SA (Rubin) and New Cap Reinsurance Corporation Ltd v Grant (New Cap). These appeals raise an important and novel issue in international insolvency law. The issue is whether, and if so, in what circumstances, an order or judgment of a foreign court (on these appeals from 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 raise the question whether enforcement may be effected through the international assistance provisions of the UNCITRAL Model Law (implemented by the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) (the 2006 Regulations)), which applies generally, or the assistance January 2002, 2002 JLR N [10]. 13 Lords Walker, Mance, Sumption, and Collins JJSC concurred; Lord Clarke dissented.

5 provisions of s 426 of the Insolvency Act 1986, which applies to a limited number of countries, including Australia. 16 In both cases, if the party against whom a foreign judgment was made was not present (nor under the Foreign Judgments (Reciprocal Enforcement) Act 1933 ( the 1933 Act ) of the United Kingdom, resident) in the foreign country, nor had submitted to its jurisdiction, nor had put in an appearance, then could the foreign judgments or orders in foreign insolvency proceedings be recognised or enforced? Had the party involved been present (resident), submitted or put in an appearance in the proceedings, the foreign court would have had jurisdiction in personam to make an order. Alternatively were these insolvency proceedings sui generis in terms of the private international law rules relating to insolvency? Would such affect the outcome? Was the foreign order an order in rem and would that make a difference? These questions involve statute and also common law as stated by Dicey, Morris and Collins, Conflict of Laws. 14 In so far as relevant, Rule 43 states 15 A court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition as against the person against whom it was given in the following cases: First Case If the person against whom the judgment was given was, at the time the proceedings were instituted, present in the foreign country. Second Case If the person against whom the judgment was given was claimant, or counterclaimed, in the proceedings in the foreign court. Third Case If the person against whom the judgment was given submitted to the jurisdiction of that court by voluntarily appearing in the proceedings. Fourth Case If the person against whom the judgment was given had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country. 17 On the question of recognition and enforcement, the Supreme Court in Rubin/New Cap indicated it was a question of policy. The court said 14 Dicey, Morris and Collins, Conflict of Laws, 15th ed (2012). 15 Rule 43, para 14R-054.

6 91. The essential questions on this aspect of the appeals are these. Is the judgment in each case to be regarded as a judgment in personam within the scope of the traditional rules embodied in the Dicey Rule, or is it to be characterised as an insolvency order which is part of the bankruptcy proceedings, i.e. part of the collective proceeding to enforce rights and not to establish them? Is that a distinction which has a role to play? Is there a distinction between claims which are central to the purpose of the proceedings and claims which are incidental procedural matters? As a matter of policy, should the court, in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to liquidators, trustees in bankruptcy, receivers and other officeholders, than the traditional common law rule embodied in the Dicey Rule, or should it be left to legislation preceded by any necessary consultation? Rubin: Its facts, the High Court and Court of Appeal 18 The facts of Rubin v Eurofinance were that a BVI company created and funded an English trust with English trustees. The purpose of the trust was to provide funds for customers based in North America who purchased goods with a right to obtain back the purchase price after a period of time if they were able to satisfy some complex conditions. This fell foul of USA consumer legislation and subsequently a Chapter 11 bankruptcy in the USA applied. The trust was, as a matter of USA bankruptcy law, treated as a legal entity. Receivers were appointed in the UK. Judgment in the USA was granted in favour of the receivers against defendants in the UK who had been recipients of the antecedent transactions. The defendants had not submitted to the jurisdiction of the USA courts, nor were present there. 19 On 31 July 2009 (before Mr Crystal s article), the English High Court held that the Cross-Border Insolvency Regulations 2006 applying the UNCITRAL Model Law provisions meant the USA judgment would be recognised. It was further held, however, that at common law the USA order could not be enforced in England as it was a judgment in personam and did not satisfy the rules of private international law. This was despite the principle of universalism which leans towards the establishment of a uniform and fair system for distribution where there were, or are, assets in several jurisdictions. There could be no juridical effect upon third parties. 20 Bankruptcy rules in both the USA and UK allowed for actions to be brought against third parties.

7 21 On 30 July 2011 (after Mr Crystal s article), the Court of Appeal in Rubin allowed the appeal and stated that the ordinary rules for enforcing, or more precisely not enforcing, foreign judgments in personam do not apply to bankruptcy proceedings. Ward LJ continued There remains the question of enforcement of the judgments against the respondents. I accept the general principle of private international law that bankruptcy, whether personal or corporate, should be unitary and universal. There should be a unitary bankruptcy proceeding in the court of the bankrupt s domicile which receives world-wide recognition and it should apply universally to all the bankrupt s assets. That is the law stated in the Cambridge Gas and HIH Insurance and I would follow it. Add to that the further principle that recognition carries with it the active assistance of the court which should include assistance by doing whatever this Court could have done in the case of domestic insolvency. As Lord Hoffmann said in Cambridge Gas case, at [22]: The purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum. In my judgment that assistance extends to enforcing against the respondents the orders made by the New York court. Applying the common law, I would therefore allow the appeal. Having reached that conclusion, it is unnecessary to decide whether to co-operate with the New York Court by enforcing its judgment under the 2006 Regulations. What troubles me is that the specific forms of co-operation provided by Article 27 do not include enforcement. Indeed there is no mention anywhere of enforcement yet the Guidance clearly had it in mind. On the other hand co-operation to the maximum extent possible should surely include enforcement, especially since enforcement is available under the common law. I would prefer to express no concluded view about the point since it is unnecessary to my decision. I see no unfairness to the respondents in upholding the judgments of the New York court. The respondents were fully aware of the claims being brought against them. After taking advice they chose not to participate in the New York proceedings. They took their chance that it would be difficult to being

8 proceedings here, possibly because TCT as a trust is not amenable to winding up; possibly because the greater part of the transactions impugned in New York could not have been attacked here because the repugnant activity took place before 4 April 2006 when the Regulations came into effect. Whatever their reasons, they made an informed judgment. I have no sympathy for them when it transpires that they were wrong. In the result I would allow the appeal and dismiss the crossappeal. Wilson, LJ and Henderson, J agreed. New Cap: Its facts, the High Court and Court of Appeal 22 In New Cap Reinsurance Corporation Ltd v Grant, 16 New Cap was an Australian reinsurer in insolvent liquidation in Australia. Grant were the members of a Lloyds Syndicate based in London with contracts with New Cap subject to English law and English dispute resolution. The liquidator sought to claim that two payments made to Grant were a preference and therefore voidable. The Australian court confirmed that this was so. 23 The defendants did not enter into an appearance and did not submit to the Australian jurisdiction although they did send in written submissions. The Australian judge found the 1933 Act did not apply and sought assistance under s 426 of the Insolvency Act 1986 seeking payments or leave to sue in England. 24 On 15 March 2011, the English High Court held that the 1933 Act could not apply to this preference claim as it was a bankruptcy matter. Section 426 relief was granted on the basis that the respondent had voted on certain matters and had submitted a proof of debt in the liquidation. 25 On 9 August 2011, the Court of Appeal in New Cap (and so after the Court of Appeal judgment in Rubin and after Mr Crystal s article) held the 1933 Act could apply to money judgments made by a recognised court (such as an Australian court) even if it was made in insolvency proceedings and was of a kind that can only be made in such proceedings (such as a preference). Section 426 can extend to providing assistance by way of enforcement of a foreign judgment made in insolvency proceedings. At common law the liquidator could not recover the sums under the foreign judgment. As a result of Rubin 16 [2011] EWCA Civ 971, [2012] Ch 538.

9 (at Court of Appeal level) there could not have been grounds to set the registration aside. HIH 26 Before turning to the Supreme Court s decision in Rubin/New Cap a word about Re HIH Casualty & General Insurance Ltd. 27 Four insurance companies which were incorporated and managed in Australia carried on business principally in Australia, but were also authorised to do so in the UK. There were assets in Australia and England. Provisional liquidators were appointed in Australia. A letter of request was granted appointing joint provisional liquidators in England and a second letter of request was sent asking those liquidators to transfer the English assets to Australia. Both at the trial and on appeal the second request was refused as Australian rules gave greater preference to insurance creditors rather than ordinary creditors including some in the UK. 28 It was held by the House of Lords that under s 426 of the Insolvency Act 1986 the English Court could make an order to remit the funds to Australia. The court also exercised its discretion to do so as the difference between the English and Australian preference rules (which were not discriminating or unfair) was insufficient to refuse the request. Cambridge Gas 29 In Cambridge Gas European investors in a shipping business borrowed $300m in New York to purchase five gas transport vehicles. The investors later became insolvent and applied for Chapter 11 protection in the USA. The USA courts approved and ordered a plan for reorganisation. The vessels were owned by Isle of Man companies, which were owned by a Cayman company. The USA court sent a letter of request to the Manx court for assistance in giving effect to the plan. The creditors asked for a transfer of shares in accordance with the plan. The Cayman company objected and said it had not been party to the USA proceedings and accordingly it had never submitted to the jurisdiction of the USA court and it could not affect rights of property in the Isle of Man. The trial judge held that it was a judgment in rem and the USA judgment purported to affect title outside the USA. The Manx Court of Appeal decided it was a judgment in personam. 30 The Privy Council determined It was neither a judgment in rem nor in personam, and private international law rules on recognition and enforcement did not apply.

10 Bankruptcy rules did not establish the existence of rights but provided a mechanism for collective execution against the debtor s property by creditors whose claims were admitted. Fairness between creditors required bankruptcy proceedings to have universal application by recognising the foreign office holder. It was right to recognize and give effect to the plan as ordered. 31 Lord Hoffmann said 17 If the New York order and plan had to be classified as falling within one category or the other, the appeal would have to be allowed. But their Lordships consider that bankruptcy proceedings do not fall into either category. Judgments in rem and in personam are judicial determinations of the existence of rights: in the one case, rights over property and in the other, rights against a person. When a judgment in rem or in personam is recognised by a foreign court, it is accepted as establishing the right which it purports to have determined, without further inquiry into the grounds upon which it did so. The judgment itself is treated as the source of the right. The purpose of bankruptcy proceedings, on the other hand, is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established.... The important point is that bankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them. Of course, as Brightman LJ pointed out in In re Lines Bros Ltd [1983] Ch 1, 20, it may incidentally be necessary in the course of bankruptcy proceedings to establish rights which are challenged: proofs of debt may be rejected; or there may be a dispute over whether or not a particular item of property belonged to the debtor and is available for distribution. There are procedures by which these questions may be tried summarily within the bankruptcy proceedings or directed to be determined by ordinary action. But these again are incidental procedural matters and not central to the purpose of the proceedings. Rubin/New Cap in the Supreme Court 17 Para 13 et seq.

11 32 Drawing all these threads together, the Supreme Court heard the appeal in Rubin and in New Cap. The speeches were delivered on 24 October It was held (Lord Clarke dissenting) that 18 A default judgment in foreign insolvency proceedings setting aside a transaction relating to assets transferred prior to the insolvency, on the grounds that the transaction was a voidable preference or was at an undervalue, was to be treated in the same way and subject to the same common law rules as any other foreign in personam judgment for the purposes of recognition and enforcement in England and Wales. That meant the judgment was not enforceable against the defendant unless he was present in the foreign country at the time of the proceedings or submitted to the jurisdiction of the foreign court. Judgments in cross-border insolvency proceedings did not form a separate category of insolvency judgments for the purpose of recognition and enforcement in England and Wales, since there was no difference in principle between a foreign judgment against a debtor on a debt due to a company in liquidation and a foreign judgment against a creditor for repayment of a preferential payment. Accordingly, the rules regarding the collective enforcement of, and collection of assets in, cross-border insolvency proceedings under the doctrine of modified universalism did not apply to the enforcement of foreign insolvency judgments. Cambridge Gas Transport Corporation v Navigator Holdings plc Creditors Committee [2006] UKPC 26, [2007] 2 BCLC 141 doubted and not followed. Re HIH Casualty and General Insurance Ltd [2012] 2 BCLC 655 considered. 33 The result was therefore that in Rubin there was no enforcement, as the defendants had not been sufficiently involved in the USA action, whereas in New Cap there was enforcement as the defendants had taken part in the bankruptcy process by filing proofs of debt and participating in creditors meetings (even though not in the proceedings in question themselves). The main finding 34 The majority found that the status of recognition and enforcement of a foreign judgment under common law applies whether there is a foreign insolvency or not. As Dicey s Rule 43 states, judgments or orders can be in personam or in rem, but are not sui generis in terms of the private international law rules relating to insolvency. As stated 18 [2012] 2 BCLC 682.

12 by Dicey, to enforce a foreign judgment it is necessary to show the judgment debtor (a) was present in the foreign jurisdiction at the time the proceedings were instituted; (b) was the claimant or counter claimant in the foreign proceedings; (c) had submitted to the foreign proceedings by voluntarily appearing; (d) had submitted to the foreign proceedings by agreement. The main issues 35 A number of issues were identified. These issues and the answers given were as follows. 1. What is the extent of recognition and enforcement of foreign judgments in insolvency proceedings? (a) The reasoning of the Court of Appeal in Rubin 36 The Court of Appeal erred in its conclusions that the judgment was in personam but the Dicey Rule did not apply to foreign judgments in avoidance proceedings because they were central to the collective enforcement regime in insolvency and governed by special rules which was derived from the dicta in Lord Hoffmann s brilliantly expressed opinion in Cambridge Gas and equally brilliant speech in Re HIH. However, Lord Collins said that avoidance proceedings are distinguished from ordinary claims such as in contract and tort and that it would not be hard to distinguish between insolvency and ordinary orders. Cambridge Gas was wrongly decided and the USA order was not within the USA courts in rem jurisdiction and so there was no basis for recognition. There had been no submission to the jurisdiction of the New York court and the Cambridge Gas company was not subject to the personal jurisdiction of the USA court. (b) The nature of avoidance proceedings 37 The nature of avoidance proceedings in insolvency matters is to recover previous dispositions of property in order to achieve equality amongst creditors and to achieve what the position would have been had there been no transaction at an undervalue or no unlawful preference. The same applies in England as in Australia. (c) The difference between insolvency claims and others: the Insolvency Act 1986 in the New Cap case

13 38 It would not be difficult to distinguish bankruptcy claims such as those based on avoidance provisions and other claims. (d) Whether the foreign orders were in personam or sui generis 39 The order of the USA court in Cambridge Gas was not an in personam order. It is not easy to see why it was not an order in rem in that it purported to determine the status of a thing and to bind the world. In Rubin/New Cap the judgments were based on avoidance legislation. The Court of Appeal characterised the order as in personam and the respondents had not argued otherwise only that sui generis category of insolvency orders are subject to special rules. 2. Could there be enforcement under the Cross-Border Insolvency Regulations 1986 (of the UK) in the Rubin case? 40 In relation to Rubin, the UNCITRAL Model Law does not say anything about enforcement of foreign judgments. It would be surprising if it was incorporated by implication. 3. Could there be enforcement through assistance under s 426 of the Insolvency Act 1986 in the New Cap case? 41 There is no suggestion that s 426 applies to foreign judgments. 4. Did the judgment debtor submit to the jurisdiction of the foreign court in both cases? 42 Dicey s Rule applies as supported by Adams v Cape Indus PLC 19. For the purposes of enforcement, English law applies to the question of submission to a foreign court. In New Cap, the syndicate voted in and made claims in the Australian bankruptcy. In Rubin the defendant did not appear for any purposes in the USA Chapter 11 proceedings. 43 Had the syndicate, having voted in and made claims in the Australian bankruptcy, effectively submitted to the jurisdiction of the Australian court and thereby exposed itself to enforcement under the common law or the 1933 statute? The Supreme Court held that the 1933 Act applies to civil and commercial matters which would include insolvency matters. So, by participating in the Australian bankruptcy process, the defendants had submitted to the jurisdiction. 5. In the New Cap case could there be enforcement under the English common law or under the 1933 Act? 19 [1990] Ch 433 at 499

14 44 As the judgments are in personam, they are subject to the Dicey Rule unless there is a special rule. There have been no cases other than Cambridge Gas suggesting a separate rule for judgments in personam in insolvency matters. There is no suggestion the Dicey Rules should be abandoned and the respondents accept such Rule can apply to an officer holder in an insolvency in contract or tort or to recover debts. Such claims can affect the size of an estate and sometimes more than avoidance actions. There is no difference in principle. 45 It is a question of principle. Should there be a different rule for avoidance judgments in the interests of universality? The answer is in the negative, for the following reasons: (a) (b) (c) there is no difference in principle; two sets of rules would be needed; the dicta in Cambridge Gas and HIH do not justify the result which the Court of Appeal reached. It departed from settled law. There is no expectation of reciprocity by foreign courts. 46 The Supreme Court made two further observations. The courts should not make orders that have all the hallmarks of legislation. If a (the) rule should be changed, it should be changed by Parliament. Secondly, the introduction of judge-made law in this arena would act to the detriment of UK businesses generally from a commercial point of view. 47 The majority held that Cambridge Gas was wrongly decided as the defendant was not subject to the personal jurisdiction of the USA courts nor were the Isle of Man shares subject to the jurisdiction of the USA courts. 48 Lord Mance distinguished Cambridge Gas on the basis it related to ownership of shares and not a claim. He left open whether Cambridge Gas was wrongly decided. 49 Lord Clarke dissented from the majority view. Discussion of Rubin/New Cap/Cambridge Gas 50 The Supreme Court was not prepared to displace settled law by engaging the principle of universalism. That would in effect be to legislate and to put UK business at greater risk of foreign courts which would not necessarily act reciprocally. The brilliant words of Lord Hoffmann in HIH and Cambridge Gas were obiter dicta and not applicable to the facts of Rubin or of New Cap. 51 As Lord Hoffmann said in Cambridge Gas, Universality of bankruptcy has long been an aspiration, if not always fully achieved, of

15 United Kingdom Law. 20 It is simply that an underlying principle or thread of law is not the law itself. It is the law itself that judges must apply. 52 There has been speculation as to whether Rubin would have been decided differently had Lord Collins not sat, as of course he is one of the learned editors of Dicey Morris and Collins. 53 At para 91 the Supreme Court concluded that legislation was needed to change the traditional common law rule. This rule, that orders in personam made by foreign courts, cannot affect individuals extra-territorially if they were not present or did not submit to the jurisdiction, gives a measure of personal protection to one s own citizens and advantage in commercial terms in the context of an empire. However, it is suggested that it would have been possible to maintain the rule as it stands namely, for it to continue to relate to in personam orders but, at the same time as Lord Hoffmann had concluded, for the Supreme Court to have found that insolvency is not in personam nor in rem but is sui generis, i.e. in a class of its own. See Arya Holdings Ltd v Minories Finance Ltd 21. This would have left the common law rule intact but permitted greater recognition and enforcement in insolvency proceedings than in general non-insolvency in personam civil proceedings. The distinction would rest on Lord Hoffmann s analysis of the difference between insolvency and general civil proceedings as set out in Cambridge Gas. It would also have meant the Supreme Court, made up from a similar panel of judges as the Privy Council, would not have needed to declare (by majority) that Cambridge Gas had been wrongly decided. This would also be consistent with the terms of the 1933 Act where in personam matters are stated not to apply to bankruptcy issues, as discussed below. 54 In some ways this latest decision might be regarded as a lost opportunity, especially where anti-abuse provisions exist such as for setting aside transactions at an undervalue or preferences, as was the case in Rubin/New Cap, or undue influence, fraud, etc. are matters arising. These are not money sums capable of reciprocal enforcement but relate to orders made by courts having conduct of bankruptcy cases and which are at the centre of the resolution process. To the extent they required a person to pay or pay back a sum of money, these orders have an in personam nature. The orders are however based on statutes subject to insolvency procedures and not general civil proceedings. To that extent they do perhaps arise sui generis. 20 [2006] UKPC 26 at para JLR 176 (C.A.)

16 55 Rubin/New Cap have since been considered. In Picard v Primeo Fund (in Liquidation), 22 Cayman Grand Court judgment dated 14 January 2013, the court determined a foreign office holder of a foreign company could not apply certain US statutory transaction avoidance provisions, nor was there any power under a Cayman statute designed to give assistance to foreign insolvency officers, but as a matter of common law, the transaction avoidance provisions applying to Cayman domestic insolvencies could be used. The decision in Rubin that Cambridge Gas had been wrongly decided applied only to the enforcement of foreign judgments and did not disturb the principle that recognition under Cayman law carries with it the active assistance of the court. The court did however indicate this would only apply to Cayman statutory powers and only if the court had jurisdiction to wind up the company. 56 In re Saad Invs Co Ltd and Singularis Holdings Ltd, 23 two applications in the Bermudan Supreme Court by liquidators of two unrelated Cayman companies sought production of documents and examination. The court held that in the case of Saad, disclosure would be ordered under the Companies Law as a matter of statute and, in the case of Singularis, also ordered disclosure by applying common law rules, permitting what local law, including statute law, would allow. The court said Lord Hoffmann s exposition on the breadth and flexibility of the common law judicial assistance jurisdiction in Cambridge Gas as applied to the specific context of the recognition of winding-up orders made in and liquidators appointed in insolvent companies place of incorporation, has not been diminished in any way by the United Kingdom Supreme Court majority s recent holding in Rubin that Cambridge Gas was wrongly decided ;... the parameters of common law assistance which can be provided appear to be demarcated most conservatively by the inherent jurisdiction of the Court and the extent of common law or equitable powers which may be deployed under the general law of Bermuda without recourse to statutes of particular application such as the Companies Act However, what could be done in a local liquidation will generally delineate the course of the common law assistance journey ;... alternatively, and at first blush far more radically, the scope of assistance which can be provided at common law is delineated (1) CILR [2013] SC Bda 28 Com.

17 by both the general law (including the Court s inherent powers) and the statutory insolvency regime which would apply in a local primary or ancillary liquidation. This is, ultimately, my preferred jurisdictional basis for the assistance granted. Although this conclusion seems less straightforward to justify, it appears to be supported by Lord Hoffman s landmark dictum in the Cambridge Gas case which broadly approved the Transvaal Supreme Court decision in Re African Farms Ltd [1906] Transvaal Law Reports 373. This proposition has been positively and most explicitly affirmed in the two most recent cases to consider this topic, Frank Schmitt v Hennin Deichman [2012] EWCH 62 (Ch); [2013] Ch 61 (Proudman J) and Picard (as Trustee for the liquidation of the Business of Bernard L. Madoff Investment Securities LLC) et al v Primeo Fund (In Official Liquidation), Cayman Grand Court FSD 275 of 2010, Judgment dated January 14, 2013 (Andrew Jones J). 57 These cases highlight the distinction between automatically enforcing a judgment or applying foreign insolvency avoidance procedures and applying the local law of the land. 58 Prior to Rubin/New Cap, the High Court of England and Wales in Frank Schmitt v Henning Deichmann 24 had confirmed that courts have an inherent common law jurisdiction to permit the statutory power under the English Insolvency Act 1986 to be applied to foreign insolvency administrators not falling within the express scope of the Act. PART II: Will Rubin/New Cap be followed in Jersey? 59 Is Rubin/New Cap consistent with Jersey law? To the extent that Rubin/New Cap is based on common law, it will have persuasive effect in Jersey unless found to be inappropriate to adopt it. Whilst a particular case may have fact specific features generally, in our view, the Royal Court would follow Rubin/New Cap in principle. Of course, the Royal Court could prefer Cambridge Gas or could follow a path of its own as it has done from time to time, for example in relation to tracing There are a number of reasons why it might be followed. 1. It is a decision of the Supreme Court. 24 [2012] EWHC 62 (Ch). 25 Re Esteem Settlement 2002 JLR 53.

18 2. There are areas of commonality with Rubin/New Cap and Jersey law. The Jersey law principles regarding the recognition of judgments and the reciprocal enforcement of judgments are closely aligned, both in statute and at common law. 3. Common law conflict of laws principles play an important role and they, too, are similar in Jersey and England. 4. Although Jersey has a different bankruptcy regime from England, the purpose of the two sets of procedures is similar The similarities of s 426 of the Insolvency Act 1986 and Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 ( the Désastre Law ). 6. The relevance of Dicey Rule 42 as applied in Rubin also applies to English matrimonial ancillary orders affecting Jersey residents and Jersey proper law trusts. 1. It is a decision of the Supreme Court 61 Both Privy Council cases on appeal from other jurisdictions and Supreme Court cases may well be persuasive depending on their relevance. Which view will the Royal Court prefer? In our view, the Supreme Court decision is more likely to be followed as it is the latest English authority on the subject and it examines the earlier cases. It also found Lord Hoffmann s judgment in Cambridge Gas to be obiter and never previously expressed. 62 Had Rubin not been heard by the Supreme Court, Cambridge Gas would have been highly persuasive and a different decision might well be made by the Royal Court. Having regard to the various different decisions by different courts, many issues were finely balanced. The facts in Cambridge Gas were very different from those in Rubin/New Cap. In Cambridge Gas, a USA Scheme had been proposed and ordered. Recognition was required which affected parties overseas in the interests of creditors. In Rubin/New Cap the USA and Australian courts had set aside transactions under their respective bankruptcy regimes. This gave rise to claims in personam for money sums. Nevertheless, the pressure from insolvency practitioners is likely to continue. See Picard v Primeo Fund (in Official Liquidation) There are areas of commonality with Rubin/New Cap and Jersey law 26 Re a Debtor (Order in Aid No.1 of 1979), ex p Viscount of the Royal Court of Jersey [1981] Ch Cayman Islands, 14 January 2013, unreported.

19 63 First, the Judgments (Reciprocal Enforcement) (Jersey) Law 1960 ( the 1960 Law ) is based upon the 1933 Act of the United Kingdom. The former embody regulations for mutual enforcement of judgments of prescribed foreign courts Secondly, Jersey law includes statutory foreign assistance provisions in insolvency matters. Article 49 of the Désastre Law is similar to s 426 of the Insolvency Act art 49 of the Désastre Law applies to requests from courts of prescribed countries Thirdly, art 49(1) permits the Jersey court, when considering a request for assistance, to have regard to the provisions for the time being of any model law on cross border insolvency prepared by the United Nations Commission on International Trade Law ( UNCITRAL Model Law ). Accordingly, where art 49 of the Désastre Law can be applied, the Jersey court may derive similar authority to that derived from the 2006 English Regulations implementing the UNCITRAL Model Law in England. Such authority in Jersey will involve an exercise of judicial discretion rather than the application of the fixed Regulations implementing the UNCITRAL Model Law. 66 Fourthly, the common law still applies both in England and Jersey to the reciprocal enforcement of certain foreign judgments or orders and to the giving of assistance to other courts in bankruptcy. 3. Common law conflict of laws principles are similar in Jersey and England 67 It is clear that Dicey s Rule 43 was key. Jersey courts will customarily in matters of conflict of laws refer to Dicey for guidance. 68 In Brunei Investment Agency & Bandone SDN BHD v Fidelis Nominees Ltd 30 the Royal Court said 31 In relation to private international law, the Jersey courts have consistently had regard to English common law (see The Origin & Development of Jersey Law: An Outline Guide by Stéphanie Nicolle, para 15.33, 2005 ed.) and in particular to the rules in 28 England and Wales: Supreme Court, the House of Lords, the Court of Appeal; Scotland: Supreme Court, House of Lords, Court of Session and the Sheriff Courts; Northern Ireland: Supreme Court, House of Lords, the Court of Judicature; Guernsey: The Court of Appeal and Royal Court. 29 Viz. Australia, Finland, Guernsey, the Isle of Man, the United Kingdom JLR At para 15.

20 Dicey. For recent examples see Ball v. King [2006] JRC 171, at para. 27 and In re IMK Family Trust 2008 JLR 250, at para Although Brunei Investment Agency did not (as in Rubin) apply Dicey s Rule 43 of the 15th ed (numbered Rule 36 at the time of the Brunei case), it adopted Rules 34 and 35 (now numbered Rules 41 and 42) which connect with Rule 43. There is therefore no reason why Rule 43 should not apply in Jersey. 4. The purposes of Jersey and English bankruptcy are similar 70 Désastre was described 32 as a declaration of bankruptcy, the effect of which is to deprive an insolvent debtor of the possession of his movable [and since 1991 immovable] estate and to vest that possession in Her Majesty s Viscount whose duty it is to get in and liquidate that estate for the benefit of the creditors who prove their claims. The same can be applied to a creditors winding up as the rules are similar save that it is the liquidator who has authority over the estate in place of possession of it being placed in the hands of the Viscount. The English court recognised désastre as a form of bankruptcy in the hotly-contested case of Re a Debtor (Order in Aid No. 1 of 1979) ex p Viscount of the Royal Court of Jersey Although Cambridge Gas was disapproved by a majority in Rubin/New Cap, it is nevertheless suggested that the Privy Council s decision would nevertheless stand insofar as it stated that bankruptcy provided a mechanism of collective execution against the property of the debtor by creditors whose claims are admitted. Those words are similar to those in Re Overseas Insurance Brokers Ltd. 5. New Cap and s 426 and art 49 similarities 72 The New Cap case (but not Rubin) involved aspects relating to s 426 of the Insolvency Act 1986 which for these purposes, as we have said, is a mirror image of art 49 of the Désastre Law. New Cap involved Australia, Rubin the USA. Australia (and not the USA) is a prescribed country in England. England and Australia are prescribed countries under art 49. What is therefore said in Rubin/New Cap about s 426 can be applied by the Royal Court in respect of art In particular, it is interesting to note the interaction with the 1960 Law. (This, as noted, is a further mirror image law between Jersey and 32 Re Overseas Insurance Brokers Ltd, Re Désastre 1966 JJ 547, at [1981] Ch 384.

21 England and Australia and England but not Australia and Jersey). In particular, it is interesting that the Australian court decided that the Australian Reciprocal Enforcement Law could not be used in insolvency matters as insolvency matters were not civil or commercial matters. In England, the High Court, the Court of Appeal and the Supreme Court all considered insolvency matters to be civil or commercial matters. This has not been decided by the Royal Court but there seems no reason in principle for arguing to the contrary. To that extent, this provides a further reason for accepting this part of the judgment in Rubin/New Cap. 6. Foreign orders are subject to Jersey judicial control 74 An additional reason for accepting the findings in Rubin/New Cap is that Dicey s Rule 42 and its associated Rules as applied in Rubin/New Cap have been considered in a number of cases involving recognition and enforcement or non-enforcement in Jersey of English orders concerning ancillaries to matrimonial cases. These are referred to in more detail below. However, as will be seen, the decision in Rubin/New Cap appears consistent in many ways with the treatment of those matrimonial and trust related Jersey cases. They involve Rule 42 and its associated rules and the effect of submission of the trustees to the English or foreign courts. Again Rubin/New Cap appears consistent with those Jersey cases. PART III: Discussion on the Jersey position generally 75 Rubin clearly shows that there will not be automatic recognition and enforcement of all judgments in insolvency matters even if the procedures have as their main purpose the collection and fair distribution of assets to creditors. There are statutory and common law gateways, rules and discretions of the home courts to deal with. 76 Given a general commonality of purpose in insolvency matters, comity and cross-border co-operation seem to us to be more evident in this arena than in the context of ordinary civil and commercial matters. This may be due to the fact that the interests of the general body of creditors is a key consideration in bankruptcy fora. Hence, the granting of recognition to foreign office-holders has long been a feature of such co-operation (see Morris v Oppenheim 34 ) along with the endorsement of external schemes of resolution and the passing over of assets for unified distribution. Assistance was given to the English provisional liquidator in Re Royco Investment Co Ltd. 35 In that case, an English 34 (1899) 220 Ex June 1989, unreported.

22 provisional liquidator of a Jersey company wished to repatriate assets situate in the USA. The USA courts needed to know that there was a bankruptcy in the place of incorporation and that there would be mutual cooperation between the USA and Jersey. After a Jersey désastre had been declared and the USA court had been satisfied on mutuality, the funds were sent to the Viscount in Jersey and later by the Viscount, with authority of the Royal Court, to the provisional liquidator in England. See In re Royco Inv Co Ltd. 36 In the Royco case, the original application was a direct application by an English provisional liquidator to declare a Jersey company en désastre in Jersey to obtain recognition in New York to retrieve funds that had been wrongly appropriated in an English fraud. The Jersey procedure could be used for this purpose even though there were no assets or creditors in Jersey. 77 When a foreign insolvency practitioner seeks relief from the Royal Court in Jersey, the application needs to be brought correctly in accordance with art 49 of the Désastre Law or the common law and Practice Directions laid down by the court. An application for assistance should not be brought to the court until the applicant has consulted the Viscount s Department to ensure the order sought, while seeking to achieve the objects of the letter of request, is drawn in terms suited to the Island s domestic law. 37 If a statutory gateway for assistance is appropriate, it should be used rather than relying on the common law and comity. 78 Where the correct approach is not used and an insolvency practitioner seeks to act with authority directly or indirectly based only on a foreign order, the Royal Court may impose terms and conditions to protect local creditors in circumstances where they may suffer. 38 There, authority to sell immovable assets in Jersey was granted conditionally upon the net proceeds of sale being remitted to the Viscount who was authorized to advertise for creditors and adjudicate on claims in respect of the Jersey business whether those creditors were in or out of the Island. While arguments relating to universality and territoriality were an issue, the court approved a compromise providing an acceptable dividend being paid to the unsecured creditors JLR 236, at Practice Direction RC 05/17 Applications for Aid in Bankruptcy and Insolvency matters. 38 See Re Woolworths plc (in administration, 2 March 2009, Acte of Court 2009/082.