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Australia – UK Supreme Court Does U-Turn On Universalism.

29 October, 2012

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

Two lessons arise from Wednesday’s long awaited cross-border insolvency decision of the UK Supreme Court, the UK’s highest appellate court, in the jointly determined appeals in Grant v New Cap Re and Rubin v Eurofinance
 
Both cases arose out of default judgments for unfair preferences, the first obtained by Mr John Gibbons, the Australian liquidator of New Cap Re from the NSW Supreme Court, and the second issued by the US Bankruptcy Court. The UK Supreme Court had to decide whether these judgments would be enforced against the UK located defendants, even though they had not appeared to defend the proceedings in Australia and the US. Under traditional judgment enforcement principles, this meant that the judgments could not be enforced. 
 
In both cases, it was argued that these were insolvency judgments, rather than “ordinary” judgments, and the English Court should in consequence assist the Australian and US insolvency courts by enforcing them in England. The English Court of Appeal had, in both cases, accepted this argument, based primarily on the principles of “modified universalism” championed by Lord Hoffmann in his recent ground-breaking judgments in HIH and Cambridge Gas
 
In its decision issued on Wednesday, the UK Supreme Court split on the 
issue of enforcement, with the majority over-ruling the Cambridge Gas case, and holding in the Rubin appeal that enforcement would be refused as traditional rules applied even though these were insolvency judgments.
 
Importantly, in the New Cap Re case, the liquidator John Gibbons had a 
second basis for his enforcement argument, being that the Grant syndicate had in fact submitted to the jurisdiction of the Australian Court by filing proofs of debt in the liquidation, and attending creditor meetings. His argument was accepted by all 5 Judges, and the Australian preference judgment was enforced against the English Lloyds syndicate. 
 
Implications
 
The most obvious lesson from the case is that if you are a creditor of a 
foreign company in liquidation, think very carefully about participating in its liquidation. Think particularly carefully about filing a proof of debt seeking a dividend. Such action might implicitly expose you to having submitted to any legal proceedings the foreign liquidator may choose to bring against you in that foreign country, with an Australian Court enforcing here in Australia any judgment granted in that foreign proceeding.
 
Secondly, it is clear that the majority decision represents a retreat from the universalism championed in other recent English decisions of high authority. Cross-border judicial co-operation will now be more difficult to achieve. Preliquidation transactions with an international flavour may now be more difficult for a liquidator to chase, if the recipient is overseas and has no domestic assets. 
 
The decision is not, of course, binding in Australia, but will be highly 
persuasive. An Australian Court will nonetheless need to choose between this greatly reduced approach to international judicial co-operation, and the universalism inherent in the earlier Lord Hoffmann judgments in HIH and Cambridge Gas. 
 
HDY insolvency partner, John Martin, advised John Gibbons, the successful respondent in the UK Supreme Court appeal, engaging Mayer Brown (Devi Shah and Kristy Zander) to act in London. (John had also advised one of the successful co-appellants in the House of Lords appeal in the cross-border HIH case in 2007.)

 

 

For further information, please contact:

 

John Martin, Partner, Henry Davis York

john_martin@hdy.com.au

 

Scott Atkins, Partner, Henry Davis York

scott_atkins@hdy.com.au

 

Homegrown Dispute Resolution Law Firms – Australia

 

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