06 Dec 2012
UK Supreme Court expands concept of submission to jurisdiction of foreign court in insolvency
A creditor with assets in England should refrain from involvement in a foreign insolvency proceeding if it is at risk of being sued in the foreign court.
We've previously discussed the significance of the UK Supreme Court's reinstatement of the requirement of international jurisdiction for the enforcement of foreign judgments in the field of insolvency. Of equal interest, as we foreshadowed, is the Court's expansion of the circumstances in which a creditor will be taken to have submitted to the jurisdiction of the foreign court conducting the insolvency proceeding. Creditors are most likely to escape that jurisdiction if they refrain from any involvement in the foreign insolvency.
Submission to a foreign court's jurisdiction
There were two proceedings: New Cap Reinsurance Corp (in liq) v A E Grant and Rubin v Eurofinance SA. In New Cap, the liquidator of an Australian company obtained a default money judgment from the New South Wales Supreme Court against the members of a Lloyd's Syndicate. The liquidator sought to enforce the judgment in England.
As the requirement of international jurisdiction was reinstated by the UK Supreme Court, the foreign judgment would only be enforceable if the defendant had submitted to the foreign court. Submission occurs where a defendant has taken a step in proceedings before the foreign court that is inconsistent with objecting to its jurisdiction. It is inferred from the facts by the court considering enforcement. It is relevant, but not conclusive, that the foreign court, under its legal system, would consider submission to be present or absent. It is likewise relevant, but not conclusive, that the court considering enforcement would have found submission under its own rules if it had heard the case for the first time.
In New Cap, the UK Supreme Court reached the momentous conclusion that the defendants had submitted to the jurisdiction of the NSW Supreme Court despite the defendants not having taken any steps in the litigation brought against them by the liquidator in the NSW Supreme Court. What proved to be critical was that the defendants had participated in the liquidation of the Australian company by lodging a proof of debt and attending and voting at creditors' meetings.
For the UK Supreme Court, this was enough (and it took only three paragraphs to reach this conclusion) to amount to submission to the jurisdiction of the NSW Supreme Court.
What does this mean for a creditor with assets in England?
The practical result is that a creditor with assets in England should refrain from involvement in a foreign insolvency proceeding if it is at risk of being sued in the foreign court. If a creditor makes a claim in the foreign liquidation, and the liquidator obtains a (default) judgment from the foreign court against the creditor, submission may be found and the judgment enforced in England.
If a creditor must make a claim, the proof of debt should expressly indicate that there is no submission to the foreign court for claims against the creditor. Such a disclaimer could, but may not necessarily, provide protection against submission.
What will Australian courts do?
The obvious question that arises is: will the Australian courts take the same approach? Should a creditor with assets in Australia refrain from making an unqualified claim in a foreign liquidation for fear of submitting to an adverse foreign judgment? Like the Supreme Court in New Cap, the Australian court is likely to look to the law of the foreign insolvency and its own law of insolvency to decide whether there has been submission to the foreign insolvency proceeding.
As a result, much may depend on the nature, and law, of the foreign insolvency proceeding. An Australian court may be influenced by the fact that an Australian company need not be wound up by a court. It can instead be subject to a voluntary winding up (where no Australian court is necessarily involved). In such a case, the lodgement of a proof of debt, including by a foreign creditor, is several steps removed from court action by the liquidator.
While the way in which these issues will play out in Australia is unclear, what can be said with certainty is that there remain features of international jurisdiction which appear to be unique to insolvency.
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