Cambridge Gas Resuscitated – Farewell Rubin and Singularis?
On September 19, 2018 UNCITRAL published the final text of its new Model Law on Recognition and Enforcement of Insolvency-Related Judgments.
The working group considered the arrested development of the concept of modified universalism following the UK Supreme Court (“UKSC”) judgments in Rubin v Eurofinance SA [2013] 1 AC 236 which overturned a previous decision of the Judicial Committee of the Privy Council (“JCPC”) in Cambridge Gas v Navigator Holdings on appeal from the Isle of Man.

Background

While the UKSC is the apex of the judicial hierarchy for the UK, it also sits as the ultimate court of appeal for a number of British Commonwealth countries, many in the Caribbean, but including the Isle of Man and the Channel Islands. In exercising its Commonwealth appeal jurisdiction it sits as the JCPC, but the justices are the same helping to ensure that Commonwealth jurisprudence is consistent among those countries and states for whom the JCPC and UKSC are the final destination for appeals.

Following Rubin (a case in which Chadbourne & Parke LLP, before its combination with Norton Rose Fulbright, acted for the Rubin Respondent parties in the UKSC and below) a number of JCPC judgments expressed concurring views with the majority in Rubin. At issue in the case was whether either the common law or the UNCITRAL Model Law as then enacted in the UK admitted of enforcement of foreign insolvency judgments in the absence of direct legislative authority enabling the court to assist in that way. If that was possible, then the quest for universalism among Commonwealth courts and elsewhere had been substantially achieved. It had not.

Universalism

Universalism assumes that one set insolvency proceeding will be universally recognised in jurisdictions in which the debtor has assets or its COMI. All the assets of estate will be administered by the court or the administrator in, and possibly also according to, the law of the place of the COMI, domicile or in some cases residence of the debtor. All creditors seeking to claim in the insolvent estate will submit claims to that court or administrator. When assets of debtor are located in other jurisdictions, the court has the power to apply for assistance from the courts of those countries.

Under modified universalism, there is a primary proceeding in the place of the debtor’s COMI with secondary or ancillary proceedings occurring in other jurisdictions where assets of the debtor are located. The secondary insolvency administrator assists the primary administrator collecting assets and making distributions to creditors.

Territoriality

The territorial approach assumes that each country will have exclusive jurisdiction over the insolvency of a particular debtor and that separate proceedings for each country under that countries’ laws will be undertaken. No recognition is given to proceedings in other jurisdictions.

The major drawback of territoriality is that separate insolvency proceedings are required in each jurisdiction where the debtor’s assets are located with the cost of such proceedings being borne ultimately by creditors. The incremental cost involved in multiple proceedings is redolent with inefficiency and duplication. Debtors and creditors can take advantage of time delays and differing laws concerning voidable transactions and preferred creditors to minimise any loss to them locally resulting from the debtor’s inability to meet its obligations.

The Cambridge conundrum

Cambridge Gas marked the zenith of development of the common law powers of the court to assist a foreign liquidation to the extent that it was authority that a domestic court had jurisdiction over the parties universally simply by virtue of its power to assist. Cambridge Gas was held by a majority of the Supreme Court to be wrong in Rubin. To the extent that the Cambridge Gas court held that the domestic court had a common law power to assist the foreign court by doing whatever it could have done in a domestic insolvency, its authority was apparently weakened by the absence of any explanation of where the common law emanated from.

The JCPC in Singularis Holdings v PricewaterhouseCoopers on appeal from Bermuda held it to be clear:

“that although statute law may influence the policy of the common law, it cannot be assumed, simply because there would be a statutory power to make a particular order in the case of domestic insolvency, that a similar power must exist at common law. So far as Cambridge Gas suggests otherwise, the [JCPC] is satisfied that it is wrong for reasons more fully explained in the advice proposed by Lord Collins. If there is a corresponding statutory power for domestic insolvencies there will usually be no objection on public policy grounds to the recognition of a similar common law power. But it cannot follow without more that there is such a power.”

Lord Collins was unequivocal.

“…in Rubin v Eurofinance SA the majority considered that a change in the law relating to foreign judgments to apply a different rule (removing the need for a jurisdictional basis [submission to the jurisdiction of the court seised of the issue]) in the context of insolvency was a matter for the legislature. Similarly members of the present Board [tribunal] have at various times made the same point in other contexts: Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415, para 83 (Lord Neuberger); Test Claimants in the FII Group Page 30 Litigation v Revenue and Customs Comrs [2012] UKSC 19, [2012] 2 AC 337, para 200 (Lord Sumption); Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 AC 383, para 174 (Lord Mance).” (emphasis added)

Expecting legislation in the UK on this narrow point is a forlorn hope, not least because the political agenda for at least 18 months, following the referendum to leave the EU, has been gripped by Brexit issues.

Lord Neuberger President of the UKSC has made it clear extra judicially at the International Insolvency Institute’s London Conference in June 2017

“…however, in highly technical fields, and where cross-border issues are involved, judicial development of the law presents obvious difficulties, when compared with domestic and cross-border law-making by governments and legislators. As I have explained earlier, I did not dissent in Singularis because I am a little Englander. Au contraire: I think that universalism is a noble aim, but I think it is normally better achieved by legislation and treaty-making.”

Cambridge judicially was dead in the water.

The response of UNCITRAL

Rising to this challenge after six years of heated debate and handwringing on the part of those practicing cross border insolvency regularly, UNCITRAL has now produced the Model Law on Recognition and Enforcement of Insolvency-Related Judgments citing its motivations thus:

“2. The work on this topic had its origin, in part, in certain judicial decisions [Rubin] that led to uncertainty concerning the ability of some courts, in the context of recognition proceedings under MLCBI, to recognize and enforce judgments given in the course of foreign insolvency proceedings, such as judgments issued in avoidance proceedings, on the basis that neither article 7 nor 21 of MLCBI explicitly provided the necessary authority. Moreover, there was a concern that decisions by foreign courts determining the lack of such explicit authority in MLCBI for recognition and enforcement of insolvency-related judgments might have been regarded as persuasive authority in those States with legislation based upon article 8 of MLCBI, which relates to international effect.

3. Those concerns about the application and interpretation of MLCBI together with the general absence of an applicable international convention or other regime to address the recognition and enforcement of insolvency-related judgments and the exclusion of judgments relating to insolvency matters from the instruments that do exist, led to the proposal to UNCITRAL in 2014 to develop a model law or model legislative provisions on the recognition and enforcement of insolvency-related judgments.”  (emphasis added)

The UNCITRAL Working Group hints strongly that it regarded decisions such as Rubin and Singularis as retrograde and has acted accordingly to provide guidance on enforcement of “insolvency related judgments”.

Such a judgment is defined as:

“…a judgment that:

a. Arises as a consequence of or is materially associated with an insolvency proceeding, whether or not that insolvency proceeding has closed; and

b. Was issued on or after the commencement of that insolvency proceeding; and (ii) Does not include a judgment commencing an insolvency proceeding.”

As with its Model Law on Cross Border Insolvency Proceedings, the new UNCITRAL proposal requires implementation by nations, it does not have any status unless so embraced and incorporated in accordance with a yet to be finalised Guide to enactment. Let’s hope the proposal is worth the wait.

There is plainly an expectation, at the UN at least, that over time the principles espoused happily in Cambridge and in Rubin (in the Court of Appeal) so wholeheartedly may yet see the light of day again.