2012 International Law Update, Volume 18, Number 4 (October - November - December)

2012 International Law Update, Volume 18, Number 4 (October - November - December)

Legal Analyses published by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com. 

ARBITRATION

In matter of first impression, Fifth Circuit sides with other Circuits in finding that a court may dismiss a petition to confirm a foreign arbitration award for lack of personal jurisdiction

In the following case, the U.S. Fifth Circuit decides, as a matter of first impression in that Circuit, whether a court may dismiss a petition to confirm a foreign arbitration award for lack of personal jurisdiction under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards [21 UST 2517; TIAS 6997; 330 UNTS 3 (in eff. for U.S. 12/29/70)] [herein generally referred to as the New York Convention].

In 2003, First Investment Corporation of the Marshall Islands (First Investment) entered into a series of shipbuilding contracts with two Chinese companies, Fujian Shipbuilding Industry Group Corp. (FSIGC) (state owned) and Fujian Mawei Shipbuilding Ltd. (Mawei) (private company with FSIGC as a majority shareholder) (collectively the “Fujian Entities”). The relationship soured soon, and First Investment claimed that the Fujian Entities refused to honor an option agreement.

First Investment requested arbitration pursuant to the contractual arbitration clause in May 2004, and an arbitration panel was established in June 2004 pursuant to the rules of the London Maritime Arbitration Association. First Investment appointed Bruce Harris to the panel, the Fujian Entities appointed Wang Sheng Chang. Harris and Wang then selected Professor Martin Hunter as the third arbitrator.

At the end of the arbitration in September 2005, the arbitrators prepared a draft award in First Investment’s favor. In February 2006, Wang sent comments and a dissent. In March 2006, Hunter sent a second draft to which Wang never responded because he had been arrested by Chinese police on charges of bribery and secret sales of state‑owned assets. Hunter and Harris issued the award and attached Wang’s dissent. The award granted First Investment about $26 million in damages.

First Investment’s attempts to enforce the arbitration award in China were unsuccessful. The Xiamen Maritime Court in Fujian Province allegedly barred First Investment’s counsel from attending a court hearing, and assigned a court interpreter with very limited experience. The Chinese Consulates in London and Athens allegedly refused to authenticate necessary documents. In May 2008, the Chinese court denied the enforcement of the arbitration award because the panel’s third arbitrator did not approve the final draft of the award.

In 2009, First Investment filed its second enforcement case, this time in the U.S. District Court for the Eastern District of Louisiana, naming the Fujian Entities and the People’s Republic of China (PRC) as Respondents. After an initial default judgment, the District Court vacated the default and granted the Fujian Entities motion to dismiss for lack of personal jurisdiction. The District Court also dismissed First Investment’s petition against the PRC for lack of subject matter jurisdiction. First Investment appealed.

The U.S. Court of Appeals for the Fifth Circuit affirms. It rules that the district court had properly dismissed the petition for lack of personal jurisdiction. The PRC was properly dismissed for lack of subject matter jurisdiction.

The Court first reviews the District Court’s dismissal of the Fujian Entities for lack of personal jurisdiction, addressing First Investment’s three sub‑arguments. “¼ First Investment argues that the Fujian Entities, as foreign entities with no contacts in the United States, were not entitled to the protections of the Fifth Amendment’s Due Process Clause. First Investment further asserts that personal jurisdiction is not a valid defense under the New York Convention. Finally, First Investment argues that, because the Fujian Entities were alter egos of the PRC, a foreign state over which U.S. Courts did not have to have personal jurisdiction the district court had erred in dismissing the Fujian Entities. [¼].”

“First Investment argues that foreign entities that are neither present nor have property in the United States are not entitled to due process protections. We find no support for this proposition in current caselaw. The decisions First Investment relies on are clarified by later circuit decisions or are superseded by the U.S. Supreme Court’s recent decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011).” [¼]

“The Goodyear Court addressed whether ‘foreign subsidiaries of a United States parent corporation [are] amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum State[.]’ 131 S. Ct. at 2850. The Court held that because the district court lacked both specific and general jurisdiction, the court could not exercise personal jurisdiction over the subsidiaries. Id. at 2851. By engaging in a minimum contacts analysis where the foreign entities were not registered in the forum state, did not solicit business there, and did not design, manufacture, or advertise products in the forum state, the Court made clear that such foreign corporations could avail themselves of the protections of the Due Process Clause. Id. at 2852‑54 ¼”

“Thus, there is no basis to conclude that a party’s status as a foreign entity permits a court to ignore personal jurisdiction or exercise such jurisdiction without first establishing sufficient contacts between the defendant and the forum state.” [Slip op. 5‑7]

The Court then addresses the issue of first impression, whether a court may dismiss a petition to confirm a foreign arbitration award for lack of personal jurisdiction. “First Investment next argues that a party against whom confirmation of a foreign arbitral award is sought under the New York Convention cannot raise a personal jurisdiction defense. First Investment points out that the New York Convention expressly provides for seven grounds on which confirmation may be denied and that personal jurisdiction is not among the listed grounds. First Investment further observes that an action to confirm an award under the New York Convention is a summary proceeding that does not impact a defending party’s rights and thus it is unnecessary for a court to have personal jurisdiction.”

“We have previously declined to rule on whether dismissal of a confirmation action would be proper on personal jurisdiction grounds. Gulf Petro Trading Co. v. Nigerian Nat’l Petrol. Corp., 512 F.3d 742, 753 (5th Cir. 2008) (King, J.). With the question squarely before us, we hold, in accordance with the decision of every circuit to have considered this issue, that dismissal of a petition under the New York Convention for lack of personal jurisdiction is appropriate as a matter of constitutional due process.”

“‘The New York Convention provides a carefully structured framework for the review and enforcement of international arbitral awards.’ ¼. The New York Convention creates two different review regimes for arbitral awards depending on whether a recognition or enforcement action is brought in the country in which, or under the law of which, the award was made or in another country. Gulf Petro Trading Co., 512 F.3d at 746. The first is deemed to have ‘primary jurisdiction over the award,’ whereas the second has ‘secondary jurisdiction.’ Id. ¼ A court of primary jurisdiction is ‘free to set aside or modify an award in accordance with [the country’s] domestic arbitral law and its full panoply of express and implied grounds for relief.’ Id. ¼”

“For courts with secondary jurisdiction ‘Article V [of the New York Convention] enumerates the [seven] exclusive grounds on which a court . . . may refuse recognition and enforcement of an award.’ Id. at 747. Upon a motion to confirm an arbitral award under the New York Convention, a court ‘shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.’ 9 U.S.C. § 207.” [Slip op. 8‑9] (footnote omitted)

“Personal jurisdiction is not listed as a ground on which confirmation may be denied. Nevertheless, the fact that a treaty and its implementing legislation do not specify that a petition may be dismissed for lack of personal jurisdiction is not dispositive. No less than subject matter jurisdiction—which is a ground to deny enforcement under the New York Convention—personal jurisdiction ‘is ‘an essential element of the jurisdiction of a district . . . court,’ without which the court is ‘powerless to proceed to an adjudication.’’ Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584¼ (1999) ¼ Personal jurisdiction ‘represents a restriction on judicial power . . . as a matter of individual liberty.’ Id. at 584 ¼ Requiring a court to have personal jurisdiction over a party as a matter of constitutional due process ‘protects an individual’s liberty interest in not being subject to the binding judgment of a forum with which he has established no meaningful ‘contacts, ties, or relations.’ ¼ A party’s contacts with a forum must be sufficient for the party to ‘reasonably anticipate being haled into court there.’ World‑Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).”

“Even though the New York Convention does not list personal jurisdiction as a ground for denying enforcement, the Due Process Clause requires that a court dismiss an action, on motion, over which it has no personal jurisdiction. ¼ Because the New York Convention, through its implementing legislation, is an exercise of presidential and congressional power, whereas personal jurisdiction is grounded in constitutional due process concerns, there can be no question that the Constitution takes precedence. ¼. “

“Congress could no more dispense with personal jurisdiction in an action to confirm a foreign arbitral award than it could under any other statute. ¼ Regardless of Congress’s intent in failing explicitly to include a personal jurisdiction requirement, a court is not thereby relieved of its responsibility to enforce those constitutional protections that guard a party from appearing in a forum with which it has no contacts.”

“Those circuits that have considered this issue agree. Frontera Res. Azer. Corp. v. State Oil Co. of Azer. Rep., 582 F.3d 393, 397‑98 (2d Cir. 2009) (confirmation proceeding under New York Convention requires personal or quasi in rem jurisdiction over parties); Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 178‑79 (3d Cir. 2006) (observing that ‘the New York Convention does not diminish the Due Process constraints in asserting jurisdiction over a nonresident alien’); Base Metal Trading, Ltd. v. OJSC ‘Novokuznetsky Aluminum Factory’, 283 F.3d 208, 212 (4th Cir. 2002) (‘[W]hile the [New York] Convention confers subject matter jurisdiction over actions brought pursuant to the Convention, it does not confer personal jurisdiction when it would not otherwise exist.’); Glencore Grain, 284 F.3d at 1121; see also S & Davis Int’l, Inc. v. Republic of Yemen, 218 F.3d 1292, 1303‑05 (11th Cir. 2000); Emp’rs Ins. of Wausau v. Banco De Seguros Del Estado, 199 F.3d 937, 941‑43 & n.1 (7th Cir. 1999) (requiring personal jurisdiction in dispute arising under Inter‑American Convention on International Commercial Arbitration, but observing that result would be the same under New York Convention).” [¼] [Slip op. 10‑12]

Finally, the Court addresses First Investment’s “alter ego” theory. “First Investment’s final argument against dismissal of the Fujian Entities for lack of personal jurisdiction is that the Fujian Entities were alter egos of the PRC. First Investment contends that because a court need not establish personal jurisdiction over a foreign sovereign, it was also error to dismiss that foreign sovereign’s alter egos for lack of jurisdiction. As did the district court, we assume, without deciding, that a foreign sovereign cannot raise a personal jurisdiction defense as it is not a ‘person’ under the Due Process Clause. Price v. Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 96‑97 (D.C. Cir. 2002) (reasoning that foreign states, like States of the Union, are not ‘persons’ under the Fifth Amendment) ¼”

“Accordingly, if First Investment successfully establishes that either of the Fujian Entities were alter egos of the PRC then it would be improper for the district court to dismiss that party for lack of personal jurisdiction. First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 ¼ (1983) (‘Bancec’) ‘remains the seminal case on the circumstance under which American courts may disregard the separate status of instrumentalities created by foreign governments.’ ¼ “

“Under Bancec, ‘duly created instrumentalities of a foreign state are to be accorded a presumption of independent status.’ 462 U.S. at 627. ‘A plaintiff can over come [sic] that presumption, however, in certain circumstances by demonstrating that the instrumentality is the agent or alter ego of the foreign state.’ ¼ While not establishing any ‘mechanical formula,’ the Bancec Court did list a non‑exhaustive list of factors to consider in determining whether the presumption in favor of an entity’s separate juridical identity had been overcome. 462 U.S. at 633. ‘[W]e look to the ownership and management structure of the instrumentality, paying particularly close attention to whether the government is involved in day‑to‑day operations, as well as the extent to which the agent holds itself out to be acting on behalf of the government.’ ¼”

“Finally, we consider the equitable principles discussed in Bancec, ‘particularly the principle of disregarding the corporate form in instances where respecting it would lead to injustice.’ Id. First Investment argues that the district court did not sufficiently heed Bancec’s instruction that an instrumentality should not be considered a separate legal entity when doing so would result in fraud or injustice. First Investment further contends that the district court improperly emphasized the need for a foreign state to exercise control over an instrumentality’s daily activities without fully considering the totality of the circumstances. Applying the considerations in Bancec to each of the Fujian Entities we conclude that the district court did not err in determining that First Investment has not overcome the presumption in favor of FSIGC and Mawei’s separate juridical identity.” [¼]

“The district court considered declarations by Wang Darong and Lin Jiang, each a partner in a separate Chinese law firm. The Wang and Lin declarations established that FSIGC was wholly‑owned by the PRC, and that a branch of the PRC appoints FSIGC’s board of directors and senior management personnel, and exercises the rights of a shareholder. The Wang and Lin declarations also conceded, however, that FSIGC possessed operational and managerial authority. ¼”

“There is no question that this evidence, considered alone, would not satisfy Bancec’s standard for finding an alter ego relationship between a foreign state and its instrumentality. As we have previously determined, the mere fact that a government owns 100% of a company’s stock is not sufficient to establish control. ¼ The declarations also provide no indication that FSIGC’s officers were acting in the PRC’s interests and controlling FSIGC’s day‑to‑day operations on the PRC’s behalf. Nor do the declarations evidence any injustice that would flow from respecting FSIGC’s corporate form.” [¼]

“Nor has First Investment presented equitable considerations sufficient to disregard FSIGC’s corporate identity. For First Investment to meet this prong, it is not sufficient for it merely to point out an injustice that would result from an adverse decision. Rather, First Investment must show how the PRC manipulated FSIGC’s corporate form to perpetuate a fraud or injustice. ¼. Here, First Investment has failed to show that the PRC used FSIGC’s corporate form to manipulate circumstances in such a way as to do something it otherwise would not have been able to do. First Investment has also not shown that the PRC is shielding FSIGC from an adverse arbitral award because the real burden of such an award would fall on the PRC. The only evidence First Investment puts forward is that the PRC is FSIGC’s sole shareholder.”

“As already stated, this is insufficient to establish an alter ego relationship. ¼ Were we to accept First Investment’s argument we would effectively wipe out the presumption of separateness. Following First Investment’s logic, anytime a foreign sovereign owned the majority of shares in a company, and took any action that assisted that company, it would provide grounds for ignoring that company’s separate juridical identity. ¼”

“Nor is the PRC committing a fraud against First Investment. Although the PRC may have delayed initiation of the confirmation proceeding, First Investment ultimately did bring such an action in China. Moreover, the Chinese court provided a reasoned opinion that denied enforcement on the ground that the panel’s third arbitrator did not approve the final draft.”

“Accordingly, the district court correctly concluded that there did not exist an alter ego relationship between FSIGC and the PRC, and properly dismissed FSIGC for lack of personal jurisdiction.” [Slip op. 15‑20]

The Court then quickly disposes of First Investment’s case against the PRC. “Pursuant to the Foreign Sovereign Immunities Act (‘FSIA’), 28 U.S.C. § 1604, a ‘foreign state shall be immune from the jurisdiction of the courts of the United States and of the States’ unless one of several statutorily defined exceptions applies. The district court correctly recognized, and the parties do not dispute, that the only potentially applicable exception is § 1605(a)(6)’s arbitration exception.”

“Under that provision, foreign states are considered to have waived their sovereign immunity in cases ‘to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration under the laws of the United States, or to confirm an award made pursuant to such an agreement to arbitrate . . . ‘28 U.S.C. § 1605(a)(6).”

“The PRC was not, however, a party to the arbitration agreement between First Investment and the Fujian Entities. The district court thus considered whether the PRC could be bound to the arbitration agreement through the Fujian Entities. For the same reasons it concluded that the Fujian Entities were not alter egos of the PRC, the district court concluded that the PRC could not be bound to the agreement. Accordingly, the district court held that the arbitration exception in § 1605(a)(6) did not apply and that it lacked subject matter jurisdiction over First Investment’s petition against the PRC.”

“¼ [W]e understand First Investment’s argument on subject matter jurisdiction to be identical to its personal jurisdiction argument. Thus, if First Investment can establish an alter ego relationship between the Fujian Entities and the PRC then the PRC can be bound to the arbitration agreement to which the Fujian Entities are a party. ¼ As discussed, supra, First Investment cannot meet Bancec’s standard for establishing an alter ego relationship. Having raised no other ground on which to find subject matter jurisdiction over the PRC, this conclusion is fatal to First Investment’s petition.” [Slip op. 21‑22]

Concluding that the district court properly dismissed the People’s Republic of China for lack of subject matter jurisdiction, the Court affirms the district court.

Citation: First Investment Corporation of the Marshall Islands v. Fujian Mawei Shipbuilding, Limited, 703 F.3d 742 (5th Cir., 2012) (revised January 17, 2013).

BANKRUPTCY

The United Kingdom Supreme Court holds that, without legislation or treaty authorization, the English Courts lack the authority to recognize and enforce judgments of the U.S. Bankruptcy Court in New York

Eurofinance SA is a company incorporated in the British Virgin Islands (BVI). Adrian Roman, the second appellant in this case of Rubin v. Eurofinance SA, set it up. Eurofinance SA settled “The Consumers Trust” (TCT) under a deed of trust made in 2002 under English law. Its trustees live in England; two of them were accountants and two were solicitors.

Eurofinance SA founded TCT to carry on a “sales promotion scheme” in the USA and Canada. The supposed beneficiaries consisted of persons who had successfully joined the scheme by taking part in certain sales promotions entities owned and operated by Eurofinance SA. The trustees were to hold the capital and income of TCT for the beneficiaries and subject thereto while Eurofinance SA was to act as beneficiary in default.

A number of U.S. and Canadian merchants took part in the promotion plan, known as the Cashable Voucher Programme (CVP). When they sold products or services to their customers, Eurofinance would offer them a cashable voucher. Each voucher would involve a rebate of up to 100% of the purchase price for various products or services. Under a CVP, the rebate would go to customers in three years’ time provided that each customer passed certain complex memory and comprehension tests.

The merchants involved were to pay TCT 15% of the face value of each cashable voucher the merchant would issue each week. TCT retained 40% of the payments received (i.e. 6% of the face value of each cashable voucher). About one half of the 60% balance received from merchants went to Eurofinance SA (and thence to Adrian Roman).

The remainder went to others involved in running the program. These included, for example, solicitors, accountants and U.S. lawyers. From about 2002 on, Adrian Roman’s sons, Nicholas and Justin Roman, each began to receive about 2% of the above payments. The trustees set up several bank accounts in the U.S. and Canada where the payees deposited the merchants’ payments.

The trustees kept 6% of the face value of the issued vouchers. The success of the scheme necessarily depended either on the consumers: [1] forgetting timely to redeem the vouchers; or [2] being unsuccessful in navigating the required labyrinthine procedures to obtain payment. When the scheme folded in 2005, the trustees held nearly US$10m in U.S. and Canadian bank accounts.

During 2005, TCT’s business came to an abrupt end. The Missouri Attorney General had sued TCT in a Missouri court under state consumer protection laws. This led to a settlement involving a payment by the trustees of US$1,650,000 and US$200,000 in costs.

TCT management soon realized that other state attorneys general would likely take similar actions. Moreover, the number of consumer claims would probably escalate. It also became obvious that TCT would not have enough funds to meet its beneficiaries’ valid claims. In November 2005, Adrian Roman had Eurofinance apply to have the U. K. High Court appoint the respondents on the present Rubin appeal—David Rubin and Henry Lan—as TCT’s receivers.

The goal was to obtain protection under Chapter 11 of Title 11 of the U.S. Code. They represented to the English court that Chapter 11 reorganization proceedings would: [1] automatically stay various proceedings pending against TCT; [2] would enable the receivers to reject unprofitable or burdensome executory contracts; and [3] might result in the recovery—as “preferential payments”—of sums paid to consumers and to the Missouri Attorney General.

In November 2005, the English High Court appointed the respondents as receivers. The following month, the respondents and the trustees caused TCT to file a voluntary petition in the U.S. Bankruptcy Court in New York that sought Chapter 11 relief. That Court placed TCT into Chapter 11 proceedings.

The reasoning was that virtually all of TCT’s 60,000 creditors were located in the United States or Canada as were its assets. Under U.S. bankruptcy law, TCT could petition for relief under Chapter 11 as a debtor. Chapter 11 apparently treats a trust such as TCT as a separate legal entity i.e. a “business trust”.

The High Court next oversaw a joint plan of liquidation for TCT. In September 2007, the Court authorized respondents (as receivers) to seek approval of the plan from the U.S. Bankruptcy Court. Under its terms, the Court appointed the respondents as TCT’s legal representatives. This authorized the respondents to commence, prosecute and resolve all causes of action against potential defendants—including the appellants before this Court.

The U.S. Bankruptcy Court approved the plan the following month, and appointed the respondents as the debtor’s “foreign representatives.” This enabled them to seek recognition by the Chancery Division in London of the Chapter 11 proceedings as a foreign main proceeding under the Cross‑Border Insolvency Regulations (CBIR). This would also enable them to seek the aid, assistance and co‑operation from the High Court if it could recognize the results of the U.S. Chapter 11 proceedings. This especially included its reciprocal aid in “the enforcement of judgments of this court that may be obtained against persons and entities residing or owning property in Great Britain ¼”

Various parties filed proceedings in the U.S. Bankruptcy Court in December 2007 by issuing a complaint against a number of defendants—including the appellants here. These claims fall within the category of “adversary proceedings” (APs) under U.S. bankruptcy laws.

The APs comprised a number of claims. For one, they included causes of action arising under the U.S. Bankruptcy Code. They had to do with: [1] funds received by TCT from merchants which were paid out to the defendants (including the appellants); or [2] to amounts transferred to the defendants within one year before the filing of the TCT bankruptcy case.

The defendants were the appellants here along with other parties involved with the program. The appellants were personally served with the complaint commencing the adversary proceedings. Nevertheless they did not defend, or take part in, those proceedings.

Nevertheless, it appears from a ruling of the U.S. Bankruptcy Court that Eurofinance SA had filed an appearance in the main Chapter 11 proceedings. (Order of 22 July 2008, paras 42‑43). On July 22, 2008, the U.S. Bankruptcy Court entered a default and summary judgment against the appellants in the adversary proceedings as well as a judgment against the appellants on the ten counts of the complaint.

Four months later, the respondents applied, as foreign representatives. to the Chancery Division for, inter alia: (a) an order that the Chapter 11 proceedings be recognised as a “foreign main proceeding;” (b) an order that the respondents be recognised as “foreign representatives” within the meaning of article 2(j) of the Model Law in relation to those proceedings; and (c) an order that the U.S. Bankruptcy Court’s judgment be enforced, in effect, as a domestic English judgment in accordance with CPR Parts 70 and 73.

Deputy judge Strauss of the Chancery Division recognized the Chapter 11 proceedings (including the adversary ones) as “foreign main proceedings,” and the respondents as “foreign representatives.” The judge, however, declined to enforce the U.S. judgments in the adversary proceedings.

He did so: (a) because, at common law, an English court would not enforce a judgment in personam contrary to the normal English jurisdictional rules as to foreign judgments; and (b) because nothing in the CBIR, articles 21(e) (realization of assets) and 25 (judicial co‑operation), justified the enforcement of foreign judgments in insolvency proceedings.

At first instance, the respondents tried to enforce the entire judgment of the U.S. Bankruptcy Court. More narrowly before the Court of Appeal, however, they merely sought an order for the enforcement of those parts of the judgment that rested on U.S. state or federal “avoidance” laws.

These laws would include conveyances under American state Fraudulent Conveyance Laws. They also invoked U.S. federal law dealing with: [1] fraudulent transfers under Title 11 section 548(a); [2] the liability of transferees of avoided transfers under section 550; [3] fraudulent transfers under section 548(b); and [4] the liability of transferees of avoided transfers under section 550.

The Court of Civil Appeal below allowed an appeal, and held that the judgment was enforceable. The U. K. Supreme Court then authorized intervention by written submission on behalf of Mr. Irving Picard. He is the acting trustee for the U.S. liquidation under the Securities Investor Protection Act of 1970 (SIPA), of Bernard L Madoff Investment Securities LLC, Madoff’s broking company.

In the Gibraltar courts, trustee Picard is seeking to enforce at common law the $180m default judgment of the U.S. Bankruptcy Court in Picard v. Vizcaya Partners Ltd. (Vizcaya), the latter being a British Virgin Islands (BVI) company. He has done the same against Asphalia Fund Ltd. (Asphalia), a Cayman Islands company. He is aiming to collect $67m in allegedly preferential payments.

He is also litigating in the Cayman Islands court to enforce a U.S. Bankruptcy Court default judgment in excess of $1 billion in Picard v. Harley International (Cayman) Ltd. The courts in both the Gibraltar and Cayman Islands cases, however, have adjourned their proceedings to await the outcome of the appeals to this Court. Vizcaya and Asphalia have also, with the permission of the court, intervened herein by written submission.

Since there is no agreed statement of facts relating to these aspects of the case, no one should take anything which is said here about those facts as judicial findings. According to Vizcaya and Asphalia, the position is as follows. Between 2002 and 2007, a bank in Europe, acting as a custodian trustee for Vizcaya, sent $327m to Madoff to be invested in securities.

Unknown to the bank, to Vizcaya, and to its shareholder Asphalia, however, Madoff had been running a successful Ponzi scheme for some 30 years. Madoff had, of course, never invested incoming client money in securities. In 2008, at the time of the credit crunch and the banking crises, the custodian trustee withdrew $180m (leaving $147m with Madoff) and paid $67m of the $180m to Asphalia.

In late 2008, the Madoff fraud came to light, and the court appointed the trustee. The trustee targeted investors who had withdrawn investments from Madoff in the two years before its collapse as a source for recovery of “customer property” for the benefit of other investors who trustingly had not withdrawn their investments.

The trustee filed adversary proceedings against Vizcaya and Asphalia in the U.S. Bankruptcy Court alleging improper preferences and fraudulent conveyances under SIPA and under the Bankruptcy Code. The results of these proceedings, they say, is that: (a) as the trustee argues, a person who—on the basis that he has received “customer money”‑‑ has had to repay a preference, does not necessarily become a “customer” and thereby entitled to share with other customers in the bankruptcy; and (b) the trustee may avoid a payment made by the bankrupt to a creditor 90 days before the commencement of the bankruptcy, irrespective of the intention with which the payment is made or received.

The trustee next obtained default judgments. Vizcaya and Asphalia say that they took no part in the New York proceedings because: [1] they had no legal connection with New York; [2] that Asphalia was not a customer of Madoff but a shareholder of Vizcaya; and [3] that, arguably, Vizcaya was not a “customer.” since it had appointed the bank to act as custodian trustee and it was the bank which had entered into the Madoff contracts.

One of the two appeals before this court involves the U.S. judicial system: Rubin v. Eurofinance SA (Rubin). This appeal raises important and novel issues in international insolvency law. In Rubin, the central issue before the Supreme Court is whether, and if so, under what circumstances, the English courts should recognize an order or judgment of a foreign court, i.e. the U.S. Bankruptcy Court for the Southern District of New York.

Lord Lawrence Collins then explains his Court’s ruling in these complex matters. “In Rubin, the central issue is whether—in default of appearance—English common law would enforce a US$10m judgment of the U.S. Federal Bankruptcy Court for the Southern District of New York (the U.S. Bankruptcy Court) under U.S. State and Federal law in respect of fraudulent conveyances and transfers.”

3. “It was accepted or found that, although the party against whom they were given was neither present (nor, for the purposes of the 1933 Act, resident) in the foreign country nor had it submitted to its jurisdiction (which are the relevant conditions for judgment enforceability at common law and under the 1933 Act). But the main issue here is whether those conditions apply to judgments or orders in foreign insolvency proceedings.”

4. “In addition to the arguments on these two appeals, the court has had the great benefit of written submissions on behalf of parties to proceedings pending in Gibraltar. Those proceedings are to enforce default judgments entered by the U.S. Bankruptcy Court for some $247m with respect to alleged preferential payments to companies in the British Virgin Islands and the British Cayman Islands arising out of the notorious Ponzi scheme operated by Mr. Bernard Madoff.”

“It is central to the case that the judgments in all three matters were in default of appearance. If the judgment debtors had appeared and defended the proceedings in the foreign courts, the issues on these appeals would not have arisen. The reason is that the judgments would have been enforceable on the basis of the defendants’ submission to the jurisdiction of the foreign court. Enforcement would have been as at common law.”

6. “Under the common law, a court of a foreign country has jurisdiction to give a judgment in personam where (among other cases) the judgment debtor was present in the foreign country when the proceedings were instituted, or submitted to the jurisdiction of the foreign court by voluntarily appearing in the proceedings.”

“In the case of the 1933 Act, the foreign court is deemed to have jurisdiction: [1] where the judgment debtor submitted to the jurisdiction by voluntarily appearing in the proceedings otherwise than for the purpose (inter alia) of contesting the jurisdiction; or [2] where the judgment debtor was resident [there] at the time when the proceedings were instituted; or [3] being a body corporate had an office or place of business there: section 4(2)(a)(i),(iv).”

7. “The general principle has been referred to on these appeals, by reference to the common law rule set out in Dicey, Morris & Collins, Conflict of Laws (14th edition, 2006), as ‘Dicey’s Rule 36.’ This was only by way of shorthand, because the rules in the 1933 Act are not quite identical, and in any event, has been purely for convenience, because the Rule has no standing beyond the case law at common law which it seeks to re‑state. What was Rule 36 now appears (incorporating some changes which are not material on this appeal)] as Rule 43 in the new 15th edition, and I shall refer to it as ‘the Dicey Rule.’”

“So far as relevant, Rule 43 ( Dicey, Morris and Collins, Conflict of Laws, 15th ed, 2012, para 14R‑054) states: ‘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: [1] if the person against whom the judgment was given was, at the time the proceedings were instituted, present in the foreign country; [2] if the person against whom the judgment was given was claimant, or counterclaimed, in the proceedings in the foreign court; [3] if the person against whom the judgment was given submitted to the jurisdiction of that court by voluntarily appearing in the proceedings; [4] 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.”

8. “The first edition of Dicey in 1896 stated (Rule 80) that the foreign court would have jurisdiction if ‘the defendant was resident [or sufficiently present?]’ in the foreign country ‘so as to have the benefit, and be under the protection, of the laws thereof.’”

“By the 6th edition in 1949 the formula was repeated by Professor Wortley (Rule 68) but without the doubt about presence as a basis of jurisdiction. In the 8th edition in 1958 Dr. (later Professor) Clive Parry removed the phrase (then Rule 189) about the benefit and protection of the foreign country’s laws. The Rule, subsequently edited by Dr. Morris and then by Professor Kahn‑Freund, remained in that form until the decision in Adams v Cape Industries plc [1990] Ch. 433 (CA), which established that presence in the foreign jurisdiction, as opposed to residence, was a sufficient basis for the recognition of foreign judgments. Then, edited by myself and later by Professor Briggs, the Rule took substantially its present form in the 12th edition in 1993.”

9. “The theoretical basis for the enforcement of foreign judgments at common law is that they are enforced on the basis of a principle that where a court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum, on which an action of Debt to enforce the judgment may be maintained: Williams v. Jones (1845) 13 M & W 628, 633 per Parke B; Godard v. Gray (1870) LR 6 QB 139, 147, per Blackburn J; Adams v. Cape Industries plc [1990] Ch 433, 513; Owens Bank Ltd v. Bracco [1992] 2 AC 443, 484, per Lord Bridge of Harwich.”

“As Blackburn J. said in Godard v. Gray, this was based on the mode of pleading an action on a foreign judgment in Debt, and not merely as evidence of the obligation to pay the underlying liability: [LR 6 QB 139, 150.] But this is a purely theoretical and historical basis for the enforcement of foreign judgments at common law. It does not apply to enforcement under statute, and makes no practical difference to the analysis, nor, in my judgment, to the issues on these appeals.”

10. “Consequently, if the judgments in issue on the[se] appeals are regarded as judgments in personam within the Dicey Rule, then they will only be enforced in England at common law if the judgment debtors were present (or, if the 1933 Act applies, resident) in the foreign country when the proceedings were commenced, or if they submitted to its jurisdiction. It is common ground [here] that the judgment debtors were not present or resident, respectively, in the United States¼”

11. [Insolvency proceedings and the international dimension] “There are some general remarks to be made. First, from as early as the mid‑18th century the English courts have recognised the effect of foreign personal bankruptcies declared under the law of the domicile: Solomons v Ross (1764) 1 H Bl 131n, where Dutch merchants were declared bankrupt in Amsterdam, and the Dutch curator was held entitled to recover an English debt in priority to an English creditor of the merchants who had attached the debt after the bankruptcy: see Nadelmann, Conflict of Laws: International and Interstate (1972), p 273; Blom‑Cooper, Bankruptcy in Private International Law (1954), pp 107–108.”

12. “In Galbraith v Grimshaw [1910] AC 508, 513, Lord Dunedin said that there should be only one universal process of the distribution of a bankrupt’s property and that, where such a process was pending elsewhere, the English courts should not allow steps to be taken in its jurisdiction which would interfere with that process. ‘Now so far as the general principle is concerned, it is quite consistent with the comity of nations that it should be a rule of international law, that if the court finds that there is already pending a process of universal distribution of a bankrupt’s effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution.’”

13. “Second, in the case of corporations, the English courts have exercised a winding up jurisdiction which is wider than that which at common law they have accorded to foreign courts. The court exercises jurisdiction to wind up a foreign company: [1] if there is a sufficient connection between the company and England; [2] there are persons who would benefit from the making of a winding up order; and [3] there are persons interested in the distribution of assets of the company who are persons over whom the court can exercise jurisdiction. see Dicey, 15th ed, para 30R‑036.”

“But as regards foreign liquidations, the general rule is that the English court recognises at common law only the authority of a liquidator appointed under the law of the place of incorporation (Dicey, 15th ed, para 30R‑100). That is in contrast to the modern approach in the primary international and regional instruments, the EC Insolvency Regulation on Insolvency Proceedings (Council Regulation (EC) No 1346/2000 ) (the ECIR) and the Model Law, which is that the jurisdiction with international competence is that of the country of the centre of main interests of the debtor (an expression not without its own difficulties).”

“It is ultimately derived from the civil law concept of a trader’s domicile, and was adopted in substance in the draft EEC Convention of 1980 as a definition of the debtor’s centre of administration: see Report by M Lemontey on the draft EEC Bankruptcy Convention, Bulletin of the European Communities, Supp 2/82, p 58; American Law Institute, Transnational Insolvency: Global Principles for Co‑operation in International Insolvency Cases (2012), Principle 13, pp 83 et seq.”

14. “Third, it is not only in recent times that there have been large insolvency proceedings with significant cross‑border implications. Even before then there were the Russian Bank cases in the 1930s (arising out of the nationalisation and dissolution of the banks by the Soviet Government) ¼(see In re Barcelona Traction, Light and Power Co Ltd. (second phase) (Belgium v. Spain) [1970] ICJ Rep 69 ), but there is no doubt that today international co‑operation in cross‑border insolvencies has become a pressing need.”

“It is only necessary to recall the bankruptcies or liquidations of Bank of Credit and Commerce International, Maxwell Communications, or Lehman Brothers, each with international businesses, assets in many countries, and potentially competing creditors in different countries with different laws. There is not only a need to balance all these interests but also to provide swift and effective remedies to combat the use of cross‑border transfers of assets to evade and to defraud creditors.”

15. “Fourth, there is no international unanimity or significant harmonisation on the details of insolvency law, because to a large extent insolvency law reflects national public policy, for example as regards priorities or as regards the conditions for the application of avoidance provisions: ‘the process of collection of assets will include, for example, the use of powers to set aside voidable dispositions, which may differ very considerably from those in the English statutory scheme’: In re HIH Casualty and General Insurance Ltd., [2008] UKHL 21; [2008] 1 WLR 852, para 19, per Lord Hoffmann.”

16. “Fifth, there has been a trend, but only a trend, to what is called universalism, that is, the ‘administration of multinational insolvencies by a leading court applying a single bankruptcy law’: see Westbrook, A Global Solution to Multinational Default”, 98 Mich. L. Rev. 2276, 2277 (2000). What has emerged is what is called by specialists ‘modified universalism.’”

17. “The meaning of the expression ‘universalism’ has undergone a change since the time it was first used in the 19th century, and it later came to be contrasted with the ‘doctrine of unity.’ In 1834, Joseph Story referred to the theory that assignments under bankrupt or insolvent laws were, and ought to be, of universal operation to transfer movable property, in whatever country it might be situate, and concluded that there was great wisdom in adopting the rule that an assignment in bankruptcy should operate as a complete and valid transfer of all his movable property abroad, as well as at home, and for a country to prefer an attaching domestic creditor to a foreign assignee or to foreign creditors could ‘hardly be deemed consistent with the general comity of nations ¼ [T]he true rule is, to follow out the lead of the general principle that makes the law of the owner’s domicil conclusive upon the disposition of his personal property,’ citing Solomons v Ross as supporting that doctrine: Story, Commentaries on the Conflict of Laws, 1st ed (1834), pp 340–341, para 406.”

18. “Professor Cheshire, in his first edition (Cheshire, Private International Law, 1935, pp 375–376), said that, although English law ‘neglects the doctrine of unity, it recognizes the doctrine of universality.’ What he meant was that English law was committed to separate independent bankruptcies in countries where the assets were situate, rather than one bankruptcy in the country of the domicile (the doctrine of unity), but also accepted the title of the foreign trustee to English movables provided that no bankruptcy proceedings had begun within England (universality). He cited Solomons v. Ross for this proposition: ‘The English Courts ¼ have consistently applied the doctrine of universality, according to which they hold that all movable property, no matter where it may be situated at the time of the assignment by the foreign law, passes to the trustee.’”

19. “In In re HIH Casualty and General Insurance Ltd [2008] UKHL 21, [2008] 1 WLR 852, para 30, Lord Hoffmann said: ‘The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross‑border insolvency law since the 18th century. That principle requires that English courts should, so far as is consistent with justice and UK public policy, co‑operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution.’”

“[I]n Cambridge Gas Transportation Corporation v. Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26, [2007] 1 AC 508, para 16 he said, speaking for the Privy Council : ‘The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated ¼’”

20. “The US Bankruptcy Court accepted in Re Maxwell Communication Corp, 170 BR 800 (Bankr SDNY 1994) that the United States courts have adopted modified universalism as the approach to international insolvency: ‘¼ the United States in ancillary bankruptcy cases has embraced an approach to international insolvency which is a modified form of universalism accepting the central premise of universalism, that is, that assets should be collected and distributed on a worldwide basis, but reserving to local courts discretion to evaluate the fairness of home country procedures and to protect the interests of local creditors.’”

[International co‑operation and assistance]

21. “Jurisdiction in international bankruptcy has been the subject of multilateral international instruments at least since the Montevideo Treaty on International Commercial Law of 1889, Title X, although bilateral treaties go back much further, and the subject of international recognition and co‑operation in insolvency was the subject of early discussion by the International Law Association (1879), the Institut de droit international (1888–1912) and the Hague Conference on Private International Law (1904): Nadelmann, op. cit . pp 299 et seq.”

22. “In more modern times, the European Convention on Certain International Aspects of Bankruptcy (the ‘Istanbul Convention’) was concluded under the auspices of the Council of Europe in 1990, but never came into force. The European Community/Union initiative took 40 years to come to fruition.”

“In 1960, the European Community embarked on a project for a Bankruptcy Convention, which resulted in a draft Convention in 1980, to which there was significant opposition. But the project was renewed in 1989, and this led to the tabling of a draft Convention in 1995, which provided that it would only come into force when signed by all 15 of the then member states. The United Kingdom, however, alone of the states, did not sign the Convention (for political reasons), and it never came into force. In 1999 the project was re‑launched as a Council Regulation, which resulted in the EC Insolvency Regulation in 2000.”

23. “The United Nations Commission on International Trade Law (UNCITRAL) adopted a Model Law on cross‑border insolvency in 1997. The Model Law was adopted following initiatives in the 1980s by the International Bar Association and later by INSOL (International (the International Association of Restructuring, Insolvency and Bankruptcy Professionals). In 1993 UNCITRAL adopted a resolution to investigate the feasibility of harmonised rules of cross‑ border insolvencies.”

“In 1994 an expert committee was assembled consisting of members of INSOL and representatives of the UNCITRAL Secretariat, and, following a series of reports and drafts, UNCITRAL adopted the Model Law in May 1997. The Model Law provides for a wide range of assistance to foreign courts and office‑holders. It has been implemented by 19 countries and territories, including the United States and Great Britain (although by some states only on the basis of reciprocity). It was not enacted into law in Great Britain until 2006, by the CBIR.”.

24. “Apart from the EC Insolvency Regulation, none of these instruments deals expressly with the enforcement of judgments in insolvency proceedings. The question whether the Model Law does so by implication will be considered below in section IV.”

25. “Consequently, there are four main methods under English law for assisting insolvency proceedings in other jurisdictions, two of which are part of regionally or internationally agreed schemes. First, section 426 of the Insolvency Act 1986 provides a statutory power to assist corporate as well as personal insolvency proceedings in countries specified in the Act or designated for that purpose by the Secretary of State. All the countries to which it currently applies are common law countries or countries sharing a common legal tradition with England. They include Australia: the Co‑operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 (SI 1986/2123).

26. “Second, the EC Insolvency Regulation applies to insolvency proceedings in respect of debtors with their centres of main interests (COMI) within the European Union (excluding Denmark). The EC Insolvency Regulation has no role in the present appeal because none of the debtors has its centre of main interests in the European Union.”

27. “Third, the CBIR came into force on 4 April 2006, implementing the Model Law. The CBIR supplement the common law, but do not supersede it. Article 7 of the Model Law provides: “Nothing in this Law limits the power of a court or British insolvency officeholder to provide additional assistance to a foreign representative under other laws of Great Britain”.

28. Article 23 of the Model Law allows avoidance claims to be made by foreign representatives under the Insolvency Act 1986, and the CBIR apply to preferences after they came into force on 4 April 2006. The UNCITRAL Guide to Enactment (to which resort may be had for the purposes of interpretation of the CBIR ) also emphasises that the Model Law enables enacting states to make available to foreign insolvency proceedings the type of relief which would be available in the case of a domestic insolvency (UNCITRAL Legislative Guide on Insolvency Law (2005), Annex III, Ch IV, p 311, para 20(b)): ‘The Model Law presents to enacting states the possibility of aligning the relief resulting from recognition of a foreign proceeding with the relief available in a comparable proceeding in the national law.’”

29. “Fourth, at common law, the court has power to recognise and grant assistance to foreign insolvency proceedings. The common law principle is that assistance may be given to foreign officeholders in insolvencies with an international element. The underlying principle has been stated in different ways: ‘recognition ¼ carries with it the active assistance of the court’: In re African Farms Ltd [1906] TS 373, 377; ‘This court ¼ will do its utmost to co‑operate with the United States Bankruptcy Court and avoid any action which might disturb the orderly administration of [the company] in Texas under ch. 11’: Banque Indosuez SA v. Ferromet Resources Inc. [1993] BCLC 112, 117.”

30. “In Credit Suisse Fides Trust v. Cuoghi [1998] QB 818, 827, Millett LJ said: ‘In other areas of law, such as cross‑border insolvency, commercial necessity has encouraged national courts to provide assistance to each other without waiting for such co‑operation to be sanctioned by international convention ¼ It is becoming widely accepted that comity between the courts of different countries requires mutual respect for the territorial integrity of each other’s jurisdiction, but that this should not inhibit a court in one jurisdiction from rendering whatever assistance it properly can to a court in another in respect of assets located or persons resident within the territory of the former.’”

31. “The common law assistance cases have been concerned with such matters as: [1] the vesting of English assets in a foreign officeholder; or [2] the staying of local proceedings; or [3] orders for examination in support of the foreign proceedings; or [4] orders for the remittal of assets to a foreign liquidation; and [5] have involved cases in which the foreign court was a court of competent jurisdiction in the sense that the bankrupt was domiciled in the foreign country or, if a company, was incorporated there.”

32. “An early case of recognition was Solomons v Ross, 1 H B1 131n, where, as I have said, the bankruptcy was in Holland, and the bankrupts were Dutch merchants declared bankrupt in Amsterdam, and the Dutch curator was held entitled to recover an English debt: see also Bergerem v. Marsh (1921) B&CR 195 (English member of Belgian firm submitted to Belgian bankruptcy proceedings: movable property in England vested in Belgian trustee).”

33. “One group of cases involved local proceedings which were stayed or orders which were discharged because of foreign insolvency proceedings. Thus in Banque Indosuez SA v. Ferromet Resources Inc. [1993] BCLC 112, an English injunction against a Texas corporation in Chapter 11 proceedings was discharged; cf. In re African Farms Ltd. [1906] TS 373 (execution in Transvaal by creditor in proceedings against English company in liquidation in England stayed by Transvaal court), applied in Turners & Growers Exporters Ltd v. The Ship Cornelis Verolme [1997] 2 NZLR 110 (Belgian shipowner in Belgian bankruptcy: ship released from arrest); Modern Terminals (Berth 5) Ltd v. States Steamship Co. [1979] HKLR 512 (stay in Hong Kong of execution against Nevada corporation in Chapter 11 proceedings in United States federal court in California), followed in CCIC Finance Ltd v. Guangdong International Trust & Investment Corpn. [2005] 2 HKC 589 (stay of Hong Kong proceedings against Chinese state owned enterprise in Mainland insolvency). Cases of judicial assistance in the traditional sense include In re Impex Services Worldwide Ltd. [2004] BPIR 564, where a Manx order for examination and production of documents was made in aid of the provisional liquidation in England of an English company.”

34. “Cases involving remittal of assets from England to a foreign office‑holder include ‘In re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213 (Luxembourg liquidation of Luxembourg company); and In re HIH Casualty and General Insurance Ltd. [2008] UKHL 21, [2008] 1 WLR 852 (the view of Lord Hoffmann and Lord Walker) (Australian liquidation of Australian insurance company); and In re SwissAir Schweizerische Luftverkehr‑Aktiengesellschaft [2009] EWHC 2099 (Ch), [2010] BCC 667 (Swiss liquidation of Swiss company).”

[The Cambridge Gas and HIH decisions]

35. “The opinion of Lord Hoffmann, speaking for the Privy Council, in Cambridge Gas Transportation Corpn v. Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26, [2007] 1 AC 508 (“ Cambridge Gas “) and his speech in the House of Lords in In re HIH Casualty and General Insurance Ltd. [2008] UKHL 21, [2008] 1 WLR 852 (HIH) have played such a major role in the decisions of the Court of Appeal and in the arguments of the parties on these appeals that it is appropriate to put them in context at this point.”

[Cambridge Gas]

36. “The broad facts of Cambridge Gas were these. In 1997 a shipping business was initiated by a Swiss businessman, Mr. Giovanni Mahler. The investors borrowed $300m on the New York bond market and the business bought five gas transport vessels. The venture was a failure, and ended with a Chapter 11 proceeding in the U.S. Bankruptcy Court in New York. The question for the Privy Council on appeal from the Isle of Man was whether an order of the New York court was entitled to implementation in the Isle of Man.”

37. “The corporate structure of the business was that the investors owned, directly or indirectly, a Bahamian company called Vela Energy Holdings Ltd (Vela). Vela owned (through an intermediate Bahamian holding company) Cambridge Gas, a Cayman Islands company.”

38. “Cambridge Gas owned—directly or indirectly—about 70% of the shares of Navigator Holdings plc (Navigator), an Isle of Man company. Navigator owned all the shares of an Isle of Man company which in turn owned companies which each owned one ship.”

39. “In 2003, Navigator petitioned the U.S. Bankruptcy Court for relief under Chapter 11 of the U.S. Bankruptcy Code, which allows insolvent companies, under supervision of the court and under cover of a moratorium, to negotiate a plan of reorganisation with their creditors. The petition was initiated by the investor interests, who proposed a plan to sell the ships—nominally by auction—but in fact to the previous investors, but the bondholders did not accept this and proposed their own plan under which the assets of Navigator would be vested in the creditors and the equity interests of the previous investors would be extinguished. The judge rejected the investors’ plan and approved the creditors’ plan.”

40. “The mechanism which the plan used to vest the assets in the creditors was to vest the shares in Navigator in their representatives, i.e., the creditors’ committee. That would enable them to control the shipping companies and implement the plan. The plan provided that, upon entry of the confirmation order. title to all the common stock of Navigator would vest in the creditors’ committee to enable it to implement the plan. The order of the New York court confirming the plan recorded the intention of the court to send a letter of request to the Manx court asking for assistance in giving effect to ‘the plan and confirmation order’ and such a letter was sent. The committee of creditors then petitioned the Manx court for an order vesting the shares in their representatives.”

41. “At this point it is necessary to emphasise two features of the case. The first feature is that Navigator was an Isle of Man company and 70% of its common stock was owned directly or indirectly by Cambridge Gas. Under the normal principles of the conflict of laws, the shares would have been situate in the Isle of Man: Dicey, 15th ed, para 22‑045.”        “That is why Lord Hoffmann said, at para 6, that the New York court was aware that the order vesting title to the common stock of Navigator in the creditors’ committee could not automatically have effect under the law of the Isle of Man; and also why he accepted (paras 12‑13) that if the judgment were a judgment in rem it could not affect title to shares in the Isle of Man.”

42. “The second feature which it is necessary to emphasise is that Cambridge Gas was a Cayman Islands company which (as held by the Manx courts) had not submitted to the jurisdiction of the U.S. Bankruptcy Court. Lord Hoffmann said, at para 8, that the position that Cambridge Gas had not submitted to the jurisdiction of the U.S. Bankruptcy Court bore little relation to economic reality since the New York proceedings had been conducted on the basis that the contest was between rival plans put forward by the shareholders and the creditors; Vela, the parent company of Cambridge Gas, participated in the Chapter 11 proceedings; and they had been instituted by Navigator.”

“Consequently the claim by Cambridge Gas that it had not submitted was highly technical, but there was no appeal from the decisions of the Manx courts that it had not submitted. But Lord Hoffmann also accepted that if the order of the U.S. Bankruptcy Court were to be regarded as a judgment in personam, it would not be entitled to recognition or enforcement in the Isle of Man because ‘the New York court had no personal jurisdiction over Cambridge [Gas]’: para 10.”

43. “Nevertheless, the Privy Council held that the plan could be carried into effect in the Isle of Man. The reasoning was as follows: first, if the judgment had to be classified as in personam or in rem, the appeal would have to be allowed, but bankruptcy proceedings did not fall into either category: ‘[13]¼ 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.’

‘[14]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. ¼’

‘[15]¼ [B]ankruptcy, 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.’

44. “Second, the principle of universality underlay the common law principles of judicial assistance in international insolvency, and those principles were sufficient to confer jurisdiction on the Manx court to assist, by doing whatever it could have done in the case of a domestic insolvency: paras 21‑22. Third, exactly the same result could have been achieved by a scheme under the Isle of Man Companies Act 1931 . Fourth, it was no objection to implementation of the plan in the Isle of Man that the shares in Navigator belonged to a person (Cambridge Gas) which was not a party to the bankruptcy proceedings for these reasons:

‘[26]¼ [A] share is the measure of the shareholder’s interest in the company: a bundle of rights against the company and the other shareholders. As against the outside world, that bundle of rights is an item of property a chose in action. But as between the shareholder and the company itself, the shareholder’s rights may be varied or extinguished by the mechanisms provided by the articles of association or the Companies Act. One of those mechanisms is the scheme of arrangement under section 152 [of the Isle of Man Companies Act 1931] . As a shareholder, Cambridge is bound by the transactions into which the company has entered, including a plan under [U.S.]Chapter 11 or a scheme under section 152.’”

45. “At this point it is necessary to point out that the opinion in Cambridge Gas does not articulate any reason for holding that, in the eyes of the Manx court, the U.S. Bankruptcy Court had international jurisdiction in either of two relevant senses.”

46. The first sense is the jurisdiction of the U.S. Bankruptcy Court in relation to the Chapter 11 proceedings themselves. The entity which was in Chapter 11 was Navigator. The English courts exercise a wider jurisdiction in bankruptcy and (especially) in winding up than they recognise in foreign courts. At common law, the foreign court which is recognised as having jurisdiction in personal bankruptcy is the court of the bankrupt’s domicile or the court to which the bankrupt submitted ( Dicey, 15th ed, para 31R‑059) and the foreign court with corresponding jurisdiction over corporations is the court of the place of incorporation ( Dicey, 15th ed, para 30R‑100).”

“Under United States law the U.S. Bankruptcy Court has jurisdiction over a ‘debtor’, and such a debtor must reside or have a domicile or place of business, or property in the United States. From the standpoint of English law, the U.S. Bankruptcy Court had international jurisdiction because—although Navigator was not incorporated in the United States—it had submitted to [its] jurisdiction by initiating the proceedings.”

47. “The second sense in which international jurisdiction is relevant is the jurisdiction over the third party, Cambridge Gas, and its shares in Navigator. Cambridge Gas was not incorporated in the United States, and it was held by the Isle of Man courts that it had not submitted to the jurisdiction of the U.S. Bankruptcy Court (and this was, as I have said, accepted with evident reluctance by the Privy Council).”

“The property which was the subject of the order of the U.S. Bankruptcy Court was shares in an Isle of Man company. Consequently, the property dealt with by the U.S. Bankruptcy Court was situate, by Manx rules of the conflict of laws, in the Isle of Man, and the shareholder relationship was governed by Manx law.”

48. “Cambridge Gas was the subject of brief comment a few months later by the Privy Council in Pattni v. Ali [2006] UKPC 51, [2007] 2 AC 85. The decision in that case was simply that a Kenyan judgment deciding that A was bound to sell shares in a Manx company to B was entitled to recognition in the Isle of Man. It resulted in an order in personam against a person subject to the jurisdiction of the Kenyan court, and was not a judgment in rem against property in the Isle of Man and outside the jurisdiction of the Kenyan court, because the fact that a judicial determination determines or relates to the existence of property rights between parties does not in itself mean that it is in rem.

“Lord Mance, speaking for the Board, said, at para. 23:

‘In Cambridge Gas ¼ the Board touched on the concepts of in personam and in rem proceedings, but held that the bankruptcy order with which it was concerned fell into neither category. Its purpose was simply to establish a mechanism of collective execution against the property of the debtor by creditors whose rights were admitted or established.”

49. “The decision in In re HIH Casualty and General Insurance Ltd., [2008] UKHL 21; [2008] 1 WLR 852 [HIH] does not deal with foreign judgments. HIH concerned four Australian insurance companies which were being wound up in Australia and in respect of which provisional liquidators had been appointed in England.”

“The question was whether the English court had power to direct remission of assets collected in England to Australia, notwithstanding that there were differences between the English and Australian statutory regimes for distribution which meant that some creditors would benefit from remission whilst some creditors would be worse off. The House of Lords unanimously directed that remission should take place, but the reasons differed.”

50. “The reasoning of the majority (Lord Scott of Foscote and Lord Neuberger of Abbotsbury, with Lord Phillips of Worth Matravers agreeing)) was based exclusively on the statutory power to assist foreign insolvency proceedings under section 426 of the Insolvency Act 1986, but Lord Hoffmann (with whom Lord Walker agreed) also considered that such a power existed at common law.”

51. “Lord Hoffmann characterised the principle of universality as a principle of English private international law that, where possible, there should be a unitary insolvency proceeding in the courts of the insolvent’s domicile which receives worldwide recognition and which should apply universally to all the bankrupt’s assets, at para 6:

‘Despite the absence of statutory provision, some degree of international co‑operation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely 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 worldwide recognition and it should apply universally to all the bankrupt’s assets.’”

52. “Other parts of Lord Hoffmann’s speech have already been quoted above, and it is only necessary for present purposes to recall that he said that (a) ‘the process of collection of assets will include, for example, the use of powers to set aside voidable dispositions, which may differ very considerably from those in the English statutory scheme (at para 19) and (b) that the purpose of the principle of universality was to ensure that the debtor’s assets were distributed under one scheme of distribution, and that the principle required that English courts should co‑operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution: para 30.’”

[Subsequent treatment of Cambridge Gas]

53. “The decision in Cambridge Gas was not applied by the Supreme Court of Ireland in In re Flightlease (Ireland) Ltd. [2012] IESC 12 (to which I shall revert) and has been subject to academic criticism. Professor Briggs has expressed the view ((2006) 77 BYIL 575, 581) that: ‘the decision in [Cambridge Gas] is wrong, for it requires a Manx court to give effect to a confiscation order made by a foreign court of property belonging to a person who was not subject to the personal jurisdiction of the foreign court. That a Manx court could have done so itself is nothing to the point.’ I shall return [later] to the question whether it was correctly decided.”¼

[The cases before the court and the issues]

[The issues]

87. “The principal issue on [both of] these appeals is [1] whether the rules—at common law or under the 1933 Act—regulating those foreign courts which are to be regarded as being competent for the purposes of enforcement of judgments apply to judgments in avoidance proceedings in insolvency, and, [2] if not, what rules do apply (section V below). The other issues are whether, in the Rubin appeal, enforcement may be effected through the assistance provisions of the CBIR 2006 (section VI).”

[The first issue: recognition and enforcement of foreign judgments in insolvency proceedings;

Reasoning of the Court of Appeal in Rubin and the issue on the appeal]

88. “The Court of Appeal in the Rubin appeal decided that a foreign insolvency judgment could be enforced in England and Wales at common law against a defendant not subject to the jurisdiction of the foreign court under the traditional rule as formulated in the Dicey Rule.”

89. “As I have already said, on the Rubin appeal in the Court of Appeal the receivers sought only to enforce those parts of the judgment which in effect related to the avoidance causes of action. The Court of Appeal held that the judgment (as narrowed) was enforceable at common law.” “The reasoning was as follows:

(a). the judgment was final and conclusive, and for definite sums of money, and on the face of the orders was a judgment in personam;

(b). it was common ground that the judgment debtors were not resident (this was a slip for ‘present’ since the action was at common law and not under the 1933 Act) when the proceedings were instituted, and did not submit to the jurisdiction, and so at first blush had an impregnable defence;

(c). Cambridge Gas decided that the bankruptcy order with which it was concerned was neither in personam nor in rem, and its purpose was simply to establish a mechanism of collective execution against the property of the debtor by creditors whose rights were admitted or established: Pattni v Ali [2006] UKPC 51; [2007] 2 AC 85, para. 23;

(d). bankruptcy was a collective proceeding to enforce rights and not to establish them: Cambridge Gas [2006] UKPC 26, [2007] 1 AC 508, para 15;

(e). the issue was whether avoidance proceedings—which could only be brought by the representative of the bankrupt—were to be characterised as part of the bankruptcy proceedings, i.e. part of the collective proceeding to enforce rights and not to establish them;

(f). the adversary proceedings were part and parcel of the [U.S.] Chapter 11 proceedings;

(g). the ordinary rules for enforcing foreign judgments in personam did not apply to bankruptcy proceedings;

(h). avoidance mechanisms were integral to and central to the collective nature of bankruptcy and were not merely incidental procedural matters;

(i). the process of collection of assets will include the use of powers to set aside voidable dispositions, which may differ very considerably from those in the English statutory scheme: HIH [2008] UKHL 21, [2008] 1 WLR 852, para 19; (j). the judgment of the U.S. Bankruptcy Court was a judgment in, and for the purposes of, the collective enforcement regime of the insolvency proceedings, and was governed by the sui generis private international law rules relating to insolvency;

(k). that was a desirable development of the common law founded on the principles of modified universalism, and did not require the court to enforce anything that it could not do, mutatis mutandis, in a domestic context;

(l). there was a principle of private international law that bankruptcy should be unitary and universal, and there should be a unitary insolvency proceeding in the court of the bankrupt’s domicile which receives worldwide recognition and should apply universally to all the bankrupt’s assets; (m). there was a further principle that recognition carried with it the active assistance of the court which included assistance by doing whatever the English court could do in the case of a domestic insolvency;

(n). there was no unfairness to the appellants in upholding the judgment because they were fully aware of the proceedings, and, after taking advice, chose not to participate: [2011] Ch 133, paras 38, 41, 43, 45, 48, 50, 61–62, 64.] It was unnecessary to decide whether the judgment was enforceable under the CBIR: para 63.

90. “In short, Ward LJ accepted that the judgment was an in personam judgment, but he decided that the Dicey Rule did not apply to foreign judgments in avoidance proceedings because they were central to the collective enforcement regime in insolvency and were governed by special rules.”

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?”

92. “Ward LJ’s conclusion derives from a careful synthesis of dicta in Lord Hoffmann’s brilliantly expressed opinion in Cambridge Gas and his equally brilliant speech in HIH, each of which has on these appeals been subjected to an exceptionally detailed analysis. For reasons which will be developed, I do not agree with the conclusions which Ward LJ draws.”

93. “But I begin with two matters on which I accept the respondents’ analysis. The first is that avoidance proceedings have characteristics which distinguish them from ordinary claims such as claims in contract or tort. The second is that, if it were necessary to draw a distinction between insolvency orders and other orders, it would not be difficult to formulate criteria for the distinction, along similar lines to that drawn by the European Court [of Justice] in relation to the Brussels Convention, the Brussels I Regulation (Council Regulation (EC) 44/2001 ) and the EC Insolvency Regulation.”

[Nature of avoidance proceedings]

94. “In order to achieve a proper and fair distribution of assets between creditors, it will often be necessary to adjust prior transactions and to recover previous dispositions of property so as to constitute the estate which is available for distribution. The principle of equality among creditors which underlies the pari passu principle may require the adjustment of concluded transactions which—but for the winding up of the company—would have remained binding on the company, and the return to the company of payments made or property transferred under the transactions or the reversal of their effect.”

“Systems of insolvency law use avoidance proceedings as mechanisms for adjusting prior transactions by the debtor and for recovering property disposed of by the debtor prior to the insolvency. Thus under the Insolvency Act 1986 an administrator, or liquidator, or trustee in bankruptcy may, where there has been a transaction at an undervalue, or amounting to an unlawful preference, apply for an order restoring the position to what it would have been had the transaction not taken place: sections 238 et seq. and 339 et seq., Other systems of law have similar mechanisms, but they will differ in matters such as the period during which such transactions are at risk of reversal and the role of good faith of the parties to the transaction.”

95. “The underlying policy is to protect the general body of creditors against a diminution of the assets by a transaction which confers an unfair or improper advantage on the other party, and it is therefore an essential aspect of the process of liquidation that antecedent transactions whose consequences have been detrimental to the collective interest of the creditors should be amenable to adjustment or avoidance: Fletcher, Law of Insolvency, 4th ed (2009), para 26‑002; Goode, Principles of Corporate Insolvency Law, 4th ed (2011), para 13‑03.”

96. “Thus the UNCITRAL Legislative Guide on Insolvency Law (2005) says: ‘150. Many insolvency laws include provisions that apply retroactively from a particular date (such as the date of application for, or commencement of, insolvency proceedings) for a specified period of time (often referred to as the ‘suspect’ period) and are designed to overturn those past transactions to which the insolvent debtor was a party or which involved the debtor’s assets where they have certain effects. ¼’”

151. “‘It is a generally accepted principle of insolvency law that collective action is more efficient in maximizing the assets available to creditors than a system that leaves creditors free to pursue their individual remedies and that it requires all like creditors to receive [like] treatment. Provisions dealing with avoidance powers are designed to support these collective goals, ensuring that creditors receive a fair allocation of an insolvent debtor’s assets consistent with established priorities and preserving the integrity of the insolvency estate.’”

97. “In In re Condor Insurance Ltd, 601 F 3d 319, 326 (5th Cir. 2010), the [U.S.] Court of Appeals for the Fifth Circuit said that: ‘Avoidance laws have the purpose and effect of re‑ordering the distribution of a debtor’s assets ¼ in favor of the collective priorities established by the distribution statute ¼ [and] must be treated as an integral part of the entire bankruptcy system.”

98. “In different phases of the Australian proceedings in New Cap Barrett J made similar points. He said that in an action for unfair preference under the Australian legislation the liquidator might obtain an order for the payment of money, but the action did not contemplate recovery in the sense applicable to damages and debts; and the proceedings sought to remedy or counter the effects of that depletion caused by the payment by New Cap: New Cap Reinsurance Corpn v Renaissance Reinsurance Ltd [2002] NSWSC 856, paras 23, 27. The order does not vindicate property rights which the company itself would have had prior to liquidation, but statutory rights which the liquidator has under the statutory scheme in consequence of winding up. The purpose of the order for the payment of money to a company in liquidation is not to compensate the company, but to adjust the rights of creditors among themselves in such a way as to eliminate the effects of favourable treatment afforded to one or more creditors, to the exclusion of others, in the period immediately before an insolvent administration commences: New Cap Reinsurance Corpn v Grant [2009] NSWSC 662, 257 ALR 740, paras 20‑21.

[Difference between insolvency claims and others]

99. “I also accept that, if there were to be a separate rule for the recognition and enforcement of insolvency orders, it would not normally be difficult to distinguish between judgments in insolvency proceedings which are peculiarly the subject of insolvency law such as avoidance proceedings, and other judgments of the kind which are covered by the Dicey Rule.”

100. “In the context of the Brussels Convention, the Brussels I Regulation and the EC Insolvency Regulation, the European Court has developed a distinction between claims which derive directly from the bankruptcy or winding up, and which are closely connected with them, on the one hand, and those which do not, on the other hand, and the distinction has been applied by the English court. In my judgment, the distinction is a workable one which could be adapted to other contexts should it be useful or necessary to do so.”

101. “Claims which were regarded as bankruptcy claims have been held to include a claim under French law by a liquidator against a director to make good a deficiency in the assets of a company (Gourdain v. Nadler (Case 133/78) [1979] ECR 733 ); or a claim under German law to set aside a transaction detrimental to creditors (Seagon v Deko Marty NV (Case C‑339/07) [2009] 1 WLR 2168).”

“Claims outside the category of bankruptcy claims have been held to include an action brought by a seller based on a reservation of title against a purchaser who was insolvent ( German Graphics Graphische Maschinen GmbH v. van der Schee (Case C‑292/08) [2009] ECR I‑8421) or a claim by a liquidator as to beneficial ownership of an asset (Byers v. Yacht Bull Corp. [2010] EWHC 133 (Ch); [2010] BCC 368).”

“In Oakley v. Ultra Vehicle Design Ltd. [2005] EWHC 872 (Ch.); [2006] BCC 57, Lloyd LJ [(sitting as an additional judge of the Chancery Division)] said, at para. 42): ‘it has been held that a claim by a liquidator to recover pre‑ liquidation debts, although made in the course of the winding up and so, in a sense, relating to it, does not derive directly from it and is therefore not excluded from the Brussels Convention (and therefore now not from the [Brussels I] Regulation) by article 1.2(b): see In re Hayward decd. [1997] Ch 45, and UBS AG v. Omni Holding AG [2000] 1 WLR 916.”

“By contrast, proceedings by a liquidator against a director or a third party to set aside a transaction as having been effected at an undervalue or on the basis of wrongful or fraudulent trading would be claims deriving directly from the winding up and therefore excluded from the Brussels Convention and now from the [Brussels I] Regulation.”

[In personam or sui generis]

102. “I have already quoted the passage in Cambridge Gas in which Lord Hoffmann distinguished between judgments in rem and in personam, on the one hand, and judgments in bankruptcy proceedings, on the other, but it is necessary to repeat it at this point. He said:

‘13.¼ 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.’

‘14.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. ¼’”

103. “There is no doubt that the order of the U.S. Bankruptcy Court in Cambridge Gas did not fall into the category of an in personam order. Even though the question whether a foreign judgment is in personam or in rem is sometimes a difficult one (Dicey, 15th ed, para. 14‑109), that was not a personal order against its shareholders, including Cambridge Gas.”

“The order vested the shares in Navigator in the creditors’ committee. It did not declare existing property rights. Indeed the whole purpose of what was the functional equivalent of a scheme of arrangement was to alter property rights. But it is not easy to see why it was not an in rem order in relation to property in the Isle of Man in the sense of deciding the status of a thing and purporting to bind the world: see Jowitt’s Dictionary of English Law, 3rd ed (2010) (ed. Greenberg), p 1249.”

104. “The judgment in the Rubin [and New Cap] appeal were based on avoidance legislation which, with some differences of substance, performs the same function as the equivalent provisions in the Insolvency Act 1986 and its predecessors. But Ward LJ in Rubin accepted that the judgment was in personam and the Rubin respondents have not sought to argue that it was not an in personam judgment. What they say is that, even if it is in personam, it is within a sui generis category of insolvency orders or judgments subject to special rules.”

105. “There can be no doubt that the avoidance orders in the present appeal[s] are in personam. In In re Paramount Airways Ltd. [1993] Ch. 223, 238, Nicholls LJ said that the remedies under section 238 of the Insolvency Act 1986, (transactions at an undervalue) were ‘primarily of an in personam character,’ and that accords with the nature of the orders in these appeals. The form of judgment of the U.S. Bankruptcy Court in the Rubin case was that ‘plaintiffs have judgment ¼ against the defendants ¼’ in the sums awarded ¼”

[The question of principle and policy]

106. “Since the judgments are in personam the principles in the Dicey Rule are applicable unless the court holds that there is, or should be, a separate rule for judgments in personam in insolvency proceedings, at any rate where those judgments are not designed to establish the existence of rights, but are central to the purpose of the insolvency proceedings or part of the mechanism of collective execution.”

107. “Prior to Cambridge Gas and the present case, there had been no suggestion that there might be a different rule for judgments in personam in insolvency proceedings and other proceedings. There are no cases in England which are helpful. [The normal rules for enforcement of foreign judgments were applied to a claim by a liquidator for moneys due to the company ( Gavin Gibson & Co Ltd v Gibson [1913] 3 KB 379 ) and to a claim on a debt ascertained in bankruptcy under German law (Berliner Industriebank Aktiengesellschaft v Jost [1971] 2 QB 463 ).] A judgment of the U.S. Bankruptcy Court in Chapter 11 proceedings for repayment of a preferential transfer was enforced in Ontario on the basis of the judgment debtor’s submission to the New York [federal] court, without any suggestion that the normal rules did not apply: Gourmet Resources International Inc. v. Paramount Capital Corpn. (1991) 3 OR (3d) 286; [1993] ILPr 583, appeal dismissed (1993) 14 OR (3d) 319 (Ont. CA).”

108. “The principles in the Dicey Rule have never received the express approval of the House of Lords or the U.K. 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: e.g. In re Henderson, Nouvion 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 [either party] 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’, i.e. 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.”

111. “The Supreme Court of Ireland in In re Flightlease (Ireland) Ltd. [2012] IESC 12, declined to follow Cambridge Gas (and also the decision of the Court of Appeal in Rubin) and also held that the Dicey Rule should not be rejected in favour of a real and substantial connection test. In Flightlease, the airline Swissair was in a form of debt restructuring proceeding in Switzerland, where it was incorporated. Flightlease is an Irish company in the same group as Swissair.”

“An application was before the Swiss courts under the Swiss federal statute on debt enforcement and bankruptcy seeking the return of money paid by Swissair to Flightlease. The proceedings had reached the stage of judgment, but the liquidators of Flightlease were concerned to know whether a Swiss judgment would be enforceable in Ireland so that they could decide whether to appear in the Swiss proceedings.”

112. “The Irish Supreme Court held that the judgment would not be enforceable if Flightlease did not appear in the Swiss proceedings for these reasons: (1) the effect of the Swiss order would be to establish a liability on Flightlease to repay moneys and would therefore result in a judgment in personam; (2) it would be preferable for any change in the rules relating to the enforcement of foreign judgments to take place in the context of international consensus by way of treaty or convention given effect by legislation. In particular, the Irish Supreme Court said that it would not adopt the approach in Cambridge Gas because it had resulted from legislative changes in the United Kingdom (this appears to have been based on a misapprehension), and should not be adopted in Ireland in the absence of consensus among common law jurisdictions.”

113. “But there is no suggestion on this appeal that the principles embodied in the Dicey Rule should be abandoned. Instead the Rubin respondents suggest that the principles should not apply to foreign insolvency orders.”

114. “The respondents accept that the Dicey Rule applies to claims which may be of considerable significance by an officeholder in a foreign insolvency, such as a claim for breach of contract, or a tort claim, or a claim to recover debts. It is clear that such claims may affect the size of the insolvent estate just as much, and often more, than avoidance claims. Like claims to recover money due to the insolvent estate such as restitutionary claims not involving avoidance, avoidance claims may establish a liability to pay or repay money to the bankrupt estate (as in the present cases). There is no difference of principle.”

115. “The question, therefore, is one of policy. Should there be a more liberal rule for avoidance judgments in the interests of the universality of bankruptcy and similar procedures? In my judgment, the answer is in the negative for the following reasons.”

116. “First, although I accept that it is possible to distinguish between avoidance claims and normal claims, for example in contract or tort, it is difficult to see in the present context a difference of principle between a foreign judgment against a debtor on a substantial debt due to a company in liquidation and a foreign judgment against a creditor for repayment of a preferential payment. The respondents suggest that a person who sells goods to a foreign company accepts the risk of the insolvency legislation of the place of incorporation. Quite apart from the fact that the suggestion is wholly unrealistic, why should the seller/creditor be in a worse position than a buyer/debtor?”

117. “The second reason is that, if there is to be a different rule for foreign judgments in such proceedings as avoidance proceedings, the court will have to ascertain (or, more accurately, develop) two jurisdictional rules. There are two aspects of jurisdiction which would have to be satisfied if a foreign insolvency judgment or order is to be outside the scope of the Dicey Rule: the first is the requisite nexus between the insolvency and the foreign court; and the second is the requisite nexus between the judgment debtor and the foreign court.”

118. “In Cambridge Gas, Navigator was an Isle of Man company, and the jurisdiction of the U.S. Bankruptcy Court depends on whether the ‘debtor’ resides or has a domicile or place of business, or property, in the United States. The shares in Navigator owned by Cambridge Gas (a Cayman Islands company) were, on ordinary principles of the conflict of laws, situated in the Isle of Man, and the shareholder relationship between Navigator and Cambridge Gas was governed by Manx law. The Privy Council, as noted above, did not articulate any rule for the jurisdiction of the U.S. Bankruptcy Court over Navigator (although it had plainly submitted to its jurisdiction) or over Cambridge Gas (which, the Manx courts had held and the Privy Council accepted, had not submitted) or over Cambridge Gas’ Manx assets.”

119. “Nor did the Court of Appeal in Rubin articulate the reasons why the English court recognised the jurisdiction of the U.S. Bankruptcy Court over TCT, or over the appellants. The receivers appear to have proceeded originally on the basis that the U.S. Bankruptcy Court had jurisdiction under U.S. bankruptcy law because of TCT’s residence and principal place of business in New York but the U.S. Bankruptcy Court, in deciding to appoint the receivers as foreign representatives also noted that TCT’s business operations were conducted primarily in the United States, the majority of its creditors, substantially all of its assets, and its centre of main interests, were all in the United States.”

“The basis of jurisdiction of the U.S. Bankruptcy Court under United States law over the individual defendants in Rubin was that they were subject both to the general jurisdiction of the court (i.e. connection of the defendant with the jurisdiction) and also to the specific jurisdiction of the court (i.e. connection of the cause of action with the jurisdiction) because they specifically sought out the United States as a place to do business and specifically sought out United States merchants and consumers with whom to do business. Accordingly, the exercise of jurisdiction satisfied the due process requirements of the [U.S.] Fifth Amendment.”

121. “The respondents do not put forward any principled suggestion for rules which will deal with the[se] two aspects of jurisdiction. They accept, as regards the jurisdictional link between the foreign country and the insolvent estate, that English law has traditionally recognised insolvency proceedings taking place in an individual bankrupt’s place of domicile, or, in the case of corporations, the place of incorporation, but (because the connection which the trustees of the TCT, or the TCT itself, had with the United States was that the trust’s main business was there) they rely on what Lord Hoffmann said in HIH, [2008] UKHL 21; [2008] 1 WLR 852, para 31:

“[He then said] ‘I have spoken in a rather old‑fashioned way of the company’s domicile because that is the term used in the old cases, but I do not claim it is necessarily the best one. Usually it means the place where the company is incorporated but that may be some offshore island with which the company’s business has no real connection. The Council Regulation on insolvency proceedings (Council Regulation (EC) No 1346/2000 of 29 May 2000) uses the concept of the ‘centre of a debtor’s main interests’ as a test, with a presumption that it is the place where the registered office is situated: see article 3.1. That may be more appropriate.’”

122. “They propose that each of these issues be resolved, not by a black letter rule—like the common law rule for enforcement of judgments—but instead by an appeal to what was said in oral argument to be the discretion of the English court to assist the foreign court.”

123. “On the second aspect—the jurisdictional link between the foreign country and the judgment debtor—they accept that it is necessary for there to be an appropriate connection between the foreign insolvency proceeding and the insolvency order in respect of which recognition and enforcement is sought. They propose that, in the exercise of its discretion, the court should adopt an approach similar to that taken by the English court in deciding whether to apply provisions of the Insolvency Act 1986, such as Section 238 (transactions at an undervalue), to persons abroad, relying on In re Paramount Airways Ltd. [1993] Chapter 223.”

124. “That case decided that there is no implied territorial limitation to the exercise of jurisdiction over ‘any person.’ The Court of Appeal rejected the argument that the section applied only to British subjects and to persons present in England at the time of the impugned transaction. In particular the physical absence or presence of the party at the time of the transaction bore no necessary relationship to the appropriateness of the remedy. Nor was the test of ‘sufficient connection’ with England satisfactory because it would hardly be distinguishable from the ambit of the sections being unlimited territorially: p. 237.”

“Instead, the approach was to be found in the discretion of the court, first to grant permission to serve the proceedings out of the jurisdiction, and secondly, to make an order under the section. On both aspects the court would take into account whether the defendant was sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element.”

125. “The Rubin respondents say that In re Paramount Airways Ltd. is instructive because, if the facts of the present case were reversed such that TCT had carried on the scheme in England and had been placed into insolvency proceedings here and the appellants were resident in New York, then it can be expected that the English court would have considered that England was the correct forum in which to bring section 238 proceedings to recover payments made to the appellants and would have given permission to serve out of the jurisdiction accordingly.”

“They go on to say that it is implicit in this that the English court would have expected the New York court then to recognise and enforce any judgment of the English court even if the appellants had remained in New York and had not contested the proceedings; and that by the same token that the court seeks and expects the recognition and enforcement abroad of its own insolvency orders, the [English] court should recognise and enforce in England insolvency orders made in insolvency proceedings in other jurisdictions.”

126. “There is no basis for this line of reasoning. There is no necessary connection between the exercise of jurisdiction by the English court and its recognition of the jurisdiction of foreign courts, or its expectation of the recognition of its judgments abroad. It has frequently been said that the jurisdiction exercised under what used to be RSC Ord 11, 1 (and is now CPR Practice Direction 6B, para 3.1) is an exorbitant one, in that it was a wider jurisdiction than was recognised in English law as being possessed by courts of foreign countries in the absence of a treaty providing for recognition: [Cites] [see The Siskina (Owners of cargo lately laden on board) v Distos Cia Naviera SA [1979] AC 210, 254 per Lord Diplock; Amin Rasheed Shipping Corpn v Kuwait Insurance Co [1984] AC 50, 65 per Lord Diplock; Spiliada Maritime Corpn v Cansulex Ltd [1987] AC 460, 481 per Lord Goff of Chieveley.”]

127. “Outside the sphere of matrimonial proceedings ¼ reciprocity has not played a part in the recognition and enforcement of foreign judgments at common law. The English court does not concede jurisdiction in personam to a foreign court merely because the English court would, in corresponding circumstances, have power to order service out of the jurisdiction: In re Trepca Mines Ltd. [1960] 1 WLR 1273.”

128. “In my judgment, the dicta in Cambridge Gas and HIH do not justify the result which the Court of Appeal reached. This would not be an incremental development of existing principles, but a radical departure from substantially settled law. There is a reason for the limited scope of the “Dicey Rule” and that is that there is no expectation of reciprocity on the part of foreign countries. Typically today the introduction of new rules for enforcement of judgments depends on a degree of reciprocity. The EC Insolvency Regulation and the Model Law were the product of lengthy negotiation and consultation.”

129. “A change in the settled law of the recognition and enforcement of judgments, and in particular the formulation of a rule for the identification of those courts which are to be regarded as courts of competent jurisdiction (such as the country where the insolvent entity has its centre of interests and the country with which the judgment debtor has a sufficient or substantial connection), has all the hallmarks of legislation, and is a matter for the legislature and not for judicial innovation.”

“The law relating to the enforcement of foreign judgments and the law relating to international insolvency are not areas of law which have in recent times been left to be developed by judge‑made law. As Lord Bridge of Harwich put it in relation to a proposed change in the common law rule relating to fraud as a defence to the enforcement of a foreign judgment, ‘if the law is now in need of reform, it is for the legislature, not the judiciary, to effect it’: Owens Bank Ltd. v Bracco, [1992] 2 AC 443, 489.”

130. “Furthermore, the introduction of judge‑made law extending the recognition and enforcement of foreign judgments would be only to the detriment of United Kingdom businesses without any corresponding benefit. I accept the appellants’ point that, if recognition and enforcement were simply left to the discretion of the court, based on a factor like ‘sufficient connection,’ a person in England who might have connections with a foreign territory which were only arguably ‘sufficient’ would have to actively defend foreign proceedings which could result in an in personam judgment against him, only because the proceedings are incidental to bankruptcy proceedings in the courts of that territory.”

“Although I say nothing about the facts of the Madoff case, it might suggest that foreigners who have bona fide dealings with the United States might have to face the dilemma of the expense of defending enormous claims in the United States or not defending them [at all] and being at risk of having a default judgment enforced abroad.”

131. “Nor is there likely to be any serious injustice if this court declines to sanction a departure from the traditional rule. It would not be appropriate to express a view on whether the officeholders in the present cases would have, or would have had, a direct remedy in England, because there might be, or might have been, issues as to the governing law, or issues as to time‑limits or as to good faith.”

“Subject to those reservations, several of the ways in which the claims were put (especially those parts of the judgment which were not the subject of these proceedings) in the United States proceedings in Rubin could have founded proceedings by trustees in England for the benefit of the creditors (as beneficiaries of the express trust)¼.”

132. “It follows that, in my judgment, Cambridge Gas was wrongly decided. The Privy Council accepted (in view of the conclusion that there had been no submission to the jurisdiction of the court in New York) that Cambridge Gas was not subject to the personal jurisdiction of the U.S. Bankruptcy Court. The property in question, namely the shares in Navigator, was situate in the Isle of Man, and therefore also not subject to the in rem jurisdiction of the U.S. Bankruptcy Court. There was, therefore, no basis for the recognition of the order of the U.S. Bankruptcy Court in the Isle of Man.”

133. “In the Rubin appeal it was argued by the respondents that the judgment should also be enforced through the CBIR, implementing the UNCITRAL Model Law.”

134. “The order made by the deputy judge recognised the Chapter 11 proceeding ‘including the Adversary Proceedings,’ because ‘bringing adversary proceedings against debtors of the bankrupt is clearly part of collecting the bankrupt’s assets with a view to distributing them to creditors’ and ‘the adversary proceedings are part and parcel of the Chapter 11 insolvency proceedings’: ¼The appellants no longer maintain that the adversary proceedings should not be recognised under the Model Law.”

135. “The issue which still arises in relation to the Model Law as implemented by the CBIR is whether the court has power to grant relief recognising and enforcing the relevant parts of the judgment.”

136. “Article 21 provides that: ‘1. Upon recognition of a foreign proceeding, whether main or non‑main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including – (a) staying the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph l (a) of article 20; (b) staying execution against the debtor’s assets to the extent it has not been stayed under paragraph l(b) of article 20; (c) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1(c) of article 20; (d) providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities; (e) entrusting the administration or realisation of all or part of the debtor’s assets located in Great Britain to the foreign representative or another person designated by the court; (f) extending relief granted under paragraph 1 of article 19; and (g) granting any additional relief that may be available to a British insolvency officeholder under the law of Great Britain, including any relief provided under paragraph 43 of Schedule B1 to the Insolvency Act 1986.”

137. “The reference to relief under paragraph 43 of Schedule B1 to the Insolvency Act 1986 is a reference to a moratorium on claims in an administration.”

138. “The Guide to Enactment states, at paras 154, 156: The types of relief listed in article 21, paragraph 1, are typical or most frequent in insolvency proceedings; however, the list is not exhaustive and the court is not restricted unnecessarily in its ability to grant any type of relief that is available under the law of the enacting state and needed in the circumstances of the case.’”

‘[156]. It is in the nature of discretionary relief that the court may tailor it to the case at hand. This idea is reinforced by article 22, paragraph 2, according to which the court may subject the relief granted to conditions that it considers appropriate.”

139. “Article 25 provides (under the heading ‘Co‑operation and direct communication between a court of Great Britain and foreign courts or foreign representatives’) that: ‘1.¼ the court may co‑operate to the maximum extent possible with foreign courts or foreign representatives, either directly or through a British insolvency officeholder; 2. The court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.”

140. “Article 27 provides that the co‑operation referred to in article 25 may be implemented ‘by any appropriate means’, including ‘(a) appointment of a person to act at the direction of the court; (b) communication of information by any means considered appropriate by the court; (c) coordination of the administration and supervision of the debtor’s assets and affairs; (d) approval or implementation by courts of agreements concerning the coordination of proceedings; (e) coordination of concurrent proceedings regarding the same debtor.”

141. “The respondents say that: (a) the power under article 21 is to grant any type of relief that is available under the law of the relevant state, and that the fact that recognition and enforcement of foreign judgments is not specifically mentioned in article 21 as one of the forms of relief available, does not mean that such relief cannot be granted; (b) the recognition and enforcement of the judgments of a foreign court is the paradigm means of co‑operation with that court; and (c) the examples of co‑operation in article 27 are merely examples and are not exhaustive.”

142. “But the CBIR (and the Model Law) say nothing about the enforcement of foreign judgments against third parties. As Lord Mance pointed out in argument, recognition and enforcement are fundamental in international cases. Recognition and enforcement of judgments in ‘civil and commercial’ matters (but not in insolvency matters) have been the subject of intense international negotiations at the Hague Conference on Private International Law, which ultimately failed because of inability to agree on recognised international bases of jurisdiction.”

143. “It would be surprising if the Model Law was intended to deal with judgments in insolvency matters by implication. Articles 21, 25 and 27 are concerned with procedural matters. No doubt they should be given a purposive interpretation and should be widely construed in the light of the objects of the Model Law, but there is nothing to suggest that they apply to the recognition and enforcement of foreign judgments against third parties.”

144. “The respondents rely on United States decisions but the only case involving enforcement of a foreign judgment in fact supports the appellants’ argument. The Model Law has been implemented into United States law through Chapter 15 of Title 11 of the United States Code, which has in sections 1521, 1525 and 1527 provisions which are, with modifications not relevant for present purposes, equivalent to articles 21, 25 and 27 of the CBIR.”

“In Re Metcalfe & Mansfield Alternative Investments 421 BR 685 (Bankr SDNY 2010), the U.S. Bankruptcy Court ordered that orders made by a Canadian court in relation to a plan of compromise and arrangement under the (Canadian) Companies’ Creditors Arrangement Act 1985 be enforced. That decision does not assist the respondents because the U.S. Bankruptcy Court applied the normal rules in non‑bankruptcy cases for enforcement of foreign judgments in the United States: pp 698–700. In my judgment, the Model Law is not designed to provide for the reciprocal enforcement of judgments.” ¼”

168. “[The position is different] in the Rubin appeal. It would certainly have been arguable that Eurofinance SA had submitted to the jurisdiction of the United States District Court, for these reasons: first, it was Eurofinance SA which applied for the appointment by the High Court of Mr. Rubin and Mr. Lan as receivers of TCT specifically for the purpose of causing TCT then to obtain protection under Chapter 11; second, it was Eurofinance SA which represented to the English court that officeholders appointed by the United States court would be able to pursue claims against third parties; third, the judgment of the U.S. Bankruptcy Court states that the court had personal jurisdiction over Eurofinance SA not only because it did business in the United States but also (as I have mentioned above) because it had filed a notice of appearance in the Chapter 11 proceedings (Order 22 of July 2008, paras 42‑43).”

169. “But the Rubin appellants did not appear in the adversary proceedings, and it was not argued in these proceedings that Eurofinance SA (or Mr. Adrian Roman, who caused Eurofinance SA to make the application) had submitted to the jurisdiction of the U.S. Bankruptcy Court in any other way and it is not necessary therefore to explore the matter further.” ¼”

177. “I would therefore allow the appeal in Rubin¼” [Three Justices substantially agree with the above opinion and there is one dissent.]

Citation: Rubin v. Eurofinance SA, [2012] UKSC 46; [2012]; 3 W.L.R. 1019; 2012 WL 4866933 (U. K. Sup. Ct. 2012).

EXTRATERRITORIAL APPLICABILITY OF U.S. LAW

In reviewing novel issue of congressional power to proscribe conduct abroad, Eleventh Circuit holds that drug trafficking is not an Offense against the Law of Nations and therefore vacates drug convictions of foreign nationals arrested by U.S. Coast Guard in Panama

The following case discusses a novel and important issue of Congress’ power to proscribe conduct abroad. The crucial issue is whether the Maritime Drug Law Enforcement Act, 46 U.S.C. Sections 70503(a), 70506, is within Congress’ constitutional power to “define and punish ¼ Offences against the Law of Nations,” U.S. Constitution, Art. I, Section 8, clause 10.

In this case, Yimmi Bellaizac‑Hurtado and three other individuals abandoned their vessel in the territorial waters of Panama and fled into the jungle when the U.S. Coast Guard approached. Members of the Panamanian Navy then found about 760 kilograms of cocaine on board. The Panamanian National Frontier Service arrested the men, and the Foreign Ministry of Panama consented to their prosecution in the U.S.

A federal grand jury indicted the men for conspiracy to possess, and actual possession of, more than five kilograms [over 11 pounds] of cocaine, under 46 U.S.C. Sections 70503(a), 70506; 21 U.S.C. Section 960(b)(1)(B). The defendants moved to dismiss the indictment based on [1] lack of jurisdiction and on [2] the unconstitutionality of applying the Maritime Drug Law Enforcement Act to their conduct. The U.S. District Court for the Southern District of Florida denied the motion, and the defendants conditionally pled guilty, subject to this appeal.

The U.S. Court of Appeals for the Eleventh Circuit vacates the convictions. The Court concludes that drug trafficking is not an “Offence[] against the Law of Nations” and that Congress cannot constitutionally proscribe a foreign person’s conduct under the Offences clause.

“We divide our discussion in two parts. First, we explain why the power of Congress to define and punish conduct under the Offences Clause is limited by customary international law. Second, we explain why drug trafficking is not a violation of customary international law and, as a result, falls outside of the power of Congress under the Offences Clause.” [Slip op. 5]

The Court first notes that: “The power granted to Congress in the Offences Clause is limited by customary international law for two reasons. First, the related Supreme Court precedent and the text, history, and structure of the Constitution confirm that the power to ‘define’ is limited by the law of nations. Second, the phrase ‘Offences against the Law of Nations’ is understood today to mean violations of customary international law.” [¼]

“The power to ‘define’ offenses against the law of nations does not grant Congress the authority to punish conduct that is not a violation of the law of nations. The Supreme Court has explained that the power to ‘define’ in Article I, Section 8, Clause 10, is limited by the three specific subjects of the Clause. ¼”

“The records of the debates at the Constitutional Convention confirm that the Framers also understood the word ‘define’ to be limited by international law. ¼ The structure of the Constitution also confirms the limited power of Congress under the Offences Clause. If Congress could define any conduct as ‘piracy’ or a ‘felony’ or an ‘offence against the law of nations,’ its power would be limitless and contrary to our constitutional structure. ‘The Constitution creates a Federal Government of enumerated powers. ¼ The Court then finds that “Offences Against the Law of Nations” is synonymous with “Violations of Customary International Law.” [Slip op. 5‑9]

“We and our sister circuits agree that the eighteenth‑century phrase, the ‘law of nations,’ in contemporary terms, means customary international law. Sinaltrainal v. Coca‑Cola Co., 578 F.3d 1252 (11th Cir. 2009), abrogated on other grounds by Mohamad v. Palestinian Auth., __ U.S.___; 132 S. Ct. 1702, 1706 & n.2 (2012) ¼ And although the Supreme Court has never held that the ‘law of nations’ is synonymous with ‘customary international law,’ its decision in Sosa v. Alvarez‑Machain, 542 U.S. 692, 124 S. Ct. 2739 (2004), confirms that it is. See id. at 735 (evaluating whether the ‘prohibition of arbitrary arrest has attained the status of binding customary international law’ to determine whether Alvarez could bring a claim under the Alien Tort Statute).”

“These decisions interpreted the Alien Tort Statute, instead of the Offences Clause, but the Alien Tort Statute was enacted by the First Congress and uses the same term of art—’the law of nations’—that is used in the Offences Clause. Given the proximity in time between the writing of these provisions and the substantial overlap between the delegates of the Constitutional Convention and the members of the First Congress, one would expect that the Framers understood the term ‘the law of nations’ in the Offences Clause and the Alien Tort Statute to mean the same thing.”

“The more difficult question involves how to determine whether a crime violates customary international law. Our Court has referred to customary international law several times, but we have never defined it. ¼ Five of our sister circuits have adopted the definition in the Restatement (Third) of Foreign Relations, which provides that customary international law is the ‘general and consistent practice of states followed by them from a sense of legal obligation,’ Restatement (Third) of Foreign Relations § 102(2) (1987). See Aziz v. Alcolac, Inc., 658 F.3d 388, 399 (4th Cir. 2011); United States v. Struckman, 611 F.3d 560, 576 (9th Cir. 2010); Buell v. Mitchell, 274 F.3d 337, 372 (6th Cir. 2001); Sampson v. Federal Republic of Germany, 250 F.3d 1145, 1149 (7th Cir. 2001); Comm. of U.S. Citizens Living in Nicar. v. Reagan, 859 F.2d 929, 940 (D.C. Cir. 1988). We agree with our sister circuits that customary international law is determined by examining [foreign] state practice and opinio juris:”

“‘Customary international law . . . consists of two components. First, there must be a general and consistent practice of states. This does not mean that the practice must be universally followed; rather it should reflect wide acceptance among the states particularly involved in the relevant activity. Second, there must be a sense of legal obligation, or opinio juris sive necessitatis. In other words, a practice that is generally followed but which states feel legally free to disregard does not contribute to customary law; rather, there must be a sense of legal obligation. States must follow the practice because they believe it is required by international law, not merely because that they think it is a good idea, or politically useful, or otherwise desirable.’ Buell, 274 F.3d at 372 ¼”

“¼ As evidence of customary international law, we consider ‘the works of jurists and commentators who by years of labor, research, and experience have made themselves peculiarly well acquainted with the subjects of which they treat.’ See Sosa, 542 U.S. at 734, 124 S. Ct. at 2766‑67 (quoting The Paquete Habana, 175 U.S. 677, 700, 20 S. Ct. 290, 299 (1900)).” [¼]

“Courts must exercise restraint in defining violations of customary international law because customary international law is, by its nature, difficult to determine: ‘The determination of what offenses violate customary international law ¼ is no simple task. Customary international law is discerned from myriad decisions made in numerous and varied international and domestic arenas. Furthermore, the relevant evidence of customary international law is widely dispersed and generally unfamiliar to lawyers and judges.”

“These difficulties are compounded by the fact that customary international law—as the term itself implies—is created by the general customs and practices of nations and therefore does not stem from any single, definitive, readily‑identifiable source. All of these characteristics give the body of customary international law a soft indeterminate character that is subject to creative interpretation.’ [Flores v. S. Peru Copper Corp., 414 F.3d 233, 247‑49 (2d Cir. 2003). 414 F.3d at 247‑49] ¼.” [Slip op. 10‑14]

After reviewing the law at the time the Constitution was ratified, and under Customary International Law today, the Court concludes drug trafficking is not a violation of Customary International Law. “We need not decide whether the power granted to Congress under the Offences Clause changes with the evolution of customary international law because, under either approach, the result is the same. Drug trafficking was not a violation of customary international law at the time of the Founding, and drug trafficking is not a violation of customary international law today.” [Slip op. 16]

Therefore, Congress exceeded its power under the Offences Clause and it proscribed the defendants’ conduct in the territorial waters of Panama. Therefore, the Act is unconstitutional as applied to these defendants, and their convictions are vacated. The concurring judge also points out that in cases where the alleged conduct has no connection to the U.S. (as is the case here), it can be punished as an Offence[] against the Law of Nations only if it is subject to “universal jurisdiction.”

“For universal jurisdiction to apply to an offense, the international community must reach both a ‘substantive agreement’ that the offense is ‘universally condemned’ and a ‘procedural agreement that universal jurisdiction exists to prosecute [that offense].’ Sosa v. Alvarez‑Machain, 542 U.S. 692, 762 (2004) (Breyer, J., concurring). Thus, ‘because universal jurisdiction over a crime is established by international consensus, a state can only invoke universal jurisdiction for those acts that fall within the specific ‘subset of [universally condemned] behavior’ that the international community has agreed warrants the assertion of universal jurisdiction.’ United States v. Hasan, 747 F. Supp. 2d 599, 608 (E.D. Va. 2010).”

“Drug trafficking does not fall within that subset. No source of customary international law has designated drug trafficking as being subject to universal jurisdiction. The academic community is in accord that drug trafficking is not considered a universal jurisdiction offense.” [Slip op. 32].

Citation: United States v. Bellaizac‑Hurtado, 700 F.3d 1245 (11th Cir. 2012).

FORUM NON CONVENIENCE (INTERNATIONAL)

Reviewing a complex defamation suit brought in the Ontario Courts, the Canadian Supreme Court unanimously rules that neither considerations of personal jurisdiction over some U.S. defendants nor the greater weight of factors appropriate for forum non conveniens analysis warrants dismissal of the Canadian action for trial in the courts of Illinois

This appeal to the Canadian Supreme Court deals with the manner in which the Court should the apply the Canadian law of personal jurisdiction and more fully of its version of the forum non conveniens doctrine, which this Court recently reviewed in Van Breda v. Village Resorts Ltd., 2012 SCC 17 (S.C.C.) (Club Resorts), to this multi‑jurisdictional defamation claim. The Plaintiff below is Lord Conrad Black. He filed six libel actions in the Ontario Superior Court against the ten Defendants, who are directors, advisors and a vice‑president of Hollinger International, Inc. (hereinafter “International”).

Lord Black alleges that certain statements issued by the Defendants and posted on International’s website are seriously defamatory. Moreover, three newspapers had published this material which the Ontario community downloaded, read and republished.

The Defendants counter, however, that the Ontario court should not have taken jurisdiction over the actions because, alternatively: [1] they are essentially American in substance or, [2] because the Illinois court is a more convenient forum than the Ontario court. The Supreme Court of Canada, however, disagrees and dismisses the appeal.

Some background facts are needed. Plaintiff is a business figure with an international reputation. He established a reputation as a newspaper owner and publisher first in Canada, and then internationally. He was a Canadian citizen until 2001. At that point, he abandoned his Canadian citizenship to accept an appointment to the U. K. House of Lords.

Until January 2004, Plaintiff was the chairman of International, a publicly traded company incorporated in Delaware and headquartered at different times in New York or Chicago. Plaintiff and his Canadian associates had effective control over International through The Ravelston Corporation (Ravelston) and Hollinger Inc., two privately held Ontario companies.

In May 2003, a minority shareholder of International challenged the legitimacy of certain “non‑compete” and “management service” payments that International had made to Plaintiff or to companies under his ownership or control. International’s Board of Directors formed a Special Committee to look into look into these matters (the Committee’). It also retained Richard Breeden (an Appellant) and his consulting firm as outside legal counsel to advise the Committee.

Five months later, the Special Committee found out that International had made US$32.15 million in unauthorized “non‑compete” payments to Plaintiff, to Hollinger Inc., and to certain senior managers. Moreover, Plaintiff’s share had been US$7.2 million. The Committee finished its report in August 2004.

A U.S. Consent Order sprang from an injunctive complaint filed by the U.S. Securities and Exchange Commission (SEC) against International in an Illinois federal court. The Committee sent its report to both the SEC and the U.S. District Court; it also posted it on International’s website.

Plaintiff filed six tort actions in the Ontario Superior Court between February 2004 and March 2005. The first four actions had to do with press releases that were posted on International’s website in January (the first three actions) and May of 2004 (the fourth action). The fifth action deals with the Committee’s report. The sixth and last lawsuit complains about defamatory statements published in International’s annual report that summarized the Committee’s findings. The press releases contained contact information directed at Canadian media. International’s website was accessible worldwide.

It is alleged by the Plaintiff that the press releases and reports issued and posted online by the Defendants contained defamatory statements. The Globe and Mail, the Toronto Star and the National Post had downloaded, read and republished this material within Ontario Province. Plaintiff claims damages for injury to his reputation in Ontario.

The motions judge summarized these alleged misdeeds in 8 allegations: [1] that Plaintiff took money from [International] in the form of unauthorized non‑compete payments, thus improperly enriching himself; [2] that Plaintiff misappropriated more than US $200 million from [International] by taking part in repeated and systematic schemes to wrongfully divert corporate assets to himself and his associates; [3] that Plaintiff had presided over a corporate “kleptocracy” that carried out a systemic, willful and deliberate looting of [International]; [4] that Plaintiff created an entity in which ethical corruption was a defining characteristic of the leadership team; [5] that Plaintiff misled the board, breached his fiduciary duties, engaged in self‑dealing, lined his pockets at the expense of [International] almost every day, engaged in tax evasion, and used company money to make millions of dollars worth of charitable donations in his own name; [6] that Plaintiff took US $500 million from [International] for himself and his associates; and [7] that Plaintiff was continuing to use his position as the controlling shareholder to the detriment of [International] and its public shareholders and in breach of U.S. securities laws.

The Defendants moved to stay the six libel actions on the grounds that, jurisdictionally, there was no real and substantial connection between the alleged actions and Ontario province. In the alternative, they urged that a New York or Illinois court would be the more appropriate forum for this case under the Canadian doctrine of forum non conveniens. At the hearing before this court, counsel for the Defendants narrowed the latter doctrine down to the Illinois court as least inconvenient.

Five parties are Defendants in all six of the actions. These are: Richard C. Breeden; Richard C. Breeden & Co.; Gordon A. Paris; Graham W. Savage; and Raymond G.H. Seitz. James R. Thompson and Richard D. Burt are also Defendants in the first four actions. Paul B. Healy is a Defendant in the fifth action and James R. Thompson, Richard D. Burt, Shmuel Meitar and Henry A. Kissinger are Defendants in the sixth action.

Mr. Savage lives in Ontario and Mr. Meitar in Israel. The rest of the Defendants live in the U.S. These include three in Connecticut (Messrs. Kissinger and Breeden plus Richard C. Breeden & Co.); two in New York (Messrs. Paris and Healy); and one each in Illinois (Mr. Thompson), the District of Columbia (Mr. Burt) and New Hampshire (Mr. Seitz). The parties did not differentiate between the six actions for the purposes of the present motion; nor did the courts below.

Independently of this litigation, governments in the U.S. and Canada brought several related civil and criminal proceedings soon after the 2007 release of the Committee’s report. That same year, a U.S. federal court convicted Plaintiff on three counts of mail fraud and one count of obstructing justice. The court sentenced him to 6.5 years in prison. A federal appellate court later vacated two of the convictions for mail fraud. The argument that these convictions are relevant to the litigation since they affect Plaintiff’s admissibility into Canada was made in the courts below. In June 2011, after the hearing before this Court, a U.S. federal trial court resentenced Lord Black to 42 months in federal prison where he is now languishing.

International’s Delaware and Illinois civil actions against Plaintiff also bear on this litigation. The Delaware action claimed that Plaintiff and Hollinger Inc. had breached their contractual and fiduciary duties under Delaware law.

The Illinois suit asserted that Plaintiff and his associates have received more than US$90 million in unauthorized or improperly authorized non‑compete payments. It also alleges that Ravelston and Hollinger Inc. had collected improperly negotiated and grossly excessive management service fees. The Illinois court stayed its action pending resolution of the criminal proceedings against Plaintiff. The lower Canadian courts had taken into account the existence and nature of the civil actions pending in Delaware and Illinois. The case ended up before the Canadian Supreme Court which dismissed the appeal. In a thoughtful opinion by Mr. Justice Louis LeBel, the Supreme Court of Canada explains the Court’s rationale.

15. “The Defendants allege that Plaintiff is a libel tourist. In their view, the ‘place of reading’ approach to libel should be eschewed in cases involving transnational libel claims in favour of an approach that considers whether a real and substantial connection exists between the forum and the substance of the action.”

“In the case of a libel claim, that is the subject matter and conduct giving rise to the words complained of and the context in which they were made. The Defendants contend that the substance of Plaintiff’s actions is American and that both New York and Illinois are clearly more appropriate forums for the trial of the actions than Ontario.”

16. “The Defendants also reject the focus of the courts below on damage sustained in the jurisdiction as misplaced and contend that the analogy to product liability cases is inappropriate. In addition, they submit that whether or not the ‘targeting’ approach is adopted in Canadian law, there was an insufficient basis to make such a finding on these facts. With regard to choice of law, the Defendants reject the use by the courts below of the lex loci delicti test. In their view, lex loci delicti is ill‑suited to transnational defamation claims if it is determined solely on the basis of where damage occurs, as damage may occur in multiple jurisdictions. The Defendants submit that American law should be applied to the actions, reflecting their substance.”

17. “Plaintiff rejects the allegation that he is a ‘libel tourist.’ He submits that, when properly applied to transnational defamation claims, the real and substantial connection test is satisfied where: (a) there is substantial publication in the jurisdiction; (b) the plaintiff has a substantial reputation to protect in the jurisdiction; and (c) the defendant is in a position to reasonably foresee substantial publication in the jurisdiction and to know of the plaintiff’s substantial reputation there. In Plaintiff’s view, the courts below correctly applied this test to find that all three conditions were satisfied on the facts of this case.”

18. “Plaintiff also contends that the approach advocated by the Defendants would improperly shift the focus of Canada’s defamation law from the reputation of the plaintiff to the conduct of the defendant. With regard to choice of law, Plaintiff submits that this Court has established that lex loci delicti is the choice of law rule for tort claims. In libel cases, that is the place of publication, which in this case is Ontario.”

19. On the first question of personal jurisdiction simpliciter, Mr. Justice LeBel concisely explains his Court’s reasoning. “Presence and consent are the two traditional bases of court jurisdiction in private international law. As discussed above, however, in this case, only one of the ten defendants is resident in Ontario and none of the other nine has consented to submit to the jurisdiction of the Ontario court. It is therefore necessary to engage in the real‑and‑substantial‑connection analysis to determine whether the Ontario court may properly assume jurisdiction over the six libel actions brought by Plaintiff. The framework for the assumption of jurisdiction was recently set out by this Court in Club Resorts, cited supra.”

20. “The issue of the assumption of jurisdiction is easily resolved in this case based on a presumptive connecting factor—the alleged commission of the tort of defamation in Ontario. It is well established in Canadian law that the tort of defamation occurs upon publication of a defamatory statement to a third party.”

“In this case, publication occurred when the impugned statements were read, downloaded and republished in Ontario by three newspapers. It is also well established that [the law regards that] every repetition or republication of a defamatory statement constitutes a new publication. The original author of the statement may be held liable for the republication where it was authorized by the author or where the republication is the natural and probable result of the original publication (see R. E. Brown, The Law of Defamation in Canada (1987), vol. 1, at pp. 253‑54).”

“In my view, the republication in the three [Ontario] newspapers of statements contained in press releases issued by the Defendants clearly falls within the scope of this rule. In the circumstances, the Defendants have not displaced the presumption of jurisdiction that results from this connecting factor.”

21. “Having established that there is a real and substantial connection between Ontario and the libel actions, I must now turn to the question of whether the Ontario court should exercise jurisdiction over the actions — the issue of forum non conveniens.”

22. “Having found that a real and substantial connection exists between the actions and Ontario, I must now determine whether the Ontario court should nonetheless decline to exercise its jurisdiction on the ground that a court of another jurisdiction is clearly a more appropriate forum for the hearing of the actions. The Defendants contend that Illinois is a clearly more appropriate forum than Ontario. For the reasons that follow, I disagree.”

23. “Under the forum non conveniens analysis, the burden is on the party raising the issue to demonstrate that the court of the alternative jurisdiction is a clearly more appropriate forum (see Club Resorts, supra, at para. 103). The factors to be considered by a court in determining whether an alternative forum is clearly more appropriate are numerous and variable.”

“While they are a matter of common law, they have also been codified, for example, in a non‑exhaustive list in s. 11(2) of the British Columbia Court Jurisdiction and Proceedings Transfer Act (CJPTA) S.B.C. 2003, c. 28. [That Act and others are themselves based on a uniform Act proposed by the Uniform Law Conference of Canada (Lloyd’s Underwriters v. Cominco Ltd., 2009 SCC 11, [2009] 1 S.C.R. 321 (S.C.C.), at para. 22; Club Resorts, at paras. 105‑106), the Uniform Court Jurisdiction and Proceedings Transfer Act (CJPTA).]”

“Section 11 of the CJPTA states: ‘11(1) After considering the interests of the parties to a proceeding and the ends of justice, a court may decline to exercise its territorial competence in the proceeding on the ground that a court of another state is a more appropriate forum in which to hear the proceeding; (2) A court, in deciding the question of whether it or a court outside [the enacting province or territory] is the more appropriate forum in which to hear a proceeding, must consider the circumstances relevant to the proceeding, including: (a) the comparative convenience and expense for the parties to the proceeding and for their witnesses in litigating in the court or in any alternative forum; (b) the law to be applied to issues in the proceeding; (c) the desirability of avoiding multiplicity of legal proceedings; (d) the desirability of avoiding conflicting decisions in different courts; (e) the enforcement of an eventual judgment; and (f) the fair and efficient working of the Canadian legal system as a whole.’”

24. “As the drafters of the CJPTA confirm in their comments on s. 11, the factors enumerated in s. 11(2) reflect ‘factors that have been expressly or implicitly considered by courts in the past’. Section 11 of the CJPTA is also similar to the forum non conveniens provision of the Civil Code of Québec, S.Q. 1991, c. 64, and the factors considered by Quebec courts in exercising their discretion under that provision. Article 3135 of the Civil Code states: ‘Even though a Québec authority has jurisdiction to hear a dispute, it may exceptionally and on an application by a party, decline jurisdiction if it considers that the authorities of another country are in a better position to decide [it].’”

25. “As stated in Club Resorts, the use of the term ‘exceptionally’ in art. 3135, like ‘clearly more appropriate ... forum’, reflects ‘an acknowledgment that the normal state of affairs is that jurisdiction should be exercised once it is properly assumed’ [Cite] The factors most commonly considered by Quebec courts in exercising this discretion were reviewed in Lexus Maritime Inc. v. Oppenheim Forfait GmbH [1998 CarswellQue 638 (Que. C.A.)], 1998 CanLII 13001, where the Quebec Court of Appeal established that the relevant considerations include, among others, the following factors which are not individually determinative but must be considered globally. (para. 18).”

“[They consist of ] (1) the place of residence of the parties and witnesses; (2) the location of the evidence; (3) the place of formation and execution of the contract; (4) the existence of proceedings pending between parties in another jurisdiction and the stage of any such proceeding; (5) the location of the defendant’s assets; (6) the applicable law; (7) the advantage conferred on the plaintiff by its choice of forum; (8) the interests of justice; (9) the interests of the two parties; and (10) the need to have the judgment recognized in another jurisdiction.”

26. “With the exception of juridical advantage, the Oppenheim factors appear to largely correspond to the factors enumerated in s. 11(2) of the CJPTA. The CJPTA does not provide for consideration of any factor corresponding to the advantage conferred on the plaintiff by its choice of forum, although it also does not specifically exclude consideration of this factor where it is relevant.”

“This approach is consistent with this Court’s observation in Club Resorts that an emphasis on juridical advantage may be inconsistent with the principles of comity. In particular, a focus on juridical advantage may put too strong an emphasis on issues that may reflect only differences in legal tradition which are deserving of respect, or courts may be drawn too instinctively to view disadvantage as a sign of inferiority and favour their home jurisdiction (para. 112).”

27. “Juridical advantage not only is problematic as a matter of comity, but also—as a practical matter—may not add very much to the jurisdictional analysis. As this Court emphasized in Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897 (S.C.C.), ‘[a]ny loss of advantage to the foreign plaintiff must be weighed as against the loss of advantage, if any, to the defendant in the foreign jurisdiction if the action is tried there rather than in the domestic forum’ (p. 933). Juridical advantage therefore should not weigh too heavily in the forum non conveniens analysis.”

28. “In addition to the list of factors that a court may consider in determining whether to decline to exercise its jurisdiction, the CJPTA also sets out the role that considerations of fairness to both parties play in the forum non conveniens analysis: s. 11(1) states that ‘[a]fter considering the interests of the parties to a proceeding and the ends of justice, a court may decline to exercise its territorial competence in the proceeding on the ground that a court of another state is a more appropriate forum in which to hear the proceeding’ While the factors relevant to the forum non conveniens analysis will vary depending on the context of each case, s. 11 of the CJPTA serves as a helpful reference.”

29. “When the forum non conveniens analysis is applied to the circumstances of the instant appeal, it becomes apparent that both the courts of Illinois and Ontario are appropriate forums for the trial of the libel actions. Indeed, many of the relevant factors favour proceeding in Illinois. Others favour a trial in Ontario.’

“In the end, however, giving due deference to the motion judge’s exercise of discretion, I am not convinced that the Defendants have established that the Illinois court emerges as a clearly more appropriate forum and that the motion judge made a reviewable error. I will consider each of the relevant factors in turn.”

30. “In my view, the comparative convenience and expense for the parties and their witnesses favours a trial in Illinois. First, ¼ most of the witnesses and the bulk of the evidence are located in the U.S. It is significant in this regard that International was headquartered, at least for a time, in Illinois. In addition, ¼ Rule 45 of the Federal Rules of Civil Procedure, facilitates the movement of witnesses and evidence between states. The location of the witnesses and evidence thus makes a trial in Illinois more convenient than a trial in Ontario.”

31. “The same can be said of the location of the parties. While no single jurisdiction is home to a majority of the parties, it is significant that nine of the eleven parties, including Plaintiff, reside in the U.S. Indeed, Plaintiff is currently incarcerated in Florida. Moreover, owing to his criminal convictions and the fact that he [has] abandoned his Canadian citizenship, Plaintiff will not [even] be able to enter Canada without the special permission of the Minister of Citizenship and Immigration ¼ once he has finished serving his sentence.”

“It may be, however, that a writ of habeas corpus ad testificandum could allow Plaintiff to participate in person in a trial held in the U.S.; otherwise, Plaintiff would have to participate through video conferencing. As for the eight Defendants who reside in the U.S., they are spread between different states, but it does not appear that financial considerations would impede the ability of any of them to participate in a trial in Illinois.”

32. “In the companion case of Banro Corp. v. Éditions Écosociété Inc., 2012 SCC 18 (S.C.C.), I discuss the implications of choice‑of‑law in the context of multistate defamation claims. Without resolving the issue, I note that there is some question as to whether the lex loci delicti rule, according to which the applicable law is that of the place where the tort occurred, ought to be abandoned in favour of an approach based on the location of the most harm to reputation. I need not address this issue here as, even under the alternative approach examined in Éditions Écosociété, the applicable law is that of Ontario.”

33. “Indeed, this case is somewhat unique in that Plaintiff has undertaken not to bring any libel action in any other jurisdiction, and has limited his claim to damages to his reputation in Ontario. As a result, only harm resulting from publication in Ontario need be considered. The evidence establishing Plaintiff’s reputation in Ontario is significant.”

“As the motion judge found, while Plaintiff is no longer ordinarily resident in Ontario, he spent most of his adult life in Ontario, first established his reputation as a businessman in Ontario, is a member of the Order of Canada, the Canadian Business Hall of Fame and the Canadian Press Hall of Fame, and is the subject of five books written by Toronto‑area authors.”

“Plaintiff’s close family also lives in Ontario. Plaintiff’s undertaking and the evidence of his reputation in Ontario therefore suggest that, under the ‘most substantial harm to reputation’ approach discussed in Éditions Écosociété, Ontario law should be applied to the libel actions. Alternatively, as the alleged tort of defamation was committed in Ontario, under lex loci delicti, Ontario law would also apply. In the circumstances, the applicable law factor supports proceedings in Ontario.”

34. “The Illinois and Delaware civil actions [do] raise concerns about a multiplicity of legal proceedings. The motion[s] judge accepted that neither of those actions involves a libel claim. He also accepted, however, that the focus of the trial of the libel actions will be the truth of what was said in the allegedly defamatory statements, which would also appear to be the very substance of the Delaware and Illinois civil actions.”

“Many of the same transactions that will need to be proven through intensive litigation in the course of the Delaware and Illinois civil actions will likely also need to be proven in the libel actions. The differing form of these actions should not be emphasized at the expense of their substance. This suggests that there may be a risk of conflicting judgments, a consideration that favours the Illinois court as a more appropriate forum.”

35. “Plaintiff appears to concede that an Ontario judgment would be unenforceable in the U.S. He contends, however, that this factor should have no bearing on the forum non conveniens analysis because the lack of an actual malice requirement in Canadian defamation law affords him a legitimate juridical advantage.”

“As discussed above, juridical advantage should not weigh too heavily in the forum non conveniens analysis. This caution is especially significant in a case such as this, where the American actual malice requirement reflects a deeply rooted and distinctive legal tradition that this Court has declined to adopt (Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130 (S.C.C.), at para. 137), but which comity requires we respect in foreign jurisdictions.”

“Moreover, even if this advantage to Plaintiff were taken into account, it would have to be balanced against the corresponding—and very significant—juridical disadvantage that the Defendants would face if the trial were to proceed in Ontario. As a result, the fact remains that an Ontario judgment would be enforceable against only one of the ten Defendants. On balance, this is an indication that an Illinois court may be a more appropriate forum for the actions to be heard in than an Ontario court.”

36. “This Court observed in Club Resorts that, in addition to seeking to assure the efficacy of the litigation process, the doctrine of forum non conveniens also seeks to assure fairness to both parties. The courts below agreed that the balance of fairness favours litigation in Ontario because it would be unfair to prevent Plaintiff from suing in the community in which his reputation was established, whereas there would be no unfairness to the Defendants if the actions were to proceed in Ontario because it would have been reasonably foreseeable to them that posting the impugned statements on the internet and targeting the Canadian media would cause damage to Plaintiff’s reputation in Ontario.”

“I would agree, although I would also emphasize that the question of whether a ‘targeting’ approach should be adopted in Canadian law does not arise on this appeal. ¼[T]he importance of permitting a plaintiff to sue for defamation in the locality where he enjoys his reputation has long been recognized in Canadian defamation law. Given the importance of his reputation in Ontario, this factor weighs heavily in favour of Plaintiff.”

37. “In the end, some of the factors relevant to the forum non conveniens analysis favour the Illinois court, while others favour the Ontario court. The forum non conveniens analysis does not require that all the factors point to a single forum or involve a simple numerical tallying up of the relevant factors. ¼ [I]t does require, however, that one forum ultimately emerge as clearly more appropriate. The party raising forum non conveniens has the burden of showing that his or her forum is clearly more appropriate. Also, the decision not to exercise jurisdiction and to stay an action based on forum non conveniens is a discretionary one.”

“As stated in Club Resorts, the discretion exercised by a motion judge in the forum non conveniens analysis ‘will be entitled to deference from higher courts, absent an error of law or a clear and serious error in the determination of relevant facts’ (para. 112). In the absence of such an error, it is not the role of this Court to interfere with the motion judge’s exercise of his discretion.”

38. “Considering the combined effect of the relevant facts, and in particular the weight of the alleged harm to Plaintiff’s reputation in Ontario, and giving due deference to the motion judge’s decision, as I must, I conclude that an Illinois court does not emerge as a clearly more appropriate forum than an Ontario court for the trial of the libel actions brought against the Defendants by Plaintiff. Accordingly, I would dismiss the appeal with costs.” [Since the other six Justices concur, the appeal is dismissed.]

Citation: Black v. Breeden, et. al., 2012 CarswellOnt 4272; 2012 SCC 19 (Sup. Ct. Can. 2012).

TORTURE VICTIM PROTECTION ACT

After remand from U.S. Supreme Court, Fourth Circuit again reviews whether former Somali official enjoys immunity under Torture Victim Protection Act and Alien Tort Statute; common law, not the FSIA, governs immunity claims of individual foreign officials; Fourth Circuit concludes that pre‑FSIA common law does not provide immunity in this case

Mohamed Ali Samantar was a high‑ranking official in Somalia during the military regime of General Mohamed Barre (1969‑1991). He was Minister of Defense (1980‑1986), and Prime Minister (1987‑1990) before fleeing Somalia after the collapse of the Barre regime in 1991. Samantar now resides in Virginia.

Several Somalians sued Samantar for his alleged involvement in torture, arbitrary detentions, and extrajudicial killings. The issue is whether Samantar enjoys immunity from suit under the Torture Victim Protection Act of 1991 (TVPA), Pub.L. 102‑256, 106 Stat. 73 (1992), 28 U.S.C. Section 1350 note, and the Alien Tort Statute (ATS), 28 U.S.C. Section 1350. Samantar moved to dismiss, claiming immunity under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Sections 1602‑1611. The district court did dismiss, but the Fourth Circuit reversed.

The Fourth Circuit rejected Samantar’s claim to statutory immunity under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Sections 1602‑1611, because the FSIA applies to sovereign states, but not to individual foreign government agents. The Court, however, acknowledged that Samantar may be able to invoke immunity under pre‑FSIA common law. The U.S. Supreme Court granted Samantar’s petition for certiorari, agreed with this view, and remanded to the district court to address the immunity issue. See 2010 International Law Update 90. Upon remand, the U.S. District Court for the Eastern District of Virginia rejected Samantar’s immunity claims and denied his motion to dismiss the case.

The District Court had received a Statement of Interest (SOI) from the U.S. Department of State, suggesting that Samantar was not entitled to immunity. The SOI noted that (1) Somalia has no currently recognized government to request immunity on his behalf, and (2) U.S. residents such as Samantar should be subject to the jurisdiction of U.S. courts.

The Fourth Circuit for the second time reviews the case, and affirms the district court. Samantar presented two arguments on his appeal: (1) that the district court improperly deferred to the Department of State and neglected its duty to independently assess his immunity claim. Deference to the Executive’s immunity determination is appropriate only when the State Department recommends that immunity be granted; and (2) that, at common law, he is entitled to immunity for all actions taken within the scope of his duties and in his capacity as a foreign government official, including alleged wrongdoing while he was the Somali Prime Minister.

The Court reviews both arguments in sequence, but first examines Samantar’s two immunity claims: (a) head‑of‑state immunity, and (b) “foreign official” or “official acts” immunity.

“Head‑of‑state immunity” is a doctrine of customary international law based on which an incumbent head of state is immune from the jurisdiction of a foreign state’s courts. The purpose of this doctrine is to promote comity among nations by ensuring that leaders can perform their duties without being subject to detention, arrest or embarrassment under a foreign country’s legal system.

As to Samantar’s “foreign official” claim of immunity, the Restatement (Second) of Foreign Relations Law § 66(f) declares that “[t]he immunity of a foreign state . . . extends to . . . any . . . public minister, official, or agent of the state with respect to acts performed in his official capacity if the effect of exercising jurisdiction would be to enforce a rule of law against the state ¼” This is a conduct‑based immunity that applies to current and former foreign officials

The Court then turns to Samantar’s first argument, which relates to the role of the U.S. Department of State in determining immunity. “The United States, participating as amicus curiae, takes the position that federal courts owe absolute deference to the State Department’s view of whether a foreign official is entitled to sovereign immunity on either ground. According to the government, under long‑established Supreme Court precedent, the State Department’s opinion on any foreign immunity issue is binding upon the courts.”

“The State Department’s position allows for the federal courts to function as independent decision makers on foreign sovereign immunity questions in only one instance: when the State Department remains silent on a particular case. Thus, the United States contends that the State Department [had] resolved the issues once it [had] presented the district court with its view that Samantar was not entitled to immunity.”

“Samantar, by contrast, advocates the view that deference to the Executive’s immunity determination is required only when the State Department explicitly recommends that immunity be granted. Samantar argues that when the State Department concludes, as it did in this case, that a foreign official is not entitled to immunity or remains silent on the issue, courts can and must decide independently whether to grant immunity. ¼.” [Slip op. 9]

“¼ Foreign sovereign immunity, insofar as American courts are concerned, has its doctrinal roots in The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116 (1812), which ushered in nearly a century of ‘absolute’ or ‘classical’ immunity, ‘under which a sovereign [could not], without his consent, be made a respondent in the courts of another sovereign.’ Permanent Mission of India to the United Nations v. City of New York, 551 U.S. 193, 199 (2007); see Samantar, [130 S. Ct. 2278, 2284 (2010)] (explaining The Schooner Exchange ‘was interpreted as extending virtually absolute immunity to foreign sovereigns as a matter of grace and comity’).”

“‘Absolute’ immunity for the foreign sovereign, however, is not to be confused with absolute judicial deference to the Executive Branch. In fact, during the lengthy period of absolute immunity, courts did not necessarily consider themselves obliged to follow executive pronouncements regarding immunity. In The Schooner Exchange itself, for example, the Court received and considered the view of the Executive Branch on the immunity claim but conducted its own independent review of the relevant international law doctrines. See 11 U.S. (7 Cranch) at 132‑35; 136‑47.” [Slip op. 10‑11]

“The Constitution assigns the power to ‘receive Ambassadors and other public Ministers’ to the Executive Branch, U.S. Const. art. II, § 3, which includes, by implication, the power to accredit diplomats and recognize foreign heads of state. Courts have generally treated executive ‘suggestions of immunity’ for heads of state as a function of the Executive’s constitutional power and, therefore, as controlling on the judiciary. ¼ Like diplomatic immunity, head‑of‑state immunity involves ‘a formal act of recognition,’ that is ‘a quintessentially executive function’ for which absolute deference is proper. Peter B. Rutledge, Samantar, Official Immunity & Federal Common Law, 15 Lewis & Clark L. Rev. 589, 606 (2011).”

“Accordingly, consistent with the Executive’s constitutionally delegated powers and the historical practice of the courts, we conclude that the State Department’s pronouncement as to head‑of‑state immunity is entitled to absolute deference. The State Department has never recognized Samantar as the head of state for Somalia; indeed, the State Department does not recognize the Transitional Federal Government or any other entity as the official government of Somalia, from which immunity would derive in the first place. The district court properly deferred to the State Department’s position that Samantar be denied head‑of‑state immunity.”

“Unlike head‑of‑state immunity and other status‑based immunities, there is no equivalent constitutional basis suggesting that the views of the Executive Branch control questions of foreign official immunity. Such cases do not involve any act of recognition for which the Executive Branch is constitutionally empowered; rather, they simply involve matters about the scope of defendant’s official duties.”

“This is not to say, however, that the Executive Branch has no role to play in such suits. These immunity decisions turn upon principles of customary international law and foreign policy, areas in which the courts respect, but do not automatically follow, the views of the Executive Branch. See Sosa v. Alvarez‑Machain, 542 U.S. 692, 733 n.21 (2004) (noting that ‘there is a strong argument that federal courts should give serious weight to the Executive Branch’s view of [a] case’s impact on foreign policy’) ¼”

“With respect to foreign official immunity, the Executive Branch still informs the court about the diplomatic effect of the court’s exercising jurisdiction over claims against an official of a foreign state, and the Executive Branch may urge the court to grant or deny official‑act immunity based on such considerations. ‘That function, however, concerns the general assessment of a case’s impact on the foreign relations of the United States,’ see Rutledge, 15 Lewis & Clark L. Rev. at 606, rather than a controlling determination of whether an individual is entitled to conduct‑based immunity.”

“In sum, we give absolute deference to the State Department’s position on status‑based immunity doctrines such as head‑of‑state immunity. The State Department’s determination regarding conduct‑based immunity, by contrast, is not controlling, but it carries substantial weight in our analysis of the issue.” [Slip op. 13‑15]

The Court then addresses Samantar’s second argument, that he is entitled to “foreign official” immunity under common law.

“As previously noted, customary international law has long distinguished between status‑based immunity afforded to sitting heads‑of‑state and conduct‑based immunity available to other foreign officials, including former heads‑of‑state. With respect to conduct‑based immunity, foreign officials are immune from ‘claims arising out of their official acts while in office.’ Restatement (Third) of Foreign Relations Law § 464, reprt. note 14 ¼”

“This type of immunity stands on the foreign official’s actions, not his or her status, and therefore applies whether the individual is currently a government official or not. ¼ This conduct‑based immunity for a foreign official derives from the immunity of the State: ‘The doctrine of the imputability of the acts of the individual to the State . . . in classical law . . . imputes the act solely to the state, who alone is responsible for its consequence. In consequence any act performed by the individual as an act of the State enjoys the immunity which the State enjoys.’ Hazel Fox, The Law of State Immunity at 455 (2d ed. 2008).” [Slip op. 16‑17]

“[A] foreign official may assert immunity for official acts performed within the scope of his duty, but not for private acts where ‘the officer purports to act as an individual and not as an official, [such that] a suit directed against that action is not a suit against the sovereign.’ ¼ A foreign official or former head‑of‑state will therefore not be able to assert this immunity for private acts that are not arguably attributable to the state, such as drug possession or fraud.” [Slip op. 18]

“There has been an increasing trend in international law to abrogate foreign official immunity for individuals who commit acts, otherwise attributable to the State, that violate jus cogens norms — i.e., they commit international crimes or human rights violations: ‘over the last decade . . . a growing number of domestic and international judicial decisions have considered whether a foreign official acts as an arm of the state, and thus is entitled to conduct immunity, when that official allegedly violates a jus cogens norm of international law or commits an international crime.’ Curtis A. Bradley & Laurence R. Helfer, International Law and the U.S. Common Law of Foreign Official Immunity, 2010 Sup. Ct. Rev. 213, 236‑37 (2011).

“A number of decisions from foreign national courts have reflected a willingness to deny official‑act immunity in the criminal context for alleged jus cogens violations, most notably the British House of Lords’ Pinochet decision denying official‑acts immunity to a former Chilean head of state accused of directing widespread torture. See Regina v. Bartle, ex parte Pinochet, 38 I.L.M. 581, 593‑95 (H.L. 1999) (concluding that official‑acts immunity is unavailable to shield foreign officials from prosecution for international crimes because acts of torture do not constitute officially‑approved acts). ¼” [Slip op. 20‑21].

“American courts have generally followed the foregoing trend, concluding that jus cogens violations are not legitimate official acts and therefore do not merit foreign official immunity but still recognizing that head‑of‑state immunity, based on status, is of an absolute nature and applies even against jus cogens claims. ¼ We conclude that, under international and domestic law, officials from other countries are not entitled to foreign official immunity for jus cogens violations, even if the acts were performed in the defendant’s official capacity.”

“Moreover, we find Congress’s enactment of the TVPA, and the policies it reflects, to be both instructive and consistent with our view of the common law regarding these aspects of jus cogens. Plaintiffs asserted claims against Samantar under the TVPA which authorizes a civil cause of action against ‘[a]n individual who, under actual or apparent authority, or color of law, of any foreign nation . . . subjects an individual to torture’ or ‘extrajudicial killing.’ Pub. L. 102‑256, § 2(a), 28 U.S.C. 1350 note. ‘The TVPA thus recognizes explicitly what was perhaps implicit in the Act of 1789—that the law of nations is incorporated into the law of the United States and that a violation of the international law of human rights is (at least with regard to torture) ipso facto a violation of U.S. domestic law.’ ¼

“Thus, in enacting the TVPA, Congress essentially created an express private right of action for individuals victimized by torture and extrajudicial killing that constitute violations of jus cogens norms. See S. Rep. No. 102‑249, at 8 (1991) (‘[B]ecause no state officially condones torture or extrajudicial killings, few such acts, if any, would fall under the rubric of ‘official actions’ taken in the course of an official’s duties.’).” [Slip op. 21‑22]

Finally, the Court addresses the effect of the Department of State’s opinion in this case. “In its SOI, the State Department submitted a suggestion of non‑immunity. The SOI highlighted the fact that Samantar ‘is a former official of a state with no currently recognized government to request immunity on his behalf’ or to take a position as to ‘whether the acts in question were taken in an official capacity.’ ¼ Noting that ‘[t]he immunity protecting foreign officials for their official acts ultimately belongs to the sovereign rather than the official,’ ¼, the government reasoned that Samantar should not be afforded immunity ‘[i]n the absence of a recognized government . . . to assert or waive [Samantar’s] immunity,’ ¼”

“The second major basis for the State Department’s view that Samantar was not entitled to immunity was Samantar’s status as a permanent legal resident. According to the SOI, ‘U.S. residents like Samantar who enjoy the protections of U.S. law ordinarily should be subject to the jurisdiction of the courts, particularly when sued by U.S. residents’ or naturalized citizens such as two of the plaintiffs. ¼”

“Both of these factors add substantial weight in favor of denying immunity. Because the State Department has not officially recognized a Somali government, the court does not face the usual risk of offending a foreign nation by exercising jurisdiction over the plaintiffs’ claims. Likewise, as a permanent legal resident, Samantar has a binding tie to the United States and its court system.”

“Because this case involves acts that violated jus cogens norms, including torture, extrajudicial killings and prolonged arbitrary imprisonment of politically and ethnically disfavored groups, we conclude that Samantar is not entitled to conduct‑based official immunity under the common law, which in this area incorporates international law. Moreover, the SOI has supplied us with additional reasons to support this conclusion. Thus, we affirm the district court’s denial of Samantar’s motion to dismiss based on foreign official immunity.” [Slip op. 22‑23].

Therefore, the Court affirms the district court’s denial of both head‑of‑state and foreign official immunity to Samantar.

Citation: Yousuf v. Samantar, 699 F.3d 763 (4th Cir. 2012).