Isle of Man: Where Does Rubin Leave Isle Of Man Insolvency Practitioners?

Last Updated: 16 April 2013
Article by Appleby  

The recent decision of Rubin v Euro Finance SA & Others [2012] UK SC 46 ("Rubin") has been welcomed in England and Wales as clarifying the English common law applying to the recognition and enforcement of foreign judgments made in relation to foreign insolvency proceedings.

In contrast to the case of Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings PLC [2006] 2 All ER (Comm) 695, PC ("Cambridge Gas") the Supreme Court determined in Rubin that the recognition and enforcement of foreign insolvency judgments is subject to the same common law restrictions which apply to the enforcement of any other type of foreign judgment in England and Wales. Rubin has rejected Lord Hoffman's finding in Cambridge Gas that a foreign judgment in insolvency proceedings can be automatically enforced under common law without applying the normal common law restrictions, which would apply to the enforcement of a foreign judgment in rem or in personam not made in insolvency proceedings. Lord Hoffman found that insolvency proceedings are merely a mechanism for enforcing creditors' rights rather than establishing them. In rejecting this approach the Supreme Court has restored the restrictions upon the circumstances in which a foreign insolvency judgment can be enforced in England and Wales under the common law. However, this narrowing of the common law may not necessarily be followed by the Court in the Isle of Man.

Plan of Reorganisation

In Cambridge Gas the Privy Council held that a plan of reorganisation under Chapter 11 of the US Bankruptcy Code could be automatically enforced in the Isle of Man without implementation of domestic insolvency proceedings. In its judgment delivered by Lord Hoffman, the Privy Council held that the US Court's Order in respect of the transfer of shares in an Isle of Man Company did not fall to be treated as either an in personam or in rem judgment. Instead, the Privy Council found that the Order could be carried into effect in the Isle of Man on the basis that the Order was made as part of bankruptcy proceedings and the "the purpose of bankruptcy proceedings is not to 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" [Cambridge Gas para 14].

Landmark Decision

Cambridge Gas was hailed as a landmark decision in cross-border insolvency law. The decision was interpreted as effectively creating a new category for foreign judgments which were made in foreign insolvency proceedings. Foreign insolvency judgments could now avoid the common law restrictions which applied to the recognition of in personam or in rem foreign judgments on the basis that they were not establishing rights but merely providing a mechanism of collection for the creditors and so developing the principle of universalism.

However, the Supreme Court in Rubin has poured cold water on this development by finding that the common law does require classification of foreign judgments made in respect of insolvency proceedings and that a bankruptcy order is an in personam judgment because it seeks to establish rights not just enforce them. Lord Clarke stated in Rubin 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 US Bankruptcy Court. The property in question, namely the shares in Navigator, were situate in the Isle of Man, and therefore also not subject to the in rem jurisdiction of the US Bankruptcy Court. There was therefore no basis for the recognition of the Order of the US Bankruptcy Court in the Isle of Man" [Rubin para 132].

The Supreme Court found that Cambridge Gas was too far a departure from established common law and that such a departure could only be sanctioned by statute.

The Rubin decision has generally been welcomed by insolvency practitioners in England and Wales as clarification of the law in respect of the enforcement of foreign insolvency judgments. However, in light of the fact that Supreme Court judgments are not binding on the Isle of Man, Manx insolvency practitioners do not have such a luxury. Rubin has left Isle of Man insolvency practitioners asking "where does this leave us?"

Binding Persuasiveness

The Judicial Committee of the Privy Council is the highest Court for the Isle of Man. Decisions of the Privy Council are of binding persuasiveness in the Isle of Man as Deemster Doyle explained in the case of Bitel v Kyrgyz Mobil & Others [Chancery Division] CA 2006/7 (unreported) that "if a point of law is covered by local Isle of Man authority then if that authority is from the Appeal Division or the Privy Council dealing with an appeal from the Isle of Man, then it is to that authority which the Court should turn to in the first instance" [Bitel para 530].

In circumstances where there is no local binding authority, then it is appropriate for the Isle of Man Court to seek assistance from the English Courts, Deemster Doyle stated in Bitel that "in addition to applying our own local precedents, Manx Courts will also continue to benefit from the learning and reasoning of judgments of the English Courts" [Bitel para 541]. The Supreme Court does not have the authority to overturn a Privy Council decision, so whilst the Supreme Court has stated in Rubin that Cambridge Gas is wrong, and has cast aside the Privy Council's attempt to develop the common law in respect of the recognition and enforcement of foreign insolvency judgments, Cambridge Gas has not been overturned and therefore in line with the strict law of precedent it still applies as good law in the Isle of Man.

If Cambridge Gas remains good law in the Isle of Man, then it must be said that the application of universalism to foreign insolvency proceedings in the Isle of Man is now far broader than that applied in England and Wales.

Comity and Modified Universalism

Ideals of comity and modified universalism between jurisdictions have generally been embraced by the Isle of Man's judicial system and Cambridge Gas certainly helped to promote this trend. However, generally speaking, insolvency practitioners in England and Wales have welcomed the Supreme Court's decision in Rubin as it had been felt that Cambridge Gas left English defendants potentially too exposed to the hands of the foreign Court and that in order to defend themselves, English defendants would have to appear in all overseas proceedings, thereby incurring significant costs and exposing themselves to the foreign Court for any claims brought against them in that jurisdiction. If in accordance with the law of precedent, Cambridge Gas is still good law in the Isle of Man, then these risks are still very real for Isle of Man residents (individual or company).

Until a case seeking to enforce a foreign judgment in relation to foreign insolvency proceedings comes before the Isle of Man Court, it is difficult to advise with confidence how the common law in the Isle of Man now stands. One is left asking, despite the law of precedent, can the Isle of Man Court really ignore Rubin when it has so strongly rejected Cambridge Gas?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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