Enforcement of New York judgments under English common law—Vizcaya Partners Ltd v Oicard

Michael Driscoll QC of Maitland Chambers, who acted for the appellant, considers the decision in Vizcaya Partners Ltd v Oicard and others and its practical implications.

Original news

Vizcaya Partners Ltd v Oicard and another [2016] UKPC 5, [2016] All ER (D) 66 (Feb)

The Privy Council allowed an appeal arising out foreign insolvency proceedings concerning a company owned by Bernard Madoff.

The trustee in bankruptcy of the company had sought to enforce a default judgment obtained in New York against the appellant company in Gibraltar, where it held substantial assets. The trustee’s application for summary judgment was allowed in part by the Court of Appeal of Gibraltar, which ruled that the trustee’s claim that the appellant had agreed to submit to the jurisdiction of the state of New York had a reasonable prospect of success.

The Privy Council, allowing the appellant’s appeal, held that, on the facts, there was no basis for the assertion that there was a contractual term that the appellant had submitted to the New York jurisdiction. It held that an agreement to submit to a jurisdiction of a foreign court did not have to be contractual in nature and might be implied as a matter of fact, or by law. In any event, even if a jurisdiction agreement was to be implied, it would not apply to the present avoidance proceedings.

What was the background to the appeal?

The appellant is an offshore investment fund which invested $328m with Bernard L Madoff Investment Securities Limited (BLMIS). The appellant had been repaid $180m of its investment by BLMIS before, in December 2008, it became public knowledge that Madoff had operated a huge fraudulent Ponzi scheme, through BLMIS, by which he had defrauded investors, like the appellant, of billions of dollars. Irving Picard (the trustee), and respondent to the appeal, was appointed as trustee in BLMIS’s liquidation in the US Bankruptcy Court for the Southern District of New York (the New York Bankruptcy Court). The trustee commenced proceedings under the avoidance provisions of the US Bankruptcy Code against investors, including the appellant, who had been repaid at any rate some of their investment, before the fraud was discovered, alleging that the payments to them were fraudulent preferences. It was not, of course, alleged that the appellant was itself fraudulent. It was a victim of Madoff’s fraud.

The appellant had no connection with New York other than its investment with BLMIS. It decided to take no part in the liquidation proceedings. It made no claim in them and it did not defend the avoidance proceedings. The trustee obtained a default judgment against the appellant for $180m in New York, and brought proceedings to enforce the judgment in Gibraltar where over $70m of the $180m had been located.

What were the legal issues the Judicial Committee of the Privy Council had to decide in this appeal?

The issue was whether the New York judgment was enforceable in Gibraltar. There was no treaty or statute which made it enforceable. Gibraltar law incorporated English common law and so the issue was whether it was enforceable as a matter of English common law.

The trustee claimed that the New York judgment was enforceable under what was referred to as Dicey’s Fourth Case namely that the appellant had agreed to submit to the jurisdiction of the New York Bankruptcy Court. According to the trustee the customer agreement which the appellant had entered into with BLMIS was an agreement to submit. The appellant applied to dismiss the trustee’s claim summarily on the basis that, as a matter of law, it had no real prospects of success. The Chief Justice and Court of Appeal in Gibraltar refused to dismiss it on that ground, but the Privy Council gave the appellant leave to appeal.

What were the main legal arguments put forward?

The customer agreement did not contain an express provision by which the appellant agreed to submit to the jurisdiction of a New York court, but it did contain an express provision that the customer agreement should be deemed to have been made in New York and should be interpreted in accordance with, and governed by, New York law.

The trustee’s evidence showed that a New York court applying New York law would consider that it had jurisdiction over the appellant. The issue was whether as a matter of English common law those factors were sufficient to amount to an implied agreement by the appellant to submit to the jurisdiction of the New York Bankruptcy Court in relation to the statutory avoidance claim. If not, then the New York judgment was unenforceable in Gibraltar, and had a claim to enforce it been brought in England, in England as well.

What did the Privy Council decide, and why?

The Privy Council decided that there was no agreement to submit to the jurisdiction of the New York Bankruptcy Court in respect of the statutory avoidance claim, and that accordingly the default judgment was not enforceable in Gibraltar and that the trustee’s claim should, therefore, be summarily dismissed.

The Privy Council decided that, as a matter of principle, there could be an implied agreement to submit to the jurisdiction of a foreign court, and that such an agreement did not, therefore, need to be express. But for there to be an implied agreement, more was required than that it should be agreed that the contract was made in a foreign jurisdiction and that the contract should be interpreted in accordance with, and governed by the foreign law.

Further it was a matter for English common law and not the law of the foreign court, in this case New York law, to decide if the foreign court had jurisdiction for the purposes of enforcement of a foreign judgment before an English court. The Privy Council decided that, as a matter of English common law, the customer agreement did not confer jurisdiction on a New York Court even in relation to a contractual dispute. Further that it could not confer jurisdiction on the New York Bankruptcy Court in relation to a statutory avoidance claim.

To what extent is the judgment helpful in clarifying the law in this area?

The Privy Council itself described the case as one which raised issues which were not only of general importance, but which were of international importance in other common law countries. It also stated that there had been conflicting decisions and dicta on whether or not an agreement to submit could ever be implied, and, if it could be implied, what was required for that purpose. The decision of the Privy Council has resolved that conflict by holding that an agreement could be implied and by explaining what factors were required to give rise to the implication.

The terms relied on by the trustee in this case occur frequently in commercial contracts, and the Privy Council has confirmed that whether taken singly or together they do not amount to an agreement to submit to the jurisdiction of a foreign court.

What practical lessons can those advising take away from this case?

In the absence of an applicable treaty or a statute, the judgment of a foreign court will be enforceable in England or a common law country whose law is the same as English common law, if the defendant has expressly agreed to submit to the jurisdiction of the foreign court in respect of the dispute which gave rise to the judgment.

If it is intended that a contractual dispute should be determined by a foreign court, then it is sensible to include an express contractual provision to that effect. An agreement to that effect may nonetheless be implied but it will require much more than agreement that the contract is made in the foreign jurisdiction and is to be interpreted in accordance with, and governed by, the foreign law.

Further a commercial contract is unlikely to bind a party to the jurisdiction of a foreign bankruptcy court in relation to a claim, by a liquidator or trustee in bankruptcy of one of the parties to the contract, to avoid a pre-bankruptcy payment, made under the contract, on one of the usual statutory avoidance grounds such as fraudulent preference.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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