Unlawful execution under Lugano Convention cannot found bankruptcy petition (Islandsbanki HF v Stanford)

Unlawful execution under Lugano Convention cannot found bankruptcy petition (Islandsbanki HF v Stanford)

This article analyses the recent decision of the Court of Appeal where a creditor sought to enforce an Icelandic judgment under the Lugano Convention by registering it in England, and a writ of control was then issued even though the debtor had a month to appeal the registration during which no enforcement action could be taken. The Court of Appeal upheld the lower courts’ decisions that the unsatisfied writ was not ‘execution’ for the purposes of section 268(1)(b) of the Insolvency Act 1986 (IA 1986) and so could not found a bankruptcy petition, and the writ of control had to be set aside. Written by Toby Brown, barrister at South Square.

Islandsbanki HF and others v Stanford [2020] EWCA Civ 480, [2020] All ER (D) 20 (Apr) 

What are the practical implications of this case?

The case emphasises why creditors must follow the process set out in the Lugano Convention and the relevant English provisions when seeking to enforce a foreign judgment, in particular to ensure that the debtor has the required period during which to appeal the registration of the judgment before any enforcement steps are taken. Otherwise, the court (potentially of its own motion) will set aside the writ of control and any enforcement steps taken pursuant to the writ, and do so ex debito justitiae (ie without having to advance any substantive case on the merits). Moreover, the unsatisfied writ cannot then provide the basis for a bankruptcy petition in order to prove that the debtor is unable to pay the petition debt.

The outcome of the case had specific implications in the context of Islandsbanki’s bankruptcy petition. First, Islandsbanki had incurred considerable costs in pursing the petition. Second, and more importantly for the estate, although the debtor was made bankrupt on another petition, the creditors could not take advantage of the earlier date of presentation of Islandsbanki’s petition, which would have enabled the trustee to potentially attack as preferences an earlier alleged transaction.

With regards to Brexit, the UK government has signaled that it intends to accede to the Lugano Convention after the transitional period.

What was the background?

Islandsbanki obtained a judgment against Mr Stanford from the Rykjanes District Court in 2013, which totalled over £1.5m with interest. A certificate was issued by the Icelandic court pursuant to the Lugano Convention. Islandsbanki applied to register the judgment in England, and a registration order was sealed on 23 March 2016. This included a direction that execution could not take place until after expiry of the one-month period for Mr Stanford to appeal the registration. Nevertheless, a writ of control was issued on 30 March 2016 by the High Court, and a notice of enforcement was issued two days later. In mid-April, enforcement officers attended his home but after various attempts to enforce, in February 2017 they certified that the writ was unsatisfied in whole. 

Islandsbanki then presented a bankruptcy petition on 6 April 2017. The petition was dismissed by Insolvency and Companies Court Judge Jones on the grounds that there had not been a valid execution returned unsatisfied. However, unusually there were two other petitions before the court, and the judge instead made a bankruptcy order on HMRC’s petition. However, HMRC’s petition had been presented on 22 August 2017, ie over four months after Islandsbanki’s petition. The consequence was that a transaction Mr Stanford allegedly made to his wife could not be voided as a preference, whereas it had occurred within two years of Islandsbanki’s petition.

Islandsbanki appealed first to the High Court (which dismissed the appeal) and again to the Court of Appeal.

What did the court decide?

Lady Justice Asplin gave the Court of Appeal’s judgment. The Lugano Convention’s purpose was to create a single regime for enforcement of foreign judgments, and Articles 43(5) and 47(3) of the Lugano Convention create an overarching principle. By Article 43(5) of the Lugano Convention an appeal against a registration order must be lodged within one month of service (or two months if the debtor is domiciled in a state different to that registering the judgment). During this period, and until such an appeal is determined, Article 47(3) of the Lugano Convention provides that ‘no measures of enforcement may be taken’ (other than protective measures). This was put into effect by section 4A of the Civil Jurisdiction and Judgments Act 1982 (CJJA 1982), and by CPR 74.6(3) this prohibition must be expressed in any registration order. Accordingly, it is not open to the court to use its general powers in CPR 3.1 or CPR 3.10 to rectify matters.

Although the writ of control was prima facie valid until set aside (voidable rather than void), Asplin LJ held at [57] that ‘the court was obliged to set it aside as soon as it came to its attention’. The unlawful writ was liable to be set aside ex debito justitiae either on the debtor’s application or on the court’s own motion. 

Asplin LJ held that enforcement forbidden under the Lugano Convention and CJJA 1982 cannot be ‘execution’ for the purposes of IA 1986, s 268(1)(b) in order to establish the requirement that the debtor is unable to pay the petition debt. Nor could the defect be rectified under the Insolvency Rules 2016, SI 2016/1024, r 12.64. The judge was therefore right to dismiss Islandsbanki’s petition and the appeal was dismissed.

 

Case details


  • Court: Court of Appeal, Civil Division
  • Judges: Lady Justices King and Asplin, and Lord Justice Henderson
  • Date of judgment: 2 April 2020


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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.