03/02/2016

Avoiding enforcement of default judgment: Vizcaya Partners Ltd v Picard [2016] UKPC 5

In its advice delivered today on appeal from the Gibraltar Court of Appeal, the Privy Council examines when a judgment debtor will be regarded as having agreed to the jurisdiction of a foreign court (in advance rather than by appearance) so that a foreign default judgment may be enforced against him in another jurisdiction (in this case Gibraltar).  The Board’s advice also provides a convenient summary of the role of experts on foreign law.

The Board’s advice is given by Lord Collins (editor of the leading text Dicey, Morris and Collins on the Conflict of Laws).  It examines a great deal of apparently conflicting previous authority. It is therefore not surprising that the Board considered the case so important that it has delivered its advice notwithstanding the settlement, post hearing, of the underlying dispute.

The conclusion reached is that an agreement to submit to the foreign court’s jurisdiction may be implied.  The test for finding such implied agreement, however, is not easily satisfied as a matter of English law.  Even if an agreement is to be implied, the scope of the agreement may well be too narrow to extend to bankruptcy proceedings.  The net result is that, prior to permitting a judgment to be entered in default, any potential defendant will need to give very careful consideration to the likelihood of an agreement being implied under the law applicable to any relevant contract and the scope of that agreement.

The background

The case arose from the Bernie Madoff Ponzi scheme and the attempts by the trustee in bankruptcy of his company (BLMIS) to recover, under the US Bankruptcy Code’s anti-avoidance provisions, payments made by BLMIS to investors prior to the discovery of the fraud.  To this end, in 2010, the trustee obtained judgment in default against the appellant investment fund (Vizcaya) in New York’s Bankruptcy Court in relation to USD 180 million paid by to Vizcaya by BLMIS.  Some USD 74 million was held by Vizcaya in Gibraltar.

There were no express agreements by which Vizcaya submitted to the jurisdiction of the New York courts.  The agreements between Vizcaya and BLMIS were subject to New York Law and arbitration pursuant to that law.  In those circumstances, the Board was called upon to decide whether it could be said that Vizcaya had agreed to submit to the jurisdiction of the New York court.

The Board’s decision

Following a detailed examination of past authority and commentaries which are not entirely consistent, Lord Collins reached the following conclusions as a matter of principle.

• The agreement to submit to the jurisdiction does not need to be contractual in nature, merely consent in advance.
• A contractual agreement may be implied or inferred. There is no reason in principle why the position should be any different in the case of agreement or consent to the jurisdiction of a foreign court.
• Authorities which deny the possibility of an implied agreement can be explained as really meaning that there had to be “an actual agreement (or consent)”.

As there was no express term in the contracts, the Board had to determine whether there was an implied agreement to submit.  (It should be noted that this was an appeal from a summary judgment application – strictly therefore the test was whether the trustee had a real prospect of demonstrating that the New York default judgment should be enforced in Gibraltar.)

The question was one of construction and therefore governed by the applicable law which, under the applicable common law rules (since the Rome Convention applied but, by article 2(2)(d) excluded “agreements on the choice of court”) was New York law.

This was to be proved by expert evidence.  Lord Collins emphasised the different evidence to be expected where an expert was concerned with terms implied as a matter of fact and terms implied by law.   In the former case, the expert was to prove the rules of construction and allow the court to interpret the contract in accordance with those rules (see King v Brandywine Reinsurance Co [2005] EWCA Civ 235).  In the latter case the expert’s function was to opine on whether a particular term was implied by law (see Vita Food products Inc v Unus Shipping co Ltd [1939] QC 277 (PC)).

Having examined the expert evidence on New York law, Lord Collins concluded that there was “no basis in the evidence for the assertion that there was a contractual term that Vizcaya submitted to the New York jurisdiction.”  He found that there was no suggestion that any term was to be implied to this effect.  Further, the reasons given for the New York court’s jurisdiction were simply factors which justified the assumption of jurisdiction under New York’s long arm jurisdiction provisions (similarly, the fact that the English court may assume jurisdiction on the basis that a contract is governed by English law or was made in England does not mean that there is an implied contractual submission to the jurisdiction).

Finally, Lord Collins observed that even had there been an implied submission under the contracts, there was “no evidence of any rules of interpretation under New York law which could lead the Gibraltar court to the conclusion that any implied submission under [the choice of law] clause … would apply to avoidance proceedings.”

In this case it appears that Vizcaya made the right decision when it allowed the New York proceedings to go in default.  It would be interesting to know whether the settlement agreement reached before the Board’s decision could be described likewise.