Vol 7 (2010) - Issue 6

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Bridge Over Troubled Water: Rubin v Eurofinance Ruling Facilitates Transatlantic Enforcement of Judgments Entered in US Bankruptcy Proceedings

Introduction
On 30 July 2010, the UK High Court of Justice Court of Appeal (the 'UK Court of Appeal') issued its ruling in Rubin v. Eurofinance, Case No. A2/2009/1942. In this opinion, the UK Court of Appeal held that a chapter 11 bankruptcy case filed in the United States and a related adversary proceeding were 'foreign main proceedings' under the Cross-Border Insolvency Regulations 2006 (the '2006 Regulations'). Based on that conclusion, the UK Court of Appeal ruled that a judgment (in this case, a default judgment resulting from the defendant’s refusal to appear and offer a defence) entered by a US bankruptcy court in an adversary proceeding brought against certain UK citizens should be enforced as if the US judgment had been entered by a UK court. In reaching this conclusion, the UK Court of Appeal explained that judgments entered by the US bankruptcy court were part of the 'collective enforcement regime of the bankruptcy proceedings and as such are governed by the sui generis private international law rules relating to bankruptcy', rather than the ordinary rules regarding enforcement of judgments. Moreover, the UK Court of Appeal found nothing unfair in enforcing the US default judgment against the UK defendants, noting that they were fully aware of the claims brought against them in the US bankruptcy proceeding, but elected to do nothing. As a result, the court had 'no sympathy for them'.
The ruling in Eurofinance will have broad implications for UK defendants that are sued in US bankruptcy proceedings by trustees seeking to avoid and recover preferential payments or fraudulent conveyances. Prior to Eurofinance, these defendants could disregard an avoidance action filed in a US bankruptcy case, thus avoiding the time and expense of defending the lawsuit in a foreign country, and simply defend the subsequent action to enforce the default judgment that inevitably would follow in the UK. The enforcement step is often a difficult one for US plaintiffs, as the US and the UK are not party to any reciprocal treaty or convention regarding enforcement of foreign judgments, and US plaintiffs must proceed under common law principles. If the UK enforcement action was not successful, the plaintiff would have to start over with a fresh UK lawsuit, and the US judgment would essentially be meaningless. In situations where potential non-US defendants had strong personal jurisdiction defences, and thus stood a good chance of defeating enforcement of a US judgment, many US bankruptcy trustees would simply forgo commencing actions against these defendants in the US, to avoid incurring expenses that would provide no benefit to their bankruptcy estate. As a result, certain non-US defendants were able to escape liability entirely.