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ENFORCEMENT OF FOREIGN JUDGMENTS BASED ON SUBMISSION TO JURISDICTION

Introduction

The Privy Council decision in Vizcaya Partners Limited (“Vizcaya”) -v- Irving Picard (“Picard”) as Trustee in Bankruptcy of Bernard L Madoff Investment Securities LLC [2016] UKPC 5 is fundamental. It clarifies the issues surrounding the enforcement of foreign judgments. Its scope and application internationally, in common law countries, is important, as is recognised in the judgment itself. The importance of the ruling is underscored also because many statutes relevant to enforcement in many jurisdictions adopt that same common law rule.

Principally, this appeal considered one of the common law cases in which a judgment obtained in a foreign court would be enforced in Gibraltar. The particular rule in question would permit a judgment obtained in a foreign court to be enforced in Gibraltar, if the person against whom the judgment is entered had agreed to submit to the jurisdiction of the foreign court or of the courts of that foreign country before the relevant proceedings were started and in respect of the subject matter in dispute that are dealt with in those proceedings.

The decision provides clarity, at long last, to the vexed question, which has led to many conflicting precedents and so unclear law, namely, whether an agreement to submit under this rule can be implied or inferred or must it be expressly stated.

Facts

The basic facts are:

• in2010,theNewYorkBankruptcyCourt,atthebehestofPicard,enteredajudgmentindefaultofappearance against Vizcaya;

• thejudgmentwasfoundedonanti-avoidanceprovisionsoftheUSBankruptcyCode;

• in 2011 Picard attempted to enforce this judgment against Vizcaya in proceedings inGibraltar before its Supreme Court.

• VizcayasoughttohavePicard’sclaimforenforcementsummarilydismissed;

• in 2013, the Supreme Court of Gibraltar held that Picard had a reasonable prospect of success in its argumentthat(a)VizcayawaspresentinNewYorkwhentheanti-avoidanceclaimwasstartedand(b)Vizcaya hadagreedtosubmittothejurisdictionoftheNewYorkCourt;

• in2014theGibraltarCourtofAppealdismissedPicard’sclaimforenforcementonground(a)butheldthat there was a reasonable prospect of success on ground (b); and

• VizcayaappealedthisfindingtothePrivyCouncil.

Reasoning

ThePrivyCouncilhandeddownitsjudgmenton3rdFebruary2016.

The Privy Council considered whether consent can be implied or must it be expressly given. In determining this issue, the judgment considered two classes of implied terms known to English law:

1. Implied as a matter of fact, namely those implied from the circumstances in order to give effect to the intention of the contracting parties. These are not implied lightly but only by necessity or business efficacy, so it has to go “without saying”.

2. Implied by law, “which are implied into classes of contractual relationship as a necessary incident of the relationship concerned” i.e. confidentiality obligations in banking contracts or in arbitration agreements.

The Privy Council held that there has to be actual agreement, and no implied or inferred terms come about by reason of:

• themereholdingofsharesinaforeigncompanyorpartnershipinaforeignpartnership;

• thatacontractwasmadeintheforeigncountry;

• thatacontractisgovernedbyforeignlaw;

• thatacontractistobeperformedinaforeigncountry;

• thatbyreasonofacontractbeinggovernedbyaforeignlawgivesthatforeigncourtjurisdictionunderthatlaw.

The Privy Council held that Gibraltar law applies to determine whether there had been a submission to the jurisdiction of a foreign court. Under Gibraltar law, in the circumstances under consideration, there must be an actual agreement to submit to the jurisdiction of a foreign jurisdiction and such actual agreement comes about by an express term or may come about by an implied term, implied as a matter of fact or by law. Terms implied as a matter of fact depend on construction in the context of the circumstances and issues of interpretation are governed by the applicable foreign law. In these circumstances an expert is required to give evidence “to prove the rules of construction of the foreign law, and it is then for the court to interpret the contract in accordance with those rules”. In the case of terms implied by law, the function of an expert is to opine on whether a particular term is implied by the foreign law applicable to the contract.

Findings

ThePrivyCouncilheldthattheevidencedidnotshowthat,underNewYorklaw,achoiceoflawclauseinawrittencontracthastheconsequenceoftherebeinganagreementtothejurisdictionoftheNewYorkcourt;thatwouldonlybesoifbusinesswastransactedinNewYork.TheevidenceshowedthatthefactualcircumstancesresultedintheNewYorkcourthavingjurisdictionundertheUSlongarmstatute,whichdidnotsignifyanactualagreementtosubmit:actual agreement is a necessary requirement under Gibraltar law before a submission can be inferred.

More pertinently, it was not suggested that a term is implied as a matter of fact or law to the effect that Vizcaya agreedorconsentedtothejurisdictionofthecourtinNewYork,asistherequirementbeforethejudgmentbecomesenforceable.Noevidencewasadducedtoshowtheexistenceofaruleofinterpretationorconstructionfromwhichthe court in Gibraltar could determine “... that clause 10 in the context of the choice of law and the deemed place of contracting amounts to a choice of jurisdiction”, so the court could not determine if there was a term implied as a matteroffact.FurthertherewasnoexpertevidencetoshowthattherelevanttermsareimpliedbyNewYorklaw.

Additionally,therewasnobasisonthecontractwordingorontheevidencetoshowthatthefactthatthecontractwasdeemedtohavebeenmadeinNewYorkmakesanydifference.IfNewYorklawimpliedatermbasedonthatprovision,suchimpliedtermwouldhavebeenreliedonintheapplicationfordefaultjudgmentinNewYork,itwasnot.These arguments were factors in the exercise of long arm jurisdiction, which did not render the judgment enforceable in Gibraltar.

The assertion that there was an agreement, be it express or implied, that Vizcaya submitted to the jurisdiction of the NewYorkCourtwasnotfound.

The Privy Council found further that Picard would have other “formidable difficulties”. Even if a submission to jurisdiction were to have been determined to have existed by implication as matter of fact or by law, that finding would not apply totheenforcementofajudgmentbasedonanti-avoidanceprovisionsoftheUSBankruptcyCode.FurthertherewasnothingtoshowthatanyNewYorkruleofinterpretationwouldleadacourtinGibraltartoconcludethatanimpliedsubmission in the contract would apply to anti-avoidance proceedings.

The Privy Council concluded that it was unnecessary to consider the question whether an agreement to arbitrate contained in the contract applies to insolvency proceedings, which would have resulted in the default judgment being unenforceable in any event, as having been obtained in breach of an arbitration agreement.

ThePrivyCouncilallowedVizcaya’sappeal.

Summary

Stated briefly, an actual agreement has to exist for there to be a submission to jurisdiction. The agreement may be express or implied, implication being based either as a matter of fact, which is not done lightly, or implied by law. If a contract is governed by foreign law, then evidence of the rules of construction under that law must be adduced in order for the enforcing court to determine whether there is any implication of a term by fact, as must evidence to show thatatermisimpliedbytheapplicablelaw,ifthatisthecontention.Additionally,submissiontoajurisdictionunderacontract does not amount to submission to anti-avoidance legislative provisions, unless evidence of the foreign rules of interpretation lead to a conclusion that this is the case.

Robert Vasquez QC 3rdFebruary2016 Triay & Triay

Triay & Triay act for Vizcaya Partners Limited in this and related litigation in Gibraltar

Michael Driscoll QC appeared as Counsel for Vizcaya Partners Limited

Katten Muchin Rosenman UK LLP acted as Privy Council agents in London

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