Rubin and another v Eurofinance SA and Others

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Ward,Lord Justice Wilson,Mr Justice Henderson
Judgment Date24 October 2012
Neutral Citation[2010] EWCA Civ 895
Date24 October 2012
Docket NumberCase No: A2/2009/1942

[2010] EWCA Civ 895

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION (COMPANIES COURT)

Mr Nicholas Strauss QC (Sitting as a Deputy Judge of The Chancery Division)

Before: Lord Justice Ward

Lord Justice Wilson

and

Mr Justice Henderson

Case No: A2/2009/1942

Between
(1) David Rubin
(2) Henry Lan (Joint Receivers and Managers of the Consumers Trust)
Appellants
and
(1) Eurofinance Sa
(2) Adrian Roman
(3) Justin Roman
(4) Nicholas Roman
Respondents

Tom Smith (instructed by Dundas & Wilson LLP) for the appellant

Marcus Staff (instructed by Brown Rudnick LLP) for the respondent

Hearing dates: 27 and 28th January 2010

See: permission to appeal and a stay of execution (at bottom)

Lord Justice Ward

Lord Justice Ward:

The issues

1

As the issues have been refined in this Court, there are now essentially two questions for our determination:

(1) should foreign bankruptcy proceedings, here Chapter 11 proceedings in the United States Bankruptcy Court for the Southern District of New York, including the Adversary Proceedings, be recognised as a foreign main proceeding in accordance with the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”) as set out in schedule 1 to the Cross-Border Insolvency Regulations 2006 (“the Regulations”) and the appointment therein of the appellants, Mr David Rubin and Mr Henry Lan, as foreign representatives within the meaning of Article 2(j) of the Model Law be similarly recognised; and

(2) should the judgment or parts of the judgment of the U.S. Bankruptcy court of 23 July 2008 against the respondents, Mr Adrian Roman, his sons, Justin and Nicholas Roman, and Eurofinance S.A., for payment of various sums of money in excess of $8 million be enforced as a judgment of the English court in accordance with CPR Parts 70 and 73?

2

On 21st July 2009 Mr Nicholas Strauss Q.C., sitting as a Deputy Judge of the Chancery Division, answered the first question affirmatively but he dismissed the application for enforcement of the New York judgment. With permission given by the judge, the appellants appeal against the dismissal of their claim for enforcement of the New York judgment and the respondents cross-appeal against the orders for recognition of the main foreign proceedings and the foreign representatives there.

The facts

3

Eurofinance S.A. created The Consumers Trust (“TCT”) under a deed of trust made on the 25th day of March 2002 whereby the settlor paid the Original Trustees £1 to be held on trust for the benefit of the beneficiaries. The beneficiaries were the consumers (members of the public or otherwise) who successfully participated in the sales promotion, (“Promotions”), owned and operated by the settlor. The Original Trustees were two solicitors practising in Harrow, Mr Richard Caplin and Mr Wesley Harrison, and two accountants practising in Barnett, Mr Andrew Davis and Mr Dennis Bonley. Eurofinance is a British Virgin Islands company which was originally wholly owned by Mr Adrian Roman but is now owned by a Seychelles registered company. The trustees were to hold the capital and income of the trust for the beneficiaries and subject thereto for the settlor. The law of England and Wales was to be the proper law of the trust and the trust fund and all rights in respect of the trust were subject to the jurisdiction of and were to be construed according to the laws of England and Wales.

4

The scheme – it is tempting to call it the scam – operated in this way. TCT was established to carry on a sales promotion scheme in the United States and Canada. The promotion, also known as the Cashable Voucher Programme, was entered into with participating merchants in the United States and Canada who, when they sold products or services to their customers, offered those customers a cashable voucher promising a rebate of up to 100% of the purchase price for the product or service to be paid in three years time provided that certain conditions were followed. In order to succeed the customer had to overcome inertia and then, as the Deputy Judge explained:

“… navigate a complex and obscure process involving both memory and comprehension tests. The assessment of whether they had succeeded was carried out in a pedantic manner. The low success rate is evidenced by the fact that, even though the trustees only received some 6% of the face value of the vouchers, they nevertheless had nearly £10 million in bank accounts in the United States and Canada by the time the scheme folded in 2005.”

The anticipated success of the Promotions for the respondents—and the judgment against them is an indication of the magnitude of profit—was the known very high probability that very few of the customers would ever succeed in this memory test.

5

The Promotions were financed by the merchants paying to TCT 15% of the face amount of each cashable voucher issued by that merchant during that week. TCT retained only 40% of these payments, which, given that the merchants were transferring 15% of the face value of the voucher, meant that only 6% of the face value would be retained by TCT for payment of the cashable vouchers if ever they were redeemed. That money was retained in bank accounts in America. The balance of the 15% paid to TCT was distributed to other parties in the scheme. About half of it was paid to Eurofinance and so effectively to Adrian Roman. The remainder was paid to others involved in the operation of the programme, such as solicitors, accountants and American lawyers. From 2002 Nicholas and Justin also began to receive about 2%.

6

The reason, or at least one of the main reasons, why TCT's business came to a halt was that proceedings were brought by the Attorney-General for the state of Missouri under Missouri's consumer protection legislation, which resulted in a settlement involving a payment by the trustees of US$1,650,000 and $200,000 in costs. The word spread. It soon became clear that further proceedings were likely in other states. Similar schemes had suffered similar fates. It was time to seek relief from the Bankruptcy Court and so Eurofinance decided to institute proceedings under Chapter 11 of the United States Bankruptcy Code.

7

The first step was to seek the appointment of the appellants, Mr David Rubin and Mr Henry Lan, as Receivers which application was granted by Lewison J. on 11 November 2005. Then on 5th December 2005, the appellants caused TCT to present a voluntary petition for relief in New York under Chapter 11 and TCT was placed into insolvency proceedings in New York as virtually all of the 60,000 creditors, mainly the customers who held unredeemed vouchers, were in the United States or Canada, as were the assets. Another reason for proceeding in New York was that a trust such as TCT is treated in the United States as a separate legal entity under the classification of “business trust” even though it has no separate legal personality for any other purpose and is not a legal person under English law.

8

On 3rd October 2006 various orders were made on behalf of the debtor against Mr Adrian Roman including an order for his examination but he did not comply with those orders and was held to be in contempt on 10th January 2007. In May or June 2007 the Receivers settled TCT's potential claims against the solicitor trustees for $3.2 million.

9

A Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code was prepared and on 25th September 2007 Lewison J. ordered that the Receivers should be at liberty to seek approval of the plan from the United States Bankruptcy Court. Under the Plan of Liquidation the appellants were given the exclusive power to commence, prosecute and resolve all causes of action against potential defendants including the respondents. It was duly approved in New York on 24th October 2007, the Receivers being appointed as the Legal Representatives of the debtor (TCT) with authority to prosecute all causes of action against potential defendants.

10

On the same day the appellants were appointed Foreign Representatives of the debtor. Judge Gerber, the United States bankruptcy judge, made that appointment:

“specifically to (i) make application to the High Court of Justice, Chancery Division (the “High Court”) in London for recognition of this Chapter 11 case as a Foreign Main Proceeding under the CBIR [the Cross-Border Insolvency Regulations of 2006]; (ii) to seek aid, assistance and co-operation from the High Court in connection with the Chapter 11 case, and, in particular to seek the High Court's assistance and co-operation in the prosecution of litigation which may be commenced in this court, including relief, regarding service of process, discovery, and the enforcement of judgments of this court that may be obtained against persons and entities residing or owning property in Great Britain…” with the emphasis added by me.

11

On 3rd December 2007 proceedings (known as “the Adversary Proceedings”) were brought in the United States Bankruptcy Court against a number of parties including the respondents and ten claims were made for the recovery of (i) the overall indebtedness of TCT which had been set by the U.S. Court at $160 million and (ii) monies paid to Eurofinance and others from the monies received by the Trustees from the merchants. The defendants to the Adversary Proceedings were the respondents to this appeal and other entities which had been involved with the Cashable Voucher Programme. It is not in dispute that the respondents were served personally. They took advice on questions of jurisdiction and specifically on the enforcement of...

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