Rubin and another v Eurofinance SA and Others
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 2009 |
| Neutral Citation | [2009] EWHC 2129 (Ch) |
| Docket Number | No. 9798 of 2008 |
| Court | Chancery Division |
| Date | 31 July 2009 |
[2009] EWHC 2129 (Ch)
No. 9798 of 2008
In the High Court of Justice
Chancery Division
Companies Court
In the matter of the Consumers Trust and
In the matter of the Trustee Act 1925 and
In the matter of the Cross-Border Insolvency Regulations 2006
Mr. Francis Tregear Q.C., instructed by Messrs Dundas& Wilson LLP, appeared for the applicants.
Mr. Marcus Staff, instructed by Brown Rudnick LLP, appeared for the respondents.
Approved judgment
Introduction
This is an application by the joint receivers and managers of The Consumers Trust (“TCT”) under the Cross-Border Insolvency Regulations 2006, which gives effect to the UNCITRAL Model Law relating to cross-border insolvency, for:—
(1) recognition under article 15 of bankruptcy proceedings in the U.S. Bankruptcy Court of the Southern District of New York (Case No. 05–60155) as a “foreign main proceeding”, together with recognition of the applicants as foreign representatives; and
(2) an order under article 25 enforcing the decision of the U.S. bankruptcy court, holding the respondents liable for the debts of TCT totalling $160 million, as a judgment of the English courts.
Two issues of some general interest are raised by the application. The first is whether the Regulations apply where the foreign bankruptcy proceedings relate to a debtor which, according to English law, has no legal personality either as an individual or as a body corporate. The second is whether a monetary judgment given in foreign bankruptcy proceedings can be enforced under the Model Law, when it could not have been enforced if it had been given in the ordinary courts of law of that foreign state.
The facts
TCT was settled by Eurofinance S.A. with a payment of £1. Eurofinance S.A. is a British Virgin Islands company which was wholly owned by Adrian Roman and is now owned by a Seychelles registered company. The trustees were two solicitors, Mr. Caplan and Mr. Harrison, and two accountants, Mr. Davis and Mr. Bonley, all of whom practised in Harrow, London. The beneficiaries were “the consumers (members of the public or otherwise) who had successfully participated by claiming validly in a sales promotion or promotions owned or operated by the Settlor (“Promotions”)”.
The Promotions, sometimes known as Cashable Voucher Programmes, took place entirely in the USA and in Canada, although the administration work carried out by the trustees was carried out in England. The Promotions were governed by contracts between the trustees acting for TCT, a company called Consumer Promotions Inc. (or in Canada another company called CPI) and more than 1,000 participating merchants trained in the operation of the scheme by one of these companies.
The basis of the scheme was a cashable voucher which the merchants issued whenever they made a sale, which was payable by TCT to the merchant's customer, if but only if he succeeded in following the precise instructions for the steps he needed to go through to claim the amount due on the maturity date. The face value of the voucher was the same as the price of the product.
The Promotions were financed in this way. The merchants paid 15% of the face amount of the vouchers which they had issued. Of this 6% was retained by the trustees to meet claims. Just over half the balance was paid to Eurofinance, and so effectively to Adrian Roman. The remainder was paid to Consumer Promotions Inc., CPI, various US service providers involved in the operation of the scheme, some US attorneys involved in the scheme and in the later stages to Adrian Roman's sons.
In order to succeed, the customer had to successfully overcome inertia, and then 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 reason, or at least one of the main reasons, why TCT's business failed was that proceedings were brought by the Attorney-General for the State of Missouri under Missouri consumer protection legislation, which resulted in a settlement involving a payment by the trustees of US$1,650,000 and $200,000 in costs, and it became clear that further proceedings were likely in other states.
Eurofinance then decided to institute proceedings under Chapter 11 of the United States bankruptcy code, and successfully applied to Lewison J. on 14 th November 2005 for an order appointing the present applicants as joint receivers and managers of TCT: the trustees undertook to assist them, make available all books, records, and other documents relating to TCT's affairs and generally to take all necessary steps to facilitate the bringing of a petition under Chapter 11, and similar action in Canada. The reasons why such action was desirable included the fact that all or virtually all of the 60,000 creditors were in the United States or Canada, the fact that all the assets were in the United States and the availability in the United States of the bankruptcy process for TCT as if it were a separate legal entity, under the classification of “Business Trust”.
The petition was issued on 5 th December 2005. In the box for “Type of Debtor” TCT was referred to as a “Business Trust”. It is common ground that bankruptcy proceedings can be brought in New York in relation to a business trust, even though it has no separate legal personality for any other purpose. The petition confirmed that TCT had been domiciled or had had a residence or principal place of business or principal assets in the District for the immediately preceding 180 days.
On 3 rd October 2006, various orders were made against Eurofinance and Mr. Roman “on behalf of the Debtor”, including an order for their examination, but they did not comply with them and were held to be in contempt on 10 th January 2007.
In May or June 2007 the receivers settled TCT's potential claims against the solicitor trustees for $3.2 million.
On 24 th October 2007, the United States bankruptcy court approved a Plan of Liquidation under Chapter 11, which provided amongst other things for the prosecution of “Causes of Action” (very widely defined) against Potential Defendants including the present respondents. This plan had previously been put before Lewison J., who had ordered, on 25 th September 2007, that the receivers should be at liberty to seek approval of it from the United States bankruptcy court.
On the same day as the United States bankruptcy court approved the plan, it also appointed the present applicants to serve as foreign representatives on behalf of TCT and to seek recognition of the Chapter 11 case in Great Britain as a foreign main proceeding under the 2006 Regulations. The order provided that the present applicants were appointed to serve for all purposes under the Regulations and specifically
“(i) to 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 (regulations);
(ii) to seek assistance and cooperation from the High Court in connection with the Chapter 11 case, and, in particular, to seek the High Court's assistance and cooperation 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 (my emphasis); and
(iii) to take such further actions on behalf of the Debtor as may be necessary or appropriate in accordance with the applicable provisions of the (Regulations).”
On 3 rd December 2007, proceedings which have been referred to as “the adversary proceedings” were brought in the United States bankruptcy court against a number of parties including the present respondents. These were not defended and on 23 rd July 2008 default summary judgment was given against all the defendants, including the present respondents, jointly and severally, in the amount of US$160 million. Judgment was given on the basis that they were general partners in TCT, and liable for its debts, and on the basis of breach of fiduciary duty and negligence. The amount of US$160 million represents the estimated amount which would be due to all participants in the Promotions, on the assumption that they successfully completed the process. As I understand it, the basis for this is that it would be impracticable to determine which participants have, or would have, been successful and which would not: therefore it would be necessary to admit all claims.
Default judgment was also entered against Eurofinance and Adrian Roman for $8,377,504.76, and against his sons for the amounts of $432,338.86 and $238,514.31 respectively, in respect of transfers of money made to them at a time when TCT was insolvent.
The basis for exercising personal jurisdiction over the defendants is set out in the order granting the Plaintiffs' motion for default judgment and summary judgment. The Court held that it had statutory “long-arm” personal jurisdiction under Bankruptcy Rule 7004(f), essentially because the defendants chose the United States as the place to carry on their business. The defendants had the opportunity to challenge this, but did not do so. The defendants did not, of course, have any opportunity to make submissions to the United States bankruptcy court on the issue which is now relevant, namely whether the judgment of that court is...
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