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    04:57 PM Tan Kah Wai (LL.B. (First Class Honours), National University of Singapore)

    Recognising foreign personal bankruptcy judgments in Singapore – a critical assessment of the common law’s role and its difficulties

        

    Introduction

    In recent years, the Singapore courts have delivered several decisions on the law of cross-border insolvency. One such recent decision is the High Court’s judgment in Heince Tombak Simanjuntak and others v Paulus Tannos and others [2019] SGHC 216 (“Simanjuntak”) which raises some interesting and pertinent questions over the role of the common law courts in recognising foreign personal bankruptcy judgments. This case comment critically assesses the court’s judgment and its potential implications in the area of private international law.

    A quick explanation of Modified Universalism

    For a better understanding of the decision in Simanjuntak, it is important to first briefly explain the principle of modified universalism.

    This principle requires the courts of one jurisdiction to cooperate with courts in the country of the principal liquidation to ensure that all of the debtor’s assets are distributed to its creditors under a single universal distribution system. Lord Hoffmann memorably described modified universalism as a “golden thread” running through English cross-border insolvency law. (Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 (HL) at [30]).

    This principle is justified by the fact that it is in every country’s interests that companies with transnational operations can be wound up in an orderly and efficient fashion. (Singularis Holdings Ltd v Pricewaterhouse Coopers (“Singularis”) [2015] 2 WLR 971 (PC) at [23]) For the avoidance of doubt, this principle applies to both corporate insolvencies and personal bankruptcies. (Simanjuntak at [21])

    However, this principle also has its limits. First, it is subject to local law and policy. Second, the court can only act within the limits of its statutory and common law powers. In terms of the common law’s limits, it is dependent on the nature of the power that the court is asked to exercise. (Singularis at [19] per Lord Sumption JSC)

    This is where it gets tricky. It has been noted that the principle of modified universalism requires the usage and shaping of private international law rules to fit the goals of global insolvency – the provision of a fair and effective global collective process for debts. (Irit Mevorach, The Future of Cross-Border Insolvency: Overcoming Biases and Closing Gaps (OUP, 2018) p 14)

    As it will quickly emerge from our discussion of the High Court’s judgment in Simanjuntak, there is actually a question here that the Singapore courts have yet to resolve – how far can modified universalism be used as a basis to change and shape the rules of private international law?

    Facts

    The facts of Simanjuntak can be briefly stated as follows. In an ex parte hearing before the Singapore courts, the receivers and administrators, appointed under Indonesian law, had successfully obtained recognition of the Indonesian Bankruptcy Orders made against the four respondents. This allowed the Indonesian receivers to administer, realise and distribute the respondents’ property in Singapore.

    The respondents applied to the High Court to set aside the orders granting recognition and assistance. Their main arguments were that the Indonesian Bankruptcy Orders were not final and conclusive (at [26]), the orders were obtained fraudulently and in breach of natural justice (at [38]), and that the receivers had unlawfully and fraudulently enforced these orders (at [47]).

    The Court’s Decision

    The High Court dismissed the respondents’ application. Aedit Abdullah J, in delivering the judgment, had noted that the UNCITRAL Model Law on Cross-Border Insolvency as enacted in Singapore does not extend to personal bankruptcy orders. Any recognition must be based on the common law. (at [14])

    In this regard, the court noted several High Court precedents, including Re Opti-Medix Ltd (in liquidation) and another matter [2016] 4 SLR 312. (“Re Opti-Medix”) According to the court at [15], these decisions were based on the Singapore Court of Appeal’s endorsement of the modified universalism approach in Beluga Chartering GmbH (in liquidation) and others v Beluga Projects (Singapore) Pte Ltd (in liquidation) and another [2014] 2 SLR 815 (“Beluga”).

    The court then reiterated the view that recognition should be granted to a bankruptcy order if the following requirements were met:

    • First, a court of competent jurisdiction had made this order.
    • Second, the court must have jurisdiction on the basis of the debtor’s domicile or residence, or that the debtor had submitted to the court’s jurisdiction.
    • Third, the foreign bankruptcy order must be final and conclusive.

    On the facts, the court held that these requirements were satisfied. First, there was submission to the Indonesian courts since the respondents had participated in various court hearings. It was not a requirement for the purposes of submission that they had attended every session (at [25]). Second, the decision was final and conclusive. The evidence did not indicate that there was any active appeal. (at [33]).

    The court rejected the respondents’ arguments over the defences that could be used to prevent recognition of the Indonesian Bankruptcy Orders:

    • First, there was no evidence of a breach of natural justice since the respondents had adequate notice of the proceedings (at [40]).
    • Second, there was nothing to indicate fraud in relation to the conduct of the Indonesian proceedings (at [44]).
    • Third, the respondents’ allegations of fraudulent enforcement of the orders were matters that should be addressed by the Indonesian courts. (at [48]) In the High Court’s view, while the foreign insolvency office-holder’s conduct is material for a Singapore court’s decision on whether recognition is to be granted. The level of improper conduct must be fairly substantial and egregious before recognition is withheld. On the facts, the wrongful acts alleged did not appear so serious to warrant a denial of recognition (at [49]-[50]).
    • In addition, the court held that there was no failure on the applicants’ part to make full and frank disclosure (at [55]). The application to set aside recognition of the Indonesian bankruptcy orders was thus dismissed.

    Comment

    At first glance, the decision in Simanjuntak seems relatively straightforward. The respondents’ arguments were largely rejected due to a lack of factual basis. However, what interests us here is how the court had approached the following legal issues in its analysis:

    • the court’s rejection of a distinction between personal bankruptcy orders and foreign judgments; and
    • the court’s views in respect of imposing a reciprocity requirement for foreign judgments.

    Personal Bankruptcy Judgments in Private International Law

    The respondents’ counsel had argued that the doctrine of recognition of foreign judgments should not be extended to personal bankruptcy orders. The High Court disagreed and held that this was not a valid distinction such as to deny the use of the foreign judgments doctrine. (Simanjuntak at [20]-[21])

    With respect, the court’s result is correct but its analysis threatens to elide a well-established dichotomy in private international law – whether the bankruptcy orders here are judgments in rem or judgments in personam. A judgment in personam binds only parties to the proceedings while an in rem judgment adjudicates on the relevant property’s title or disposition as against the whole world. (Pattni v Ali [2007] 2 AC 85 at [21]) This dichotomy applies to both bankruptcy and insolvency judgments.

    Indeed, the respondents’ argument against using the recognition doctrine is misguided. It is only correct if it is stating the trite proposition that the doctrine for recognizing foreign judgments set out in Rule 43 of Dicey, Morris & Collins’ The Conflict of Laws (15th Ed, Sweet & Maxwell, 2012) at 14R-054 only applies to judgments in personam and not in rem.

    The issue of categorising a judgment in rem or in personam is dependent on the court’s assessment of these factors: the nature of the foreign court proceedings, the substance of the judgment in question, and the court order’s intended effect on parties to the proceedings (WestLB AG v Philippine National Bank and others [2012] 4 SLR 894 (HC) at [47]).

    It is also important to note that not all personal bankruptcy or corporate insolvency orders are similar in nature. They can be further categorised either as an in rem or an in personam judgment. A foreign judgment for the recovery of monies transferred to the defendants before the company was liquidated would be an in personam judgment (Rubin and another v Eurofinance SA and others [2013] 1 AC 236 (“Rubin”) at [106]). On the other hand, a foreign judgment that vests the title of shares of an offshore holding company to its creditors would be an in rem judgment (Rubin at [103]).

    Let us apply this dichotomy to personal bankruptcy judgments. Here in Simanjuntak, one of the bankruptcy orders simply declared that the respondents were bankrupts. That would be an in rem judgment since it determines the debtor’s status in relation to his or her assets. (Swycher v Vakil [2004] EWCA Civ 444 at [33]).

    Hence, assuming if the bankruptcy orders were collectively judgments in rem (absenting any evidence of foreign law to the contrary), it was unnecessary for the court to use the principle of modified universalism to reject the distinction between judgments and bankruptcy orders. In fact, the requirements for recognising a foreign judgment in rem is entirely consistent with the requirements that the court in Simanjuntak had set out for the recognition of foreign bankruptcy orders. (Rubin at [46]).

    The High Court’s approach not only ignores the distinction between judgments in rem and in personam, it purports to state a new set of rules based on modified universalism. Such an approach is eerily reminiscent of the Privy Council’s decision in Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc and others [2007] 1 AC 508. (“Cambridge Gas”).

    In that case, Lord Hoffmann delivering the Board’s unanimous judgment, held that personal bankruptcy orders were neither judgments in rem nor judgments in personam. In Lord Hoffmann’s view, the purpose of such orders was not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the debtor’s property. (Cambridge Gas at [13]-[14]). The House of Lords in Rubin later rejected this approach as being “wrongly decided”. (Rubin at [132]).

    Realistically, it is also difficult to suggest that the High Court in Simanjuntak  has endorsed Cambridge Gas. This is because the court ultimately accepted the doctrine of recognising foreign judgments as applying to foreign bankruptcy orders, but not on the conventional basis of private international law. However, whether Lord Hoffmann was correct in Cambridge Gas still remains an open issue in Singapore.

    Reciprocity as a requirement?

    According to the court in Simanjuntak, there were indications that the Indonesian courts would not recognise an insolvency or bankruptcy-related judgment delivered in Singapore. The Indonesian courts also may not recognise the appointment of Singaporean insolvency officeholders. Hence, Abdullah J had asked parties to submit if it was open to him to introduce a requirement of reciprocity.

    Counsel for the first respondent had submitted that even though the common law imposed no such requirement, Singapore law could choose to mirror the Indonesian courts’ position. However, Abdullah J noted that despite the advantages of imposing this requirement, to do so “would be a significant departure from the common law, which would be outside the usual remit of a puisne judge”. (at [54])

    With respect, introducing the reciprocity requirement is not just outside a puisne judge’s usual remit, but it would be outside the usual remit of the courts in general.

    Before we proceed with this discussion, we should note that there are two points of uncertainty. It is unclear from the judgment:

    • Whether the requirement is to be a one-off exercise of judicial discretion or a rule to be applied across all foreign insolvency or bankruptcy decisions.
    • Whether counsel asserted this requirement as being uniquely applicable to insolvency and bankruptcy judgments or it is to be generally applicable for all foreign judgments.

    On the facts of this case, it is difficult to justify the reciprocity requirement as a proper exercise of judicial discretion. While the principle of modified universalism allows the courts to refuse cooperation, such refusal should only be made in exceptional circumstances. Otherwise, it defeats the whole purpose of having this principle in the first place, which is to efficiently facilitate cross-border insolvency or bankruptcy proceedings. Such exceptional circumstances would include situations where recognition results in non-compliance with a Singapore court order. (See Re Zetta Jet Pte Ltd and others [2018] 4 SLR 801 (HC)), though the refusal of recognition was based on the UNCITRAL Model Law on Cross-Border Insolvency that was enacted in Singapore). Just because the Indonesian courts would refuse to recognise Singaporean court orders does not necessarily mean that a reciprocity requirement should be imposed.

    It is even more problematic if reciprocity is introduced as a rule across all foreign judgments. In the context of judgments in personam, the courts have consistently rejected the role of reciprocity except when it concerns matrimonial proceedings. (Rubin at [127]) This is simply because the long-standing basis for enforcing foreign judgments is that recognition creates an enforceable obligation founded on the foreign judgment at common law. Hence, the common law simply does not expect reciprocity on the part of foreign jurisdictions  (Adrian Briggs, Civil Jurisdiction and Judgments, 6th ed, Informa Law from Routledge, 2015 at 7.62, Rubin at [128]).

    In other words, introducing reciprocity as a requirement would call for a fundamental reformulation of the common law rules of recognition and enforcement of foreign judgments in Singapore. Of course, that is outside the puisne judge’s remit. However, even if it is open to the Court of Appeal to alter these rules (as it did before in Hong Pian Tee v Les Placements Germain Gauthier Inc [2002] 1 SLR(R) 715), one must still consider carefully if such a significant and radical departure should be made at all. This is especially since private international law is an area of law where certainty is highly valued. Certainty is prioritised even if the foreign bankruptcy order were a judgment in rem.

    Hence, it is this author’s view that any reciprocity requirement should only be introduced through statutory enactments. (Rubin at [128]-[129]) As Professor Briggs points out, the changes in the common law are unable to be so nuanced as to not damage those who have held legitimate expectations based on the traditional legal doctrines. This is why legislation is seen as the most appropriate avenue to effect such a fundamental reform (Briggs, Rubin and New Cap: Foreign Judgments and Insolvency, 2013 Jones Day Professorship of Commercial Law Lecture at 23).

    It is also objectionable if the reciprocity requirement is limited to personal bankruptcy orders alone. If the High Court was correct in suggesting there is no distinction between bankruptcy orders and all foreign judgments, then why impose this requirement on only one type of foreign orders and not all foreign orders and judgments?  It cannot be correct either to suggest that the reciprocity requirement can be justified on the principle of modified universalism. As the facts here have shown, it will only be an additional obstacle to the Universalist aims of having a single collective bankruptcy or insolvency process.

    Introducing the reciprocity requirement across all personal bankruptcy judgments (or even, corporate insolvency judgments) also ignores the fact that international insolvency is a highly legislated area. Not only must an appellate court consider the impact of such changes on the rules of private international law, it has to assess the enormous socio-economic implications behind such changes. An assessment that should be best reserved for Parliament to conduct (See Singularis at [160]-[161] per Lord Neuberger of Abbotsbury PSC’s dissenting judgment).

    It is also worth reminding that insolvency law at its fundamental core, concerns socio-economic policies that appropriately lies in Parliament’s domain. Hence, any changes of the common law rules involve more than just a change in the rules. National interests are at stake here. (See Adeline Chong, “Recognition of foreign judgments and cross-border insolvencies”, [2014] LMCLQ 241-268 at 260-261)

    Furthermore, as the Singapore Court of Appeal in Beluga at [99] had noted, modified universalism is in reality, nothing more than a broad statement of principle. It is this author’s humble opinion that parties should not carelessly use this broad principle as a licence to disregard the trite rules of private international law whenever it seems inconvenient to facilitate a cross-border debt restructuring. More thought should be given to whether it is an appropriate exercise of judicial power to make such fundamental changes to the law.

    The UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments

    In Simanjuntak, the court had observed (at [2]) that the Singapore proceedings demonstrated the potential room for a regional recognition regime or common approach. This is undoubtedly correct. It is worth pointing out that UNCITRAL has recently introduced the new Model Law on Recognition and Enforcement of Insolvency-Related Judgments. A thorough exposition of the regime is outside the scope of this article. However, it suffices to say that the Model Law now provides for a streamlined procedural regime for recognition and enforcement of foreign insolvency-related judgments. (The model law’s text can be found in  https://www.uncitral.org/pdf/english/texts/insolven/Interim_MLIJ.pdf)

    However, it should be noted that in Singapore, the UNCITRAL Model Law of Cross-Border Insolvency was enacted to only apply to corporate debtors. Hence even if it is in Singapore’s interests to consider adopting the new model law on foreign insolvency judgments, such enactments may only be applicable to cross-border corporate insolvencies. Hence, for parties in foreign personal bankruptcy situations, they may still have to seek their redress through the fraying golden thread of the common law.

    Conclusion

    There are two further learning points that we could derive from Simanjuntak. First, a cross-border corporate insolvency or personal bankruptcy case should not be viewed simply through the lenses of private international law or insolvency law alone. With respect, the High Court’s decision in Simanjuntak highlights the necessity for a more nuanced and integrated legal analysis. This is especially in light of the fact that is tension between the desire to efficiently facilitate cross-border insolvency processes and upholding territorial sovereignty through enforcing territorial-based rules of private international law.

    Second, there is also a real need for the courts to scrutinise the principle of modified universalism and clarify its limits. Judicial approaches towards this principle are plainly inconsistent across various jurisdictions. For example, the English courts in Rubin and Singularis have emphasized judicial restraint whereas the Singapore High Court decisions in Simanjuntak and Re Opti-Medix have adopted a much more liberal approach.

    Should international insolvency be seen as a sui generis area of law such that the courts can have a blank slate to freely amend the rules of private international law? Does the principle of modified universalism justify such a bold proposition? These are some of the exciting questions on the law of cross-border insolvency, which we hope that the Singapore courts will be able to address in the near future.

    * The opinions contained in this comment reflect the author’s personal views and do not reflect the views of the author’s employers.  The author would also like to thank the anonymous reviewer for his or her comments. For the avoidance of doubt, only the author is responsible for all errors contained in this article.

    ** This blog entry may be cited as Tan Kah Wai, “Recognising foreign personal bankruptcy judgments in Singapore – a critical assessment of the common law’s role and its difficulties”  (29 October 2019) (http://www.singaporelawblog.sg/blog/article/242)

    *** A PDF version of this entry may be downloaded here 

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