Creditor’s windfall : can a foreign judgment that can’t be enforced locally be enforced in England?

The latest judgment in Invest Bank P.S.C v El-Husseini [2023] EWHC 2302 (Comm), in which Debenhams Ottaway LLP represented the 6th Defendant (D6), grapples with 4 areas of novel law:

1. Whether, as a matter of common law or in accordance with English conflicts rules, you can’t recognise or enforce a judgment that is not enforceable in its home courts.
2. If it’s the case that a claimant seeking default judgment was required to make an application but didn’t and obtained a default judgment by request, whether it is automatically set aside, or whether it is discretionary under CPR 13.3.
3. Whether a section 423 of the Insolvency Act 1986 respondent and co-defendant can have locus and can never not have locus; and
4. If he does have locus, do the Denton principles for relief from sanctions apply to that person when seeking to set aside a default judgment?

The trial was framed as a Preliminary Issue hearing because, if D6 won, then the entire claim would ostensibly fall away, and the 4-week trial listed for next July could be avoided (and significant costs saved).

Why was this important?

The Bank obtained judgments against D1 (D6’s ex-husband) in Abu Dhabi for circa £19.6m (UAE Monetary Judgments). Through a change in legislation that came into force in early 2023, the Bank is now precluded from enforcing its judgments against D1 in Abu Dhabi, so they are “not worth the paper they are written on”.

Shortly before the new legislation came into force in Abu Dhabi, the Bank obtained default judgment against D1 in England. In reliance on the Default Judgment, the Bank is pursuing D1’s sons, ex-wife, and related companies under ss.423-425 of the Insolvency Act 1986 alleging that D1 transferred certain assets, including properties located in England, to his sons and ex-wife for nil or insufficient consideration (thereby allegedly putting his assets beyond the reach of his creditors i.e the Bank).

D6 applied to set aside the Default Judgment on the basis that it was obtained through a procedural irregularity (according to D6). If the set aside was successful, then D6 asked the Judge to determine whether the Bank’s UAE Monetary Judgments were capable of enforcement in England under the common law rules (even though they can’t be enforced in Abu Dhabi). If the Judge found that D1 did not have any liability to the Bank (under the UAE Monetary Judgments or Guarantees), then potentially the claim against the sons and ex-wife would fall away because D1 didn’t owe the Bank anything (so it would not be a creditor of D1).

What D6 said

D6 argued that the UAE Monetary Judgments are not capable of enforcement under English common law rules because they are not enforceable in the UAE.

D6 further submitted to the Court that the Bank was not entitled to seek default judgment using the request procedure, and instead ought to have made an application pursuant to Part 23 of the CPR where they had not expressly abandoned any non-monetary claims as part of the request. That would have allowed D6 to resist any such application for the same reasons upon which she was now seeking to set aside the default judgment.

Finally, it was D6’s position that she had locus to apply to set aside the default on the basis that it directly affects her in creating a liability which can give standing to the Bank for the section 423 of the Insolvency Act claim against her. In respect of the issue of whether the Denton test applies D6 argued that the default judgment is not a sanction imposed on her as a co-defendant for any default by her, and that for a sanction to be imposed it must be that party’s default. In the circumstances the Denton principles ought not to apply.

What the Bank said

The Bank argued that where a foreign liability judgment has the status of res judicata in its home court, it is amenable to execution provided it’s for a debt. Whilst it may have been found not capable of execution in the home court because of the interpretation of the statutory change, that did not alter the status of the underlying liability judgment, and the execution court decision was not capable of res judicata status and therefore could not be recognised in England.

The Bank made submissions that D6 did not have locus to set aside the default judgment as she is not “directly affected” by the same.. Further, if she does, then she is effectively stepping into the shoes of D1 and therefore must also satisfy the Denton principles for relief from sanctions.

Finally, the Bank maintained it was entitled to use the request procedure to achieve default judgment on the basis that they only sought default judgment on the debt claim; a claim for money, and therefore there was nothing to abandon as D1 being a defendant to any other claims is irrelevant where default judgment was not sought on those claims.

What the Judge held

The Judge determined that the UAE Monetary Judgments have final and conclusive effect in their jurisdiction of origin (Abu Dhabi) but are not enforceable against D1 in Abu Dhabi. The Judge concluded, therefore, that there is no impediment to enforcement of the UAE Monetary Judgments in England, even if they cannot be enforced in Abu Dhabi. Further and in addition, D1 remains liable under the original guarantees as a matter of UAE law.

The Judge held that D6 has sufficient interest to seek the setting of the default judgment and her substantive position depending upon the existence of D1’s liability, and she therefore meets the “directly affected” threshold. The Judge went further to say to deny someone in her position locus to apply would bring no credit to our legal system. That said, based on the Judge’s finding regarding the enforceability of the UAE Monetary Judgments, he found that, amongst other things, in considering the test to set aside a judgment and in applying the Denton test, D6 has zero prospects of success of defending the claim and therefore used discretion to decline to set aside the default judgment.

He further held that given the technicalities as to the applicable process for seeking default judgment in a case of mixed claims, the Bank should have sought summary judgment rather than default judgment. That said, the outcome would be unlikely to be different in those circumstances.

Ramifications

The Judge acknowledged that this case involved novel points of law that the Court of Appeal may well be interested in hearing, particularly in respect of the enforceability at common law of foreign judgments by reference to their status as a matter of the law of Abu Dhabi, which he accepts he may be persuaded to grant permission to appeal given (i) the disputed status of the preceding case law, (ii) the absence of a unitary principle, (iii) the scope for tension between recognition and enforcement for the purposes of limitation, (vi) the application of “substance vs. procedure distinction” and (v) the fact that the impact of local legislation upon enforcement of a judgment in the jurisdiction of origin has not specifically raised and contested before the Court of Appeal.

This judgment has potentially wide-reaching ramifications. Where a creditor has a money judgment, which is not worth the paper it is written on because it cannot be enforced locally, they could potentially enforce that judgment in another jurisdiction (like England) and gain a greater advantage than they otherwise would have had.

This is perhaps a point for the Court of Appeal to consider in due course – watch this space!

Niranjan Venkatesan and Matthew Barry (instructed by Debenhams Ottaway LLP) represented the Sixth Defendant at this hearing.