Ireland rejects Canadian 'real and substantial connection' test for foreign judgment enforcement in favor of Dicey & Morris Rule 36.

THE SUPREME COURT

Appeal No. 284/2006

Murray J.

Hardiman J.

Fennelly J.

Finnegan J.

O’Donnell J.

IN THE MATTER OF FLIGHTLEASE (IRELAND) LIMITED (IN VOLUNTARY LIQUIDATION)

AND

IN THE MATTER OF THE COMPANIES ACT 1963-2005

AND

IN THE MATTER OF AN APPLICATION PURSUANT TO S.280 OF THE COMPANIES ACT 1963

PAUL McCANN AND STEPHEN AKERS JOINT LIQUIDATORS

Applicants

Judgment of O’Donnell J. delivered the 23rd day of February, 2012.

1 I agree with the conclusion and result proposed by Finnegan J. in the judgment which he has just delivered. I add these comments

in deference to the research and arguments of counsel, and because although I have come to the conclusion that the appeal must be

dismissed, I have done so by a somewhat different route, and with no particular enthusiasm for an outcome which while it appears to

me to be one that the current state of the law in Ireland requires, but has little to recommend it at the level of legal theory. I will

confine these observations to the second question raised, that is whether Ireland should adopt the approach of the Canadian

Supreme Court in De Savoye v Morguard Investments Ltd and Credit Foncier Trust Company [1990] 3 SCR 1077 (“Morguard”) and

Beals v Saldanha [2003] 3 SCR 416 (“Saldanha”), or whether by contrast, Rule 36 of the Rules formulated in Dicey, Morris & Collins on

Conflicts of Law 14th edition represents the law in Ireland. For that purpose I gratefully adopt the statements of facts and arguments

contained in the judgment delivered by Finnegan J.

2 It is worth stepping back from the interesting legal issue posed by this case to consider some aspects of the factual context in

which it arises. This is a dispute between the liquidators of two companies, both of which were part of the SAir group, and which

went in to liquidation as part of the collapse of that group. The Irish company, Flightlease (Ireland) Limited (“Flightlease”) was a

company established and based in Ireland for the purposes of aircraft leasing business and Swissair Schweizerisch Luftverkehr-

Aktiengesellschaft in Nachlassliquidation (“Swissair”) was the operational aviation company of the group. The precise claim in issue is

one advanced by Swissair, initially in the liquidation of Flightlease, that Flightlease owed the sum of CHF8,000,000. That claim is

based on the provisions of Article 288 and Article 331(1) of the Swiss debt enforcement and bankruptcy law which appears to be akin

to the law of fraudulent preferences in that it renders voidable transactions carried out during the five years prior to the granting of

the debt restructuring moratorium with the intent apparent to the other party, putting the creditors at a disadvantage of others.

Flightlease was concerned that if it entered an appearance to the Swiss proceedings, a judgment obtained there against Flightlease

would be enforceable in Ireland, and indeed elsewhere. Accordingly, since it too was a company in liquidation, its liquidators exercised

their power to apply to court under s.280 of the Companies Act 1963 for determination of the issue as to whether a judgment

obtained in the Swiss proceedings would be enforceable within the State. It was, I think, assumed for the purposes of this issue that

the judgment was a judgment obtained in default.

3 The facts which were alleged to show that Flightlease had a real and substantial connection to Switzerland were that a significant

part of Flightlease’s commercial decisions were made in Switzerland by Swiss members of the board. The proceedings therefore raised

an issue of Swiss law which, in whatever jurisdiction the proceedings were heard, would involve both determination of that issue, and

the hearing of evidence from Swiss residents. It appears to be accepted that if Flightlease was correct in its contention that a

judgment in default obtained in the Swiss proceedings would not be enforceable in Ireland, the consequence would be that the claim

would have to be pursued in an Irish court, albeit subject to Swiss law, which would have to be proved as a matter of fact, and

accordingly would in all probability require the attendance of Swiss lawyers on both sides. The possibility of proceedings in Ireland was

accepted in this case, but in other cases that might not be so clear. In any event, even if Flightlease were to succeed, that would

not be a bar to the proceedings in Switzerland. Swissair might then proceed and obtain a judgment in Switzerland. Not only would

there be a duplication of proceedings, but there would also be a risk of inconsistent decisions and inevitable confusion. From any

objective viewpoint therefore, if the only question was what was the optimal way to proceed, that would point to a single set of

proceedings, in a jurisdiction with which the matter had the closest connection, which in this case, would probably be Switzerland. A

conclusion which results in a proliferation of proceedings and the possibility of inconsistency of outcome is one which must be

scrutinised carefully and only acceded to if unavoidable.

4 It can be said that the narrowness of Rule 36 in Dicey, Morris & Collins has little to recommend it at a policy level other than the

fact that it is rule which is known and therefore predictable. However the existence of known rules is important particularly in the

area of conflicts of laws. It was a formidable intellectual achievement on the part of A V Dicey to synthesise the late Victorian

jurisprudence in the relatively unfamiliar area of private international law, and to produce something approximating to a code. The

subsequent revisions by a number of distinguished editors and contributors, have added considerably to the value of the text and

given it a deserved eminence in a field where the writings of academic authors has particular benefit. But I wonder if the format has

not contributed to a creeping fossilisation of the law and a loss of some of the traditional flexibility of the common law. For example a

consequence of the result which has been arrived at in this case, is that without legislative change (which seems unlikely), the

common law of Ireland on an important issue of the conflicts of law, is determined by the views not of modern Irish judges, but rather

of those of Victorian England. No matter how thoughtful and impressive some of those individual judgements (and the commentary

upon them) may be , it is asking a lot that the outlook of the British empire at its height ,with its justifiable pride in its own legal

system, and perhaps less justifiable suspicion of others , should provide enduring rules which are well adapted to the circumstances of

a world in which international travel is commonplace, and global trade an essential feature of modern economies.

5 It should be said that rules set out in Dicey, Morris & Collins, and in particular Rule 36, have not become totally petrified. The

decision of Davitt P. in Rainford v Newell Roberts [1962] IR 95, shows that the law can be developed in this area. In that case Davitt

P. was prepared to hold that the second of Dicey’s original suggested grounds on which an in personam judgment would be enforced,

namely that it was obtained against a person who was at the time of the judgment “a subject of the sovereign of such country” was

no longer part of Irish law. It is also noteworthy that the first of his suggested rules, “residence or presence in the country” is also

now the subject of some qualification. However, in the field of enforcement of judgments it is easier to narrow the grounds upon

which judgments will be enforced than to expand them. The test for the enforcement of judgments is almost always applied ex post.

The judgment has been obtained, and the question is whether it will be enforced. In that situation, refusal to enforce a judgment may

simply give rise to a separate action on the underlying cause of action. Expansion of the grounds for enforcement may however

create its own injustice, in that at the time the judgment was entered, the party might have had no idea that such a judgment could

be enforced against them, and may indeed have been so advised. It is difficult for the common law to match the demands in

expanding the grounds for enforcement more generally with the demands of justice in the particular case, and indeed the interests of

parties who had acted on the faith of the existing law. But narrowing the grounds for enforcement of judgments is a development

which runs directly counter to the 20th and 21st century developments in the field of international law. A shrinking world,

international cooperation, increased personal travel and vastly increased global trade and not least, efficient use of scarce court time

and resources, all point towards expanding the grounds for recognising the decisions of the courts of friendly countries.

6 The harmful effect of unduly narrow rules for the enforcement of foreign judgments has been mitigated in practice by the

introduction of multi-lateral agreements such as those embodied in the Brussels and Lugano Conventions. At the same time the

practicalities of international travel and trade, which give rise to the need for the enforcement of foreign judgments also tend to

discourage any strategy of avoiding foreign proceedings and ignoring foreign judgments. No individual or company which sought to

continue to trade, could readily afford to shelter behind the provisions of Rule 36 in Dicey & Morris. If a foreign judgment is obtained,

then the fact that it may not be enforceable in Ireland may be of little comfort, if remains enforceable both in the jurisdiction in which

it was granted, and in any other jurisdiction which enforces the judgments of that jurisdiction. As a matter of practicality therefore,

few individuals and fewer businesses can be so confident that they will never have business or assets in a country in which the

judgment maybe enforceable that they could afford to ignore the prospect of the judgment being obtained. As a result such

companies and individuals may make pragmatic decisions to contest proceedings in jurisdictions with which they have had after all

sufficient connection to give rise to the original cause of action in the first place.

7 In my view therefore Rule 36 is discordant, nor merely with the policy underlying the recognition and enforcement of foreign

judgments, but also with every day practice. Consequently I have some reservations about the process that was undertaken in this

case. Because Flightlease happened to be a company in liquidation, with no prospect of any future trade in any other country, it was

in the unusual position that it could decide not to contest the proceedings with some impunity if it was satisfied that the judgment

would not be enforceable in Ireland. Again, because it happened to be a company in liquidation, it could seek directions from the court

as to the consequences for it, if it ignored the proceedings. This however is a facility which is not available to any individual facing

proceedings in another country, nor indeed to a company which is solvent and trading. It is not open to such individuals or companies

to invite a court to provide it with advance assurance as to the outcome of any future proceedings to enforce a judgment that might

be obtained against the individual or the company in another jurisdiction. As a result such parties must make decisions based upon

predictions of the likely outcome coupled with the possibility of ever being exposed in future to the consequence of the judgment in

the foreign jurisdiction or other jurisdictions which enforce its judgments. Those considerations may lead to a pragmatic approach of

appearing in and participating in the foreign proceedings. I see no good reason why the liquidators of Irish companies should receive

favourable treatment in this regard, especially when the outcome would be to allow them to ignore proceedings brought against the

company in liquidation in the courts of a friendly state whose legal system we have no reason to doubt.

8 It also seems particularly appropriate that in cases of insolvency there should be a central location for the consideration and

determination of disputes. In this case for example the end result may be three sets of proceedings in respect of a single claim by

Swissair against Flightlease: the Swiss proceedings, these proceedings under s.280, and the possibility of future proceedings by

Swissair against Flightlease in an Irish court. Such a proliferation of litigation can only deplete the assets of already insolvent

companies. No reason was given to doubt the Swiss courts ability to determine what is after all a dispute under Swiss law and no

juridical advantage was identified in insisting that proceedings should be heard in Ireland, which was the agreed alternative should it

be impossible to enforce any order obtained in the Swiss proceedings.

9 Accordingly, for my part, I would not wish to entirely rule out the possibility of the development of an insolvency principle as a

matter of common law as indeed was discussed by Lord Hoffman in United Kingdom House of Lords in Cambridge Transportation v

Unsecured Creditors of Navigator Holdings Plc [2007] 1 AC 508, and Re HIH Casualty and General Insurance Limited [2008] 1 WLR 852

(House of Lords) and in the United Kingdom Court of Appeal in Rubin & Anor v Eurofinance SA [2010] EWCA 895. It would of course be

desirable that this situation could be achieved by international agreement and domestic legislation, but I would not rule out a possible

development of the common law, if that appeared necessary. However, that question was not argued in any detail on this appeal.

The Cambridge Gas case was referred to only in the context of whether or not any order obtained in the Swiss proceedings would be

an in personam judgment. Accordingly I would reserve that question for another day, when it could be the subject of focussed

argument in the context of all the conditions then prevailing.

10 In so much therefore as this appeal challenges the intrinsic merits and logic of the rules contained in Rule 36 of the latest edition

of Dicey & Morris, then in my view, the argument has considerable force. The principal thing to be said in favour of Rule 36 is that

very fact; that it is a rule and is understood as such, that it provides certainty and therefore predictability. These are important

values, but if the law on the recognition of foreign judgments was being constructed from scratch, and by reference solely to rules

which best accorded with function of private international law rules in the modern era, then I think it is unlikely that a rule as

restrictive as that contained in Rule 36 would be adopted. However criticism of Rule 36 is only the first part of Swissair’s case.

Unfortunately, however it appears to me that the alternative proffered by Swissair, namely to adopt the real and substantial

connection test adopted by the Canadian Supreme Court in Saldanha offers substantially more in terms of inherent merit, and pays a

much heavier price in terms of uncertainty and unpredictability.

11 The real and substantial connection test has obvious attraction when originally developed in the context of a federal system such

as that of Canada when seeking to develop rules for the recognition and enforcement of provincial judgments. It was a relatively

short step to the adoption of the same rule in respect of foreign judgments. The test also has been adopted to some extent, in the

United Kingdom in the course of divorce proceedings in Indyka v Indyka [1969] 1 A.C.33. Once again however the specific context of

recognition and enforcement of judgments on the question of status, makes it highly desirable that there should not be limping

marriages or indeed divorces i.e. that so far as possible the status of persons should not be dependent on the different jurisdiction in

which the question is addressed. However, as a more general rule for in personam proceedings the real and substantial test, is by

definition flexible, and therefore somewhat unpredictable. It was perceptively criticised in Canada, by Blom & Edinger in The Chimera

of the Real and Substantial Connection Test (2005) 38 UBC L Rev 373. The authors observed at page 380 that:

“‘Real’ presumably meant nothing more than not a fiction. The critical term therefore was ‘substantial’. The assumption

was that the term ‘substantial’ was intended to convey a connection of ‘considerable importance, size or worth’, but

conflict scholars recognised immediately that the existing common law rules for recognition and enforcement of foreign

judgments did not necessarily require a substantial connection. Personal service could amount to tag jurisdiction and

submission could be technical. Many also probably remembered that, in application, the ‘real and substantial’ connection

required by Indyka gradually became attenuated.”

The truth is that the test is more easily and readily applied after the fact (when all the relevant facts are identified) than in advance

when parties may have only partial information and little time. However, an important component on the question of the rule on

enforcement of foreign judgments, is precisely that it should be possible to determine at the point of decision in relation to submission

to the jurisdiction, whether or not a judgment in the proceedings without such submission, will be enforceable in the jurisdiction in

which the party has assets. As Blom and Edinger observe:

“ The structure of the ‘real and substantial connection’ test means that it is hard to make simpler or more concrete …

… The great virtue of the ‘real and substantial connection’ test is that it identifies the nub of the legal problem, but its

great drawback is that it telescopes together all the possible issues within that problem. When a decision has to be made,

these issues are all potentially in play every time. This makes the test poorly suited to be a practical instrument for

decision making. It needs to be supplemented, if not replaced, by rules that can more readily be applied in concrete

situations.”

12 There are significant difficulties therefore with adopting the solution proposed by Swissair in this case, and not least that any

change would necessarily govern cases in which foreign judgments had been obtained at a time when such judgments would not have

been enforced. Furthermore as has been recognised, it would be necessary to broaden the grounds for refusal to enforce default

judgments, to avoid injustice. The facts of Saldanha itself are not reassuring. Perhaps the most compelling objection is that changes

as extensive as this can best be undertaken as part of a multi-lateral agreement embodied in legislation enacted with sufficient time

and publicity to allow people to adjust their behaviour to the new rule. Furthermore, there is little reason why one country should

adopt a rule such as this on a unilateral basis, which might result in it recognising judgments granted by other countries which do not

take the same expansive view. It is notable that the position taken by the Canadian Supreme Court has not persuaded other common

law countries to follow suit. While academic commentary appears to have been initially favourable to the development in Beals v

Saldahna, it now appears to be more mixed. Significantly the distinguished scholar Adrian Briggs, initially welcomed the decision in

Morguard and suggested it should be applied in English law. See: (1992) 109 LQR 549, and, Briggs, Crossing the River by Feeling the

Stones : Rethinking the Law on Foreign Judgments (2004) 8 SYBIL1,22 . However the 5th edition of Civil Jurisdiction and Judgments

by Briggs (2009) edited by Peter Rees QC took a different approach. The Canadian jurisprudence was discussed in the following terms:

“This explains why a change to re-orient English private international law along these lines could be fundamental, and

must be a matter for parliament, and not for the courts. Insofar as any such legislative reform is concerned, the

prospects do not promise much. Bilateral negotiations with the United Kingdom and the United States, which might have

resulted in an improved scheme for mutual recognition of judgments stalled and were abandoned in 1980: among other

things jury awards, punitive damages, and judgments based on the long arm jurisdiction were not on the list of things

which the United Kingdom was to find acceptable; it has subsequently become clear that American objection enforcing

these defamation judgments are likely to be, if anything even more profound.

Multi-lateral negotiations organised by the Hague Conference on Private International Law, designed to produce a

template for the mutual recognition of judgments, in what might have been called a “world wide Lugano Convention” also

failed; the part which was rescued and repackage as the Hague Convention on Choice of Court Agreements was all that

could be salvaged from the wreckage.”

Again, in the 2nd edition of Briggs the Conflicts of Laws (Oxford 2008), at page 138, it is stated:

“As a matter of English law, such a development would require legislation. And it is important to understand how radical

the Canadian departure is. For the English common law inquires into whether the parties to be bound by the judgment has

acted in such a way as to have assumed a personal obligation to obey the judgment: his submission to the jurisdiction of

the court is the commonest example, but his presence within the jurisdiction also places him in the way of obedience. The

Canadian development, however, does not focus on whether the party to be bound has assumed an obligation, but on

whether the Canadian court should impose one for reasons of its own. There is nothing wrong with such a development,

but far from being a modernisation of the details it represents a fundamental reorientation of the law on foreign

judgments. It is not clear that the Supreme Court fully appreciated what it was doing.”

Once it is recognised that to adopt a “real and substantial connection” test is not just a matter of detail but a fundamental

reorientation of the law, it becomes a development more appropriate to legislation than judicial decision. Even then the “real and

substantial” test is not an ideal solution. It is notable that the solution of the Brussels and Lugano Conventions was to provide rules

at the jurisdiction rather than the enforcement stage. As Blom and Edinger observe:

“ As the Supreme Court itself said in Tolofson, the underlying principles of private international law are order and fairness,

but order comes first. When it comes to questions of jurisdiction , in the contexts of both domestic and foreign

judgments, it is often more important that the system should give a predictable answer than it should give an ideal

answer. Predictable answers are what the “real and substantial connection” test are least good at”: The Chimera of the

Real and Substantial Connection Test (2005) 38 U.B.C.L. Rev.374.

Castel , The Uncertainty factor in Canadian Private International Law , (2007) 17 McGill L.J. 555 makes a similar point :

“…the principle of proximity encourages forum shopping and prolongs litigation. Where there is an element of uncertainty

the door is open for a resourceful lawyer to attempt to change the application of the law; a clear rule of law, by contrast,

promotes settlement.”

Accordingly, I have reluctantly concluded that notwithstanding the defects of the approach currently embodied in Rule 36 in Dicey &

Morris, it is at least predictable. The real and substantial connection test has not received sufficient support in other jurisdictions, is

itself so inherently uncertain, and would require such significant alteration of the grounds for refusal of enforcement , that its

adoption would not produce any measurable improvement in Irish law, even if it could be achieved by judicial decision alone , which I

doubt . Any change in this area, while desirable, would in any event probably require detailed legislation, preferably on a multilateral

basis. Accordingly for these reasons I too would dismiss the appeal.