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UK court: bank recovery of foreign judgment before appeal period ended was unlawful

Out-Law Legal Update | 29 Apr 2020 | 11:44 am | 3 min. read

An Icelandic Bank should not have taken action to recover a debt before a one month period of appeal under the Lugano Convention had expired, the Court of Appeal in London has said.

Taking action before the appeal period ended upset the balance of creditor and debtor rights in the Lugano Convention and in UK insolvency law, the Court ruled.

Kevin Stanford owed £1.5 million plus interest to Islandsbanki HF (IB). IB sought to use the Lugano Convention to enforce an Icelandic judgment from 2013 against Stanford. The Lugano Convention enables the registration of a foreign judgment in England and Wales.

IB obtained a registration order. The Lugano Convention allows the debtor a one month period in which to appeal. Before that month had passed IB obtained a 'writ of control' from the High Court. A writ of control allows an enforcement officer to take control of property and sell it to pay debts that have been subject of a court judgment.

Steps were taken to try and seize Stanford's property, including entering his garage. After several attempts to enforce the writ it was certified as unsatisfied in whole, meaning the debt had not been recovered.

IB presented a bankruptcy petition which was dismissed by the Insolvency and Companies Court (ICC). However, the judge granted a bankruptcy order on HMRC's petition, which was one of two other petitions before the court and was heard at the same time as IB's.

IB unsuccessfully appealed to the High Court, which said that under the Lugano Convention, enforcement during the one month appeal period was barred, and that the state cannot enforce the judgment to vary the time period or bar on enforcement. The court ruled that The Civil Jurisdiction and Judgments Act 1982 (CJJA 82) and Civil Procedure Rules (CPR) did not contain powers to lift the prohibition on enforcement during the appeal period, nor reduce the one month time period. As a result, the writ of control was unlawful, the enforcement was forbidden under the Lugano Convention and there had not been valid "execution" for the purposes of bringing a bankruptcy petition on the grounds that Stanford was unable to pay the debt.

IB then appealed to the Court of Appeal. IB accepted that the use of the writ of control was premature, but said that the requirements under insolvency law were met,  meaning that "execution" had taken place for the purposes of establishing the requirement that Stanford is unable to pay the petition debt.

Although HMRC had obtained a bankruptcy order against Stanford, IB appealed because the costs of the petition were considerable, and because if successful it would mean more of Stanford's transactions could be set aside because the date of its petition was earlier than HMRC's.

The Court of Appeal was asked to decide whether purported execution of a foreign judgment under the Lugano Convention can count as execution issued in respect of the judgment debt for the purposes of s268(1)(b) of the Insolvency Act 1986 (IA86) if the execution was made before the expiration of the period for appealing registration. It was also asked to decide whether the defect could be cured if this was not the case.

The Court of Appeal unanimously dismissed the appeal and held that the purpose under the Lugano Convention was to create a single regime for enforcing foreign judgments in contracting states, and that although the measures of enforcement and details of execution are for a national court to determine, Articles 43(5) and 47(3) create an overarching principle, which was consistent with CJJA 82 s4A. To this effect Lady Justice Asplin stated that this includes 'maintaining the balance between the rights of the creditor and the debtor by preventing irreversible execution before the time to appeal a registration order has expired'.

She also held that the articles under the Lugano Convention impose an express prohibition which is consistent with the drafting of CPR 74.6(3) requiring a registration order to contain reference to the period which an appeal can take place before enforcement measures can be taken. Any attempt by the court to remedy the writ of control would undermine these Articles, and was held as impermissible.

The court also found that while the writ of control was voidable rather than void, the court was under an obligation to set it aside as soon as it came to its attention, and that forbidden enforcement cannot constitute execution for the purposes of s.268(1)(b) IA86.

The court therefore held that the ICC judge was right to dismiss IB's petition.

This case highlights the importance of creditors following the articles of the Lugano Convention when seeking to enforce a foreign judgment. The period which a debtor has to appeal the registration of that judgment should be allowed for before any steps are taken for enforcement under a writ of control, otherwise the creditor will risk a court setting it aside, and any steps taken pursuant to it.