On 17 March 2017 Mr. Justice Teare delivered an important judgment concerning the enforcement of foreign (specifically New York) judgments in England.
The case involved a New York procedure known as “Judgment by Confession”, which allows a judgment to be obtained without an action being brought. Under New York law such a judgment is enforceable in the same way as a judgment obtained after a legal action. In this matter, the claimant (“Midtown”) obtained judgment by confession against the defendant (“EGFL”) for over $100 million and went on to bring proceedings in England, the BVI, the DIFC and other locations to attempt to enforce that judgment. In the English proceedings, EGDL made a jurisdiction challenge and applied for a stay; Midtown sought summary judgment.
EGFL’s basic argument was that a New York “judgment by confession” was not a “judgment” as defined and understood in English law. It ran supplementary arguments that the judgment was not final and conclusive, was obtained by fraud and/or in breach of natural justice.
The need for a lis
The relevant New York procedural rules expressly provide that a judgment by confession may be entered “without an action” (i.e. without a lis). The English Court had to consider whether an action (i.e. a lis) was a strictly necessary element of a judgment.
Mr. Justice Teare held that it was not. Upon a review of authorities he held that a judgment may exist even absent an underlying action.
Was the judgment final and conclusive?
EGLF argued that because a judgment by confession could be reviewed by the New York courts, it could not be said to be final and conclusive. Mr. Justice Teare disagreed. A judgment by confession can be challenged – as can most judgments – but it cannot be ignored or side-stepped.
Was the judgment on the merits?
Having decided that the judgment was indeed final, the court had to now determine whether it was decided “on the merits”. Mr. Justice Teare found that a judgment by confession was entered into because EGFL had confessed liability. It was therefore based “upon the best possible evidence that the defendant is liable for a sum in respect of which judgment is sought, namely, his own confession or admission”. In other words, it is on the merits because the court has been provided with evidence from the defendant themselves that the sum in question is due and owing.
Mr Justice Teare concluded that there was a good arguable case that a New York judgment by confession was a judgment in English law.
To obtain summary judgment Midtown had to show that EGFL had no real prospect of defending the claim to enforce the judgment. EGFL argued.
In the light of his conclusions on the jurisdiction challenge Mr Justice Teare concluded that there was no real prospect of EGFL successfully arguing the first point. The other two were reviewed as follows:
Generally speaking, in enforcement proceedings the English courts will not allow the foreign judgment to be re-litigated. The exception is if a defendant argues that the foreign judgment was obtained by fraud. Stringent ethical rules govern alleging dishonesty in the English courts.
In this case, EGFL argued that fraud could be established by innocent representation. Midtown argued that nothing less than “cautious and deliberate dishonesty” could amount to fraud.
Mr Justice Teare concluded that the case-law did not suggest that an innocent misrepresentation could amount to fraud. Given that EGFL had expressly refused to make a specific allegation of dishonesty it followed that such a defence had no prospect of success either.
EGFL argued that a “judgment by confession” amounted to a breach of natural justice. Whist Mr. Justice Teare accepted that the procedure would “cause the English judicial eyebrow to rise”, he noted that the judgment was obtained under a long standing procedure in a sophisticated jurisdiction and expressly provided for by procedural law. Constitutional challenges to the procedure had all previously failed on the basis that the debtor waived his right to due process. The waiver would have to be “knowing, intelligent and voluntary” – as will likely be the case with sophisticated commercial parties advised by specialist law firms.
Mr Justice Teare granted summary judgment on the grounds that there was no realistic prospect of any of EGDL’s defences succeeding at trial. The judge did however accept EGDL’s request for a limited stay to enforce that judgment, as another hearing on the same judgment by confession was due in New York during the same month.
Enforcing U.S. judgments rarely poses problems because of the similarity of the legal systems. This case is peculiar in that it involved consideration of a peculiar procedure.