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Gibbs rule – time to consign to legal history?

Gerard McCormack, University of Leeds

Email – g.mccormack@leeds.ac.uk

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Gibb – its origins

  • Long-established principle that the discharge of a debt under foreign insolvency law will not be given effect in the UK where contract creating the debt is governed by UK law
  • ‘not a law of the country to which the contract belongs, or one by which the contracting parties can be taken to have agreed to be bound; it is the law of another country by which they have not agreed to be bound.’
  • Principle under sustained attack from those advocating a more universalist approach to restructuring of debt obligations
  • Said to be parochial and narrow-minded - focus on bilateral contractual regime to neglect of more multilateral universalist concerns
  • Suggested principle may survive as residual common law principle
  • Application could be cut back through UK implementation of UNCITRAL Model Law on Insolvency Related Judgments.

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Gibbs – an Anglocentric age?

  • Should it now be consigned to history?
  • Criticism may not be entirely fair
  •  Gibbs rule - discharge of a party under proper law of contract irrespective of whether relevant foreign law is English law or a foreign law
  • Gibbs out of step with modern theories of modified universalism
  • Reliance on proper law of the debt partitions off particular claims from universalist goals of main insolvency proceedings - fragments the common pool.
  • Enthusiasm for modified universalism has ebbed and flowed over the years
  • Issue to come before Supreme Court shortly in Kireeva appeal

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Gibbs - exceptions

  • Submission exception to Gibbs rule accepted  
  • Leading case Rubin  takes broad approach - stating that whether there is a submission to be inferred from all the facts
  • Case explicitly concerned with recognition of foreign insolvency judgments
  • But Rubin takes narrow approach to existing UK implementation of UNCITRAL Model Law
  • Unlike US position, not considered to allow implementation of insolvency related judgments

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Gibbs – a bifocal lens

  • UNCITRAL Model Law
  • Reflects a universalism approach to transnational insolvency
  • S 426 Insolvency Act – in principle application limited to countries with analogous common law background
  • ‘Onshored’ Rome 1 Regulation Article 12(1)(d)
  • Law applicable to a contract under the Regulation shall govern various ways of extinguishing obligation
  • Statutory confirmation for Gibbs?
  • But Art 12(1)(d) does not place any limits on the circumstances in which applicable law might recognise modification of contractual obligations under debt restructuring or insolvency law of another country. 

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Wider exception to Gibbs?

  • Allow modification of contract outside proper law of contract where this is part of objectively reasonable expectations of contracting parties
  • Broad exception to Gibbs along these lines rejected in UK
  • But accepted in Singapore Pacific Andes Resources Development Ltd - Ramesh J described Gibbs as tether on the foot of good forum shopping
  • Suggests creditor autonomy is relevant in context of insolvency proceedings only to extent it does not impede collective goals of debt restructuring process
  • Gibbs tends to channel debt restructuring into major financial centres such as London and New York

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Gibbs and Brexit

  • Modification of English law governed obligations under insolvency proceedings opened in other EU states automatically recognised and implemented throughout EU (including UK pre-Brexit) pursuant to European Insolvency Regulation - Bank of Baroda v Maniar 
  • Brexit confirms unfettered application of Gibbs
  • Recent case suggests limited exception under s 426 IA
  • But Art 21 Model Law does not allow application of foreign insolvency law according to Pan Ocean and Bakhshiyeva 

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�Model Law on Insolvency-related judgments implementation in UK?

  • Takes form of a Article X amendment of CBIR so relief available includes recognition and enforcement of a judgment
  • Also subject to adequate protection condition
  • Suggested in Bakhshiyeva that in restructuring to vary individual rights for greater good and in the name of universalism would not comport with adequate protection
  • Tackles Rubin issue but not Gibbs
  • Will this cautious approach ultimately prevail?
  • Does UK law have chauvinistic tinge?
  • Does continued adherence to Gibbs lead to multiplicity of proceedings, incentivise hold-outs that obstruct value-enhancing restructurings?

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