Chapter Seven Comity and Public Policy

JurisdictionUnited States

Chapter Seven Comity and Public Policy

I. Introduction to Comity

A. Comity in the Model Law

A hallmark of the Model Law is a broad recognition that national governments have different legal systems, legislative processes and political challenges. As a result, prior to the enactment of the Model Law, only a limited number of foreign states had a legislative framework for dealing with cross-border insolvency, with most relying on various techniques, such as the application of the doctrine of comity by courts in common-law jurisdictions; issuance for equivalent purposes of enabling orders (called exequatur) in civil law jurisdictions, enforcement of judgments under applicable legislation, or techniques for seeking judicial assistance such as letters rogatory.504 Because approaches based on comity or exequatur "do not provide for the same degree of predictability and reliability as can be provided by specific legislation," the Model Law created a framework for (1) recognition of foreign insolvency proceedings (see Chapter 2 of this manual), (2) after recognition, specific provisions that enabled the recognizing court to provide appropriate relief or additional assistance (see Chapter 4 of this manual), and (3) the establishment of rules for cooperation and communication between courts managing related insolvency proceedings (see Chapter 8 of this manual).

One objective of the Model Law is to encourage cooperation and coordination among foreign states with respect to the recognition and subsequent requests for relief and assistance. In pursuit of this goal, the Model Law determined that it would not require "reciprocity" as a condition to recognition, thus breaking with the historic practice in many jurisdictions.505 Perhaps because the concept of "comity" has embedded within it the reciprocity concept, the actual text of the 30 articles of the Model Law does not contain the word "comity," and comity is not a requirement or consideration of recognition of a foreign insolvency proceeding under the Model Law. The Guide to Enactment reasons that the exclusion of comity in the Model Law arose from the fact that the goal of the Model Law is predictability, so it seeks to avoid a requirement of reciprocity.506

B. The Relevance of Comity to the U.S. Adoption of the Model Law

When the U.S. adopted the Model Law as chapter 15, it modified the Model Law provisions to include references to "comity" because as U.S. insolvency law evolved in the later part of the 20th century, it became clear that "comity is the central consideration in determining whether to provide relief to a foreign insolvency representative."507 Thus, chapter 15 modified Articles 7 and 9 of the Model Law to include references to comity. Section 1507 of the Bankruptcy Code provides that "[i]n determining whether to provide additional assistance under this title or under other laws of the United States, the court shall consider whether such additional assistance, consistent with the principles of comity," will reasonably assure compliance with a list of factors.508 Additionally, once recognition has been granted, then any court in the U.S. is obligated to grant comity to the foreign representative.509Thus, chapter 15 of the Bankruptcy Code has expressly imported into its provisions the concept of comity.

C. The Common Law Definition of "Comity" in U.S. Law

While the Bankruptcy Code does not define "comity," courts have explained the concept as the "recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protections of its laws."510 The principle of comity is used flexibly to guide a court's decision-making process, as comity "is not a rule of law, but one of practice, convenience, and expediency."511 "[C]omity compels national courts to act at all times to increase the international legal ties that advance the rule of law within and among nations.... [C]omity serves our international system like the mortar which cements together a brick house. No one would willingly permit the mortar to crumble or be chipped away for fear of compromising the entire structure"'512 Recently, the second Circuit Court of Appeals described comity as being "concerned with maintaining amicable working relationships between nations, a shorthand for good neighborliness, common courtesy and mutual respect between those who labor in adjoining judicial vineyards."513

In short, "comity" is the notion that a court should defer to foreign laws or judgments of foreign courts out of respect for a foreign nation when the deferring court would normally take a different action with respect to the dispute at issue (of course, if the deferring court reaches the same conclusion, comity is not necessary).514 The problem with "comity" from a statutory standpoint is that the "boundaries of the duties it imposes are inherently uncertain" since the doctrine "turns on the consideration of a number of facts that vary according to the specific facts and circumstances of each case. Thus, the appropriate weighting of foreign court decisions must be decided on a case by case basis."515 Thus, in order to fully understand "comity" as a doctrine in the context of chapter 15, a brief examination of its beginnings and its use under the predecessor statute to chapter 15 will inform the use of the doctrine under chapter 15 of the Bankruptcy Code.

II. Historical Recognition of Foreign Judgments

Historically, to determine whether and to what extent to recognize and enforce a foreign judgment, U.S. courts applied principles of comity.516 In Hilton v. Guyot, decided in 1895, the Supreme Court determined that a foreign court judgment will be enforced and not tried afresh by U.S. courts if the foreign forum provides a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it is sitting.517

The Hilton court ultimately decided not to recognize the French foreign judgment that had been under consideration as a matter of international law, because French law did not provide reciprocity, which the U.S. Supreme Court decided was required for recognition.518 The language of Hilton, however, has become the foundation for the recognition of foreign judgment and application of foreign law and is almost uniformly cited when comity in cross-border insolvency cases in the U.S. is discussed. The doctrine supports international commerce and ensures the reasonable expectation of parties to a business transaction, enabling parties to understand where their contracts will be enforced in the event of an insolvency of its counterparty.519 This is consistent with the notion long accepted in the U.S. that where investors or creditors do business in a foreign country, they should anticipate that they will be bound by the law of the person or company's domicile.520

U.S. courts have long extended comity to enforce foreign decisions and to apply foreign law to pending proceedings, often with varying degrees of deference to the courts and laws of a foreign nation.521 In addition, the doctrine has always recognized that "when a foreign act is inherently inconsistent with the policies underlying comity, or the enforcement of foreign interests is fundamentally prejudicial to the interests of the domestic forum, the application of comity is not required."522 Courts have extended comity "with less hesitation" where the foreign forum is "a sister common law jurisdiction with procedures akin to our own."523 such "sister common law jurisdictions" include the U.K.524 and foreign jurisdictions with laws derived from British law, including, but not limited to Canada,525 Bermuda,526 the Cayman Islands527 and the Bahamas.528 "[T]he level of scrutiny appropriately increases when the foreign liquidation procedures being assessed are not in 'a sister common law jurisdiction' and when the United States courts lack experience with the foreign liquidation scheme."529 As the concepts expressed in Hilton and Gebhard evolved under the U.S. Bankruptcy Act of 1898, however, courts continued to focus on the rights of local creditors and denied recognition to foreign insolvencies that would prejudice local creditors.530

III. Recognition of Foreign Judgments Under Former § 304

The tendency toward extending comity was elevated to a statutory requirement in 1978 when the U.S. Congress enacted the predecessor statute to chapter 15, § 304 of the Bankruptcy Code. The fundamental purpose of former § 304 was to provide a statutory mechanism to which U.S. courts may defer to and through which they can facilitate foreign insolvency proceedings.531 Under § 304 of the Bankruptcy Code, on application of a foreign representative appointed in a foreign proceeding, a U.S. bankruptcy court could enter three types of relief: (1) an injunction prohibiting actions against a foreign debtor or its property; (2) an order transferring property to the foreign debtor; or (3) any other "appropriate relief." In deciding whether to grant relief under former § 304, bankruptcy courts were obligated to consider "what will best assure an economical and expeditious administration" of the foreign debtor's estate, consistent with six factors, of which comity was just one.532

The former § 304 was generally understood to embody the "modified universality"533 approach to cross-border insolvency, in which bankruptcy courts afford maximum flexibility and assistance to a foreign insolvency proceeding while safeguarding certain...

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