Kuwait Court of Cassation principle number 142

Summary: - The parties to an application for approval to undertake procedures for restructuring distressed companies. Their limitation to the Central Bank of Kuwait and the company itself whose restructuring is sought, to the exclusion of that company’s other creditors. Creditors may lodge a grievance against the stay of proceedings taken by them against the company, occurring as an effect of acceptance of the restructuring application, before the competent circuit within 15 days from the date they receive the company’s notification to them with a copy of the application endorsed by the president of the circuit. Its relation to the effects arising from the circuit president’s acceptance of the application submitted by either of them, without treating these creditors as parties to the proceedings on the application itself. Its implication. The creditors are deemed outside the proceedings on the application. Articles 15, 16, 17, 18, 19, 20 and 21 of Law 2 of 2009 concerning the Promotion of Financial and Economic Stability in the State. The reason for this. - The judgment issued on the restructuring application. It does not determine a dispute between the distressed company and its creditors. Its implication. It has no res judicata effect concerning the company’s obligation towards them. It is deemed a judgment having temporary res judicata effect conditional upon the company’s commitment to implementing the restructuring plan and its specified timetable. The company’s breach of the plan or timetable. Its effect. The Central Bank’s right to request that the judgment approving the restructuring plan be deemed never to have existed, with the resulting cancellation of the stay of all judicial and enforcement proceedings against the company. - A judgment acquiring res judicata effect. Its condition. The judgment must be conclusive, in that it has put an end to the dispute in the action as a whole, or part thereof, or an issue arising therefrom, and necessarily exhausts the court’s jurisdiction concerning what it has determined and prevents it from reconsidering it or reversing its ruling thereon. - An objection to a judgment by someone who is not a party to it. This is not deemed a means of challenging it. It is deemed a form of intervention in the proceedings, even if it occurs after judgment has been issued therein, so long as his joinder or intervention therein is not established, such as a creditor in an action to which the debtor is a party, since the debtor is deemed to represent his unsecured creditor. That creditor benefits from the judgment issued therein in favour of his debtor, and the judgment against the debtor therein is also deemed binding on his creditor to the extent that the creditor’s general security right over his debtor’s assets is affected. The condition for admissibility of an objection to a judgment: the objector must prove fraud, collusion or gross negligence by the person who represented him in the action. The right to object to the judgment remains unless extinguished by lapse of time. The effect of admitting the objection. Articles 158, 161 and 162, Civil. - Assessment of whether the conditions for admissibility of an objection to a judgment by someone who is not a party to the proceedings are satisfied. Within the authority of the trial court. Its condition. Example. Rule: The import of Articles 15, 16, 17, 18, 19, 20 and 21 of Decree-Law No. 2 of 2009 concerning the Promotion of Financial Stability in the State is that the legislature limited the parties to an application for approval to undertake procedures for restructuring a distressed company to the Central Bank of Kuwait and the company itself whose restructuring is sought, to the exclusion of that company’s other creditors. At most, it permitted these creditors to lodge a grievance against the stay of proceedings taken by them against the company, occurring as an effect of acceptance of the restructuring application, before the competent circuit within 15 days from the date they receive the company’s notification to them with a copy of that application endorsed by the president of the circuit. This grievance which the legislature permitted creditors to lodge relates only to the effects arising from the circuit president’s acceptance of the application submitted by the Central Bank of Kuwait or the company—as the case may be—without the legislature treating these creditors as parties to the proceedings on the application itself. Consequently, these creditors are deemed outside the scope of the proceedings on the application, since the purpose of the aforementioned Decree-Law is to protect financial and economic stability in the State by protecting distressed companies and enabling them to conduct their activities and fulfil their obligations, as a preliminary step towards protecting the rights of the creditors themselves under the supervision of the Central Bank of Kuwait. Consequently, the judgment issued on the restructuring application does not determine a dispute between the distressed company and its creditors and has no res judicata effect concerning its obligations towards them. Rather, it is a judgment having temporary res judicata effect conditional upon the company’s commitment to implementing the restructuring plan and its specified timetable. If the company breaches the plan or its timetable, the Central Bank of Kuwait may request that the judgment approving the restructuring plan be deemed never to have existed, with the resulting cancellation of the stay of all judicial and enforcement proceedings against the company. It is established in the jurisprudence of this Court that a judgment is not protected by res judicata unless it is conclusive, in that it has put an end to the dispute in the action as a whole, or in part thereof, or in an issue arising therefrom, and necessarily exhausts the court’s jurisdiction concerning what it has determined and prevents it from reconsidering it or reversing its ruling thereon. The provision in Article (158) of the Code of Civil and Commercial Procedure that “A person against whom the judgment issued in the action is deemed binding, and who was neither joined nor intervened therein, may object to that judgment, provided that he proves fraud, collusion or gross negligence by the person who represented him ....”; and in Article (161) thereof that “The right to object to the judgment shall remain unless the objector’s right expires by lapse of time; and in Article (162) thereof that “An objection to a judgment shall result in the action being brought before the court anew, solely with respect to what the objection addresses ....” indicates, as disclosed by the explanatory memorandum, that an objection to a judgment by someone who is not a party to the proceedings is not deemed a means by which the judgment debtor may challenge the judgment. Rather, it is in fact a form of intervention in the proceedings, even though it occurs after judgment has been issued therein, which the legislature granted to a person against whom the judgment is deemed binding and who was neither joined nor intervened in the action, such as a creditor in relation to an action to which the debtor is a party. The debtor is deemed to represent his unsecured creditor, so that this creditor benefits from the judgment issued therein in favour of his debtor, and the judgment against the debtor therein is also deemed binding on his creditor to the extent that the creditor’s general security right over his debtor’s assets is affected. The legislature made admissibility of an objection to a judgment conditional upon the objector proving fraud, collusion or gross negligence by the person who represented him in the action, and provided that his right to object to the judgment remains unless extinguished by lapse of time. Admission of the objection results in the removal of the judgment’s res judicata effect and the effects it produces in relation to the objector and as to what his objection addresses, and the court reconsiders the matter anew within those limits. The trial court also has authority to assess whether the conditions for admissibility of an objection to a judgment by someone who was not a party to the proceedings in which that judgment was issued are satisfied, provided that it bases its decision on sound reasons. The challenged judgment based its decision on what it found reliable in the case papers and documents: that the appellant company is not a party to the proceedings on the application for approval of the restructuring plan and is not bound by the judgment issued therein. Rather, at most, one of the effects of this judgment approving the plan is the stay of all proceedings taken or to be taken against the respondent company, and the means of contesting this stay is to lodge a grievance against it before the circuit hearing restructuring applications at the Court of Appeal, in accordance with the procedures governing this grievance contained in Article (18) of the aforementioned Decree-Law No. 2 of 2009. The means of remedying the respondent company’s omission to mention its debt to the appellant company in the list of debts submitted with its restructuring application is penal protection and recourse to the Central Bank of Kuwait to examine the inclusion of that debt among the respondent company’s debts, as the body responsible for monitoring implementation of the restructuring plan. Since the challenged judgment concluded that the conditions for admissibility of the appellant company’s objection to the judgment approving the restructuring plan were not satisfied in the papers, and consequently ruled that the objection was inadmissible, and this was based on sound reasons supported by the papers and sufficient to sustain its decision, what the appellant company alleges in the ground of appeal amounts to no more than argument concerning matters which the trial court has exclusive authority to assess, which may not be raised before this Court. The appeal must therefore be dismissed.