Kuwait Court of Cassation principle number 178

Summary: - The parties to an application for approval to undertake procedures for restructuring distressed companies. Restricted 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 challenge the stay of proceedings taken by them against the company resulting from acceptance of the restructuring application before the competent circuit within 15 days from the date they receive the company’s notification enclosing a copy of the application endorsed by the circuit’s president. This relates to the effects resulting from the circuit president’s acceptance of the application submitted by either of them, without treating those creditors as parties to the application proceedings themselves. Its consequence: creditors are considered outside the application proceedings. Articles 15, 16, 17, 18, 19, 20 and 21 of Law 2 of 2009 concerning the Enhancement of Financial and Economic Stability in the State. The reason for this. - A judgment issued on a restructuring application. It does not determine a dispute between the distressed company and its creditors. Its consequence: it has no res judicata effect regarding the company’s obligation towards them. It is regarded as a judgment having temporary res judicata effect conditional upon the company’s compliance with implementation of 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 definitive, having put an end to the dispute in the action in its entirety, in part, or in an issue arising from it, and must necessarily exhaust the court’s jurisdiction in respect of what it has determined and prevent it from reconsidering it or reversing its ruling on it. - Objection to a judgment by a person who is not a party to it. This is not considered a method of appealing it. It is regarded as a form of intervention in the proceedings, even if occurring after judgment has been issued therein, provided that the person has not been shown to have been joined or to have intervened therein, such as a creditor in an action to which the debtor is a party, since the debtor is considered to represent his unsecured creditor. That creditor thus benefits from a judgment issued therein in his debtor’s favour, and the judgment against the debtor therein is also considered binding upon his creditor to the extent that the creditor’s right of general security over his debtor’s assets is affected. The condition for admissibility of an objection to a judgment: the objector must establish fraud, collusion or gross negligence on the part of 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 allowing the objection. Articles 158, 161 and 162, Civil. - Assessing whether the requirements for admissibility of an objection to a judgment by a person not party to the proceedings are satisfied. Within the authority of the court of merits. Its condition. An example. Rule: The import of Articles 15, 16, 17, 18, 19, 20 and 21 of Decree-Law No. 2 of 2009 concerning the Enhancement of Financial Stability in the State is that the legislature restricted 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. All that it did was permit those creditors to challenge the stay of proceedings taken by them against the company resulting from acceptance of the restructuring application before the competent circuit within 15 days from the date they receive the company’s notification enclosing a copy of that application endorsed by the circuit’s president. This challenge which the legislature permitted creditors relates only to the effects resulting 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 those creditors as parties to the application proceedings themselves. Those creditors are therefore considered outside the scope of the application proceedings, 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. Accordingly, 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 regarding its obligations towards them. Rather, it is a judgment having temporary res judicata effect conditional upon the company’s compliance with implementation of 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 this Court’s jurisprudence that a judgment is not protected by res judicata unless it is a definitive judgment that has put an end to the dispute in the action in its entirety, in part, or in an issue arising from it, and necessarily exhausts the court’s jurisdiction in respect of what it has determined and prevents it from reconsidering it or reversing its ruling on it. The provision in Article (158) of the Code of Procedure that “A person upon whom a judgment issued in an action is considered binding, and who has not been joined or intervened therein, may object to that judgment, subject to proving fraud, collusion or gross negligence on the part of the person who represented him ....”, and in Article (161) thereof that “The right to object to a judgment remains unless the objector’s right expires by lapse of time”, and in Article (162) thereof that “An objection to a judgment results in the action being brought before the court afresh, solely in respect of what the objection addresses ....”, indicate, as disclosed by the Explanatory Memorandum, that an objection to a judgment by a person not party to the proceedings is not considered a method of appealing the judgment by the party against whom it was issued. Rather, it is in fact a form of intervention in the proceedings, albeit occurring after judgment has been issued therein, which the legislature conferred upon a person upon whom the judgment is considered binding and who has not been joined or intervened in the action, such as a creditor in relation to an action to which the debtor is a party, since the debtor is considered to represent his unsecured creditor. That creditor thus benefits from a judgment issued therein in his debtor’s favour, and a judgment against the debtor therein is also considered binding upon his creditor to the extent that the creditor’s right of general security 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 on the part of 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. Allowing the objection results in removal of the judgment’s res judicata effect and the effects it produces in relation to the objector and in respect of what his objection addresses, and the court reconsiders the matter afresh within those limits. The court of merits also has authority to assess whether the conditions for admissibility of an objection to a judgment by a person not party to the proceedings in which that judgment was issued are satisfied, provided that it bases its ruling on sound reasons. The challenged judgment based its ruling on what it found established by the case papers and documents: that the appellant company is not considered a party to the proceedings on the application for approval of the restructuring plan and is not bound by the judgment issued therein. All that occurs is that the effects of that judgment approving the plan include a stay of all proceedings taken or to be taken against the respondent company, and the means of contesting that stay is to challenge it before the circuit hearing restructuring applications at the Court of Appeal, in accordance with the procedures governing that challenge set out in Article (18) of the aforementioned Decree-Law No. 2 of 2009. The means of remedying the respondent company’s omission to mention its indebtedness to the appellant company in the list of debts it submitted with the restructuring application is penal protection and recourse to the Central Bank of Kuwait to examine inclusion of that indebtedness among the respondent company’s debts, in its capacity as the body responsible for monitoring implementation of the restructuring plan. The challenged judgment concluded that the conditions for admissibility of the appellant company’s objection to the judgment approving the restructuring plan were not established in the papers, and accordingly ruled the objection inadmissible. This was based on sound reasons having an established basis in the papers and sufficient to support its ruling. The criticism raised by the appellant company in its ground of appeal amounts to no more than argument concerning matters within the independent assessment of the court of merits, which may not be raised before this Court. The appeal must therefore be dismissed.