Kuwait Court of Cassation principle number 90

Summary: - The parties to an application for approval to undertake procedures for restructuring distressed companies. Confined to the Central Bank of Kuwait and the company itself whose restructuring is sought, excluding the other creditors of that company. Creditors may challenge the stay of proceedings taken by them against the company, arising as a consequence of acceptance of the restructuring application, before the competent circuit within fifteen days from the date they receive the company's notification enclosing a copy of the application endorsed by the president of the circuit. This concerns 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 proceedings on the application itself. Its implication: creditors are regarded as outside the proceedings on the application. Articles 15, 16, 17, 18, 19, 20, 21 of Law 2 of 2009 concerning the enhancement of financial and economic stability in the State. The reason therefor. - 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 toward them. It is regarded as a judgment having provisional 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 consequent lifting 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, having put an end to the dispute in the action in its entirety, in part, or in an incidental issue, and must necessarily exhaust the court's jurisdiction in respect of what it has determined, preventing it from reconsidering it or retracting its ruling thereon. - Objection to a judgment by a person who is not a party to it. This is not regarded as a means of appealing it. It is regarded as a form of intervention in the proceedings, even if occurring after judgment has been rendered therein, so long as his joinder or intervention therein has not been established, such as a creditor in an action to which the debtor is a party, since the latter is regarded as representing his unsecured creditor. That creditor benefits from the judgment rendered therein in his debtor's favor, and the judgment against the debtor therein is likewise binding upon his creditor to the extent that the creditor's general security over his debtor's assets is affected. The condition for admissibility of an objection to the judgment: the objector must establish 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 allowing the objection. Articles 158, 161, 162, Civil. - Assessment of whether the conditions for admissibility of an objection to a judgment by a person not party to the proceedings are fulfilled. Within the authority of the court of merits. 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 enhancement of financial stability in the State is that the legislature confined 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 the other creditors of that company. It merely permitted those creditors to challenge the stay of proceedings taken by them against the company, arising as a consequence of acceptance of the restructuring application, before the competent circuit within fifteen days from the date they receive the company's notification enclosing a copy of that application endorsed by the president of the circuit. This challenge which the legislature permitted creditors to bring concerns only 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 proceedings on the application itself. Those creditors are therefore regarded as outside the framework of the proceedings on the application, given that 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 carry on their activities and discharge their obligations, as a preliminary to 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 concerning its obligations toward them. Rather, it is a judgment having provisional 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 consequent lifting 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 conclusive, having put an end to the dispute in the action in its entirety, in part, or in an incidental issue, and necessarily exhausts the court's jurisdiction in respect of what it has determined, preventing it from reconsidering it or retracting its ruling thereon. The provision in Article (158) of the Law of Procedure that "A person against whom the judgment rendered in an action is regarded as binding, and who was neither joined nor intervened therein, may object to that judgment provided that he establishes fraud, collusion, or gross negligence by the person who represented him ....", and in Article (161) thereof that "The right to object to the judgment remains unless the objector's right expires by lapse of time," and in Article (162) thereof that "An objection to a judgment entails bringing the action before the court anew, only in respect of what the objection addresses ...." indicate—as disclosed by the Explanatory Memorandum—that an objection to a judgment by someone who is not a party to the proceedings is not a means of appealing the judgment by the party against whom it was rendered. It is in fact a form of intervention in the proceedings, even though it occurs after judgment has been rendered therein, which the legislature granted to a person against whom the judgment is 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, since the latter is regarded as representing his unsecured creditor. That creditor benefits from the judgment rendered therein in his debtor's favor, and the judgment against the debtor therein is likewise binding upon his creditor to the extent that the creditor's general security over his debtor's assets is affected. The legislature required, for an objection to a judgment to be admissible, that the objector establish 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. Allowing the objection entails 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 anew 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 rendered are fulfilled, provided that it bases its ruling on sound reasons. The challenged judgment based its ruling on what it found satisfactory 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 rendered therein. Rather, the effect of that judgment approving the plan is merely to stay all proceedings taken or to be taken against the respondent company. The means of disputing that stay is to challenge it before the circuit hearing restructuring applications at the Court of Appeal, through 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 submitted with the restructuring application is criminal-law protection and recourse to the Central Bank of Kuwait to examine inclusion of that indebtedness among the respondent company's debts, as the body responsible for supervising 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 fulfilled in the papers, and consequently ruled the objection inadmissible. This was based on sound reasons having their established basis in the papers and sufficient to support its ruling. Accordingly, what the appellant company alleges in its ground of appeal amounts to no more than argument concerning matters independently assessed by the court of merits, which may not be raised before this Court. The appeal must therefore be dismissed.