Law Times

Law Times • March 18, 2013 Page 11 FOCUS Bankruptcy roundup Foreign awards at issue in recent insolvency ruling BY Julius Melnitzer For Law Times CLOUD COMPUTING In February 2013, Computer Weekly reported that the administrators of 2e2, a British-based data centre operator that had fallen into receivership, were asking the firm's customers for millions of dollars in funding to keep the data centres operational. Failing that support, the administrators threatened to cut off service in a week. The incident highlights a question many businesses that resort to cloud computing for data storage don't seem to have fully considered: What is the risk involved if the provider fails? "Companies don't tend to think of how they're going to get their hands on their data in a worstcase scenario," says Christine Ing of Blake Cassels & Graydon LLP. Still, Ing's colleague Linc Rogers says the situation isn't an entirely unique one in the insolvency world. "If you look to the auto sector, for example, customers of automotive parts suppliers may have to fund part of the restructuring process in order for their own production to continue," he says. However that may be, customers who don't understand the ecosystem in which their cloud provider operates, such as where it stores the data or whether the information is in multiple places, may find that their efforts to keep their organizations running smoothly suffer in the event the provider encounters financial difficulties. Understanding that ecosystem, however, isn't always an easy task. "The standard cloud computing arrangement involves seven categories of members at a minimum," says Ing. "That includes the data-centre lessor, the facilities provider, the hardware manager, and the software licensor." It's also important to know where the provider is performing the services to ensure the company understands the relevant insolvency and data protection laws. "If a customer understands the ecosystem, they will be in a better position to understand its financial health before signing the contract and then monitoring that financial health during the duration of the contract," says Ing. Companies should also ask for disclosure of all of the provider's material subcontractors and for notice of change in any of them. Also helpful are contractual provisions that would limit moving data centres outside of certain countries and make it clear that certain property, like software, is the property of the customer and not the estate. Termination triggers like servicelevel breaches or failure to meet financial thresholds may also be helpful, although the stays that accompany most insolvency or restructuring proceedings may inhibit the enforceability of the remedies. After signing the contract, Ing recommends customers do data dumps on a regular basis so that backup material will be under their control. "Even better is establishing a mirror site for the recovery of data that would allow a company to bring its operations online," she says. "But backuptype solutions can be costly and companies have to weigh just how mission critical are the data or portions of it that are in the cloud." ENFORCEMENT OF JUDGMENTS The British Supreme Court has taken a narrow approach to the test for recognizing and enforcing foreign judgments, including orders stemming from bankruptcy proceedings. The October 2012 decision in Rubin v. Eurofinance SA came in the context of a request for enforcement of a judgment from the U.S. Bankruptcy Court for the southern district of New York. The $10-million award related to fraudulent conveyances and transfers. But the judgment was in default of appearance, meaning that the defendant, who wasn't a U.S. resident, hadn't submitted to the jurisdiction of the U.S. court. English law holds that Britain's courts won't enforce foreign judgments against defendants who aren't resident of the country whose court issued the ruling  and who don't submit to its jurisdiction. The British Supreme Court rejected the argument that it should expand the rule in the context of insolvency proceedings. In doing so, it explicitly rejected the real and substantial connection test approved by the Supreme Court of Canada as the measure for Canadian courts to use in deciding whether to recognize and enforce foreign judgments. "There is no support in England for [the real and substantial connection] approach except in the field of family law," the British court stated in refusing to recognize the U.S. judgment. In a globalized world, the narrow approach of the British Supreme Court could be troubling for some. "This case will definitely impact cross-border insolvency arrangements," says Barry Glaspell of Borden Ladner Gervais LLP. LT ROUNDUP 'Companies don't tend to think of how they're going to get their hands on their data in a worst-case scenario,' says Christine Ing. ONTARIO LAWYER'S PHONE BOOK 2013 YOUR MOST COMPLETE DIRECTORY OF ONTARIO LAWYERS, LAW FIRMS, JUDGES AND COURTS With more than 1,400 pages of essential legal references, Ontario Lawyer's Phone Book is your best connection to legal services in Ontario. Subscribers can depend on the credibility, accuracy and currency of this directory year after year. More detail and a wider scope of legal contact information for Ontario than any other source: • More than 26,000 lawyers • More than 9,000 law firms and corporate offices • Fax and telephone numbers, e-mail addresses, office locations and postal codes Perfectbound • Published December each year On subscription $71 One time purchase $74 L88804-589 Multiple copy discounts available Prices subject to change without notice, to applicable taxes and shipping & handling. 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