England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th March 2011

Mr. Justice Lewison:

1. New Cap Reinsurance Corporation Limited ("New Cap") is an Australian reinsurer. It was licensed in Australia and conducted its business in Australia. It is now in insolvent liquidation. The respondents are members of two Lloyd's syndicates for the 1997 and 1998 years of account, which placed reinsurance with New Cap through an English broker and New Cap's Australian reinsurance sub-broker.
2. The reinsurance contracts were subject to English law and the jurisdiction of the English courts. Both reinsurances also contained an arbitration clause which stipulated that the seat of any arbitration was to be London; and the proper law of the arbitration was to be English law. Each reinsurance contract also contained a commutation clause.
3. Following significant losses which were incurred during the 1997 and 1998 underwriting years, New Cap and the respondents entered into a commutation agreement in December 1998. Under that agreement, New Cap agreed to make a lump sum payment to the respondents. This payment was calculated on the basis of a 7.5% discount. In return New Cap was released from liability under the reinsurances. Just over three months before New Cap went into administration, it made two payments from its Australian bank account to AE Grant Underwriting Agencies Ltd, as agent for the respondents. The first of these payments was for US$2 million on about 8^th January 1999; and the second was for US$3.98 million on about 4^th January 1999.
4. On 19^th April 2002, just inside the relevant limitation period, Mr. Gibbons, as New Cap's liquidator, brought proceedings in New South Wales under the Corporations Act 2001. The proceedings alleged that the two payments constituted unfair preferences and were thus voidable transactions under that Act. These proceedings were one of a number proceeding in parallel against defendants in various jurisdictions around the world. The respondents refused to accept service of the proceedings and refused to submit to the jurisdiction of the Australian court. However, the court authorised substituted service and the respondents were served in accordance with the order of the Australian court on 23^rd January 2003.
5. The respondents declined to enter an appearance in Australia and took no formal part in the proceedings, although they were made aware of them; and they argued their case, or parts of it, in correspondence which was drawn to the attention of the Australian court. They say that proceedings in Australia would have involved them incurring increased costs and inconvenience as against proceedings in England. They say they have throughout been willing to submit to the jurisdiction of an appropriate tribunal so that the merits of the liquidator's claim can be addressed.
6. Barrett J. decided the question of jurisdiction as a preliminary issue and decided that the Australian court had jurisdiction. In a judgment delivered on 30^th September 2008, White J. found that New Cap was insolvent at all relevant times from 31^st December 1998, including as at the date of the two payments. The finding of insolvency at the date of the payments was a crucial building block in the liquidator's claim. On 17^th December 2008, Barrett J. delivered judgment on the liquidator's substantive claim. He decided that each of the payments was an unfair preference; and hence liable to be set aside under the Corporations Act. He also considered some of the defences that the respondents had raised in correspondence and rejected them. More specifically he held, first, that the arbitration clause did not apply to the liquidator's application; and, second, that although the respondents had alleged that they had a defence based on good faith, they had adduced no evidence before the court and therefore had not made out that defence.
7. Barrett J. also considered whether his order could be registered in England under the Foreign Judgments (Reciprocal Enforcement) Act 1933 ("the 1933 Act") and decided that it could not. He therefore issued a letter of request to the English court. Paragraph 1 of Barrett J's order declared that the two payments were voidable transactions within the meaning of Part 5.7(B) of the Corporations Act 2001. By paragraph 2 ordered that the defendants listed in a schedule to the orders were to pay, first, the sum of US$2.697 million-odd under section 588 FF(1)(a) of the Corporations Act and a further sum of just over US$ 1 million as interest on the principal sum. He also ordered that the defendants listed in the second schedule to the orders to pay the sum of US$3.283 million-odd and a further sum of interest on that principal sum.
8. The letter of request set out a history of the proceedings and then contained a request in the following terms: "This Court hereby requests the High Court of Justice of England and Wales to exercise its jurisdiction under Section 426 of the Insolvency Act 1986 to act in aid of and assist this Court, if and insofar as the High Court of Justice in England considers it just and appropriate, by:

"(a) Ordering that AE Grant & Others, Lloyd's Syndicate Number 991 for the 1997 year of account (being the persons identified in Schedule 1 to the declarations, orders and directions a copy of which is annexed to this Letter of Request and marked 'A') pay to New Cap Reinsurance Corporation Limited (in liquidation) each of the sums of money ordered by Order 2 of those declarations, orders and directions, as well as the costs thereby ordered to be paid by the defendants."

9. There was a similar request as regards the 1998 year of account. The letter continued:

"In the alternative: (i) Ordering that the Liquidator be at liberty to file and serve proceedings in the High Court of Justice of England and Wales in, or substantially to the effect of, the form annexed to this Letter of Request and marked 'B'; AND FURTHER (ii) Declaring that the proper law to be applied by the High Court of Justice of England and Wales for the determination of any such proceedings commenced pursuant to that liberty is the law of Australia."

It also contained ancillary requests.

10. The liquidator puts his case in two ways. First, he says that the court should exercise its power under section 426 of the Insolvency Act 1986. Second, he says that the court also has power at common law to assist a foreign liquidator and should do so. The respondents say that contrary to Barrett J's conclusion, the only theoretical means of enforcement of the Australian court's order is via the 1933 Act. They say that there is no power at common law that survives the 1933 Act. They say that section 426 does not confer enforcement jurisdiction on the English court when neither the 1933 Act nor the common law gives such jurisdiction. If there is a discretion under section 426, they say that it should not be exercised in the liquidator's favour. The liquidator says that the 1933 Act does not apply to orders made in insolvency proceedings.
11. The 1933 Act was enacted following the report of a committee chaired by Greer LJ. The Committee reported in December 1932. At that time, personal bankruptcy was governed by the Bankruptcy Act 1914. Under Section 122 of that Act the courts exercising insolvency jurisdiction throughout the British Empire were required to act in aid of each other and, upon a request by the non-English court, could exercise the jurisdiction of either court.
12. The mischief that the Committee was asked to consider was the problem for English businesses in enforcing judgments abroad. The perceived solution to the problem was to encourage foreign countries to recognise English judgments by granting reciprocal rights of enforcement for foreign judgments in order to replace the cumbersome procedure for bringing an action in England on a foreign judgment. In so recommending the Committee drew on the example of the Administration of Justice Act 1920 which allowed the registration of judgments from other countries within the British Empire. That system, under the 1920 Act, plainly existed in parallel with section 122 of the Bankruptcy Act 1914.
13. The report annexed to it a draft Bill, substantially in the form of the eventual Act, and a commentary on the draft Bill. In paragraph 4 of the Report, the Committee said: "It is not necessary for our present purpose to consider the effect in England of foreign judgments in bankruptcy proceedings or in proceedings connected with the administration of the estates of deceased persons or other similar classes of judgments." This indicates that insolvency was not part of the Committee's remit and that the Bill was not intended to encompass such matters.
14. The report also annexed to it draft conventions which had been negotiated with Belgium, France and Germany. None of those conventions extended to insolvency matters. The Committee explained that one of the purposes of its recommendations was to enable such conventions to be negotiated. That, too, supports the view that insolvency was not intended to be included within the ambit of the 1933 Act as foreshadowed by the quotation from paragraph 4.
15. The way in which the 1933 Act works is by enabling the Crown to direct that the Act shall apply to a particular country either generally or in relation to a particular class of judgment. The Act then applies to whatever country and/or class of judgment is specified in the order; but it applies only to the kind of judgments specified in section 1(2), which provides: "Subject to sub-section (2A) of this section, a judgment of a recognised court is within this sub-section if it satisfies the following conditions: namely, (a) it is either final and conclusive as between the judgment debtor and the judgment creditor, or requires the former to make an interim payment to the latter, and (b) there is payable under it a sum of money not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty, and (c) it is given after the coming into force of the Order in Council which made that court a recognised court." Sub-section (2A) does not matter for present purposes.
16. Under section 2 a judgment creditor may apply to register a judgment to which the Act applies. Once registered, a foreign judgment may be enforced as if it were a judgment of the English court. However, this is subject to the power (and in some cases the duty) of the court to set aside the registration. The grounds for setting aside are contained in section 4. Section 4(1) provides as follows:

"On an application in that behalf duly made by any party against whom a registered judgment may be enforced, the registration of the judgement – (a) shall be set aside if the registering court is satisfied—(i) that the judgment is not a judgment to which this Part of this Act applies or was registered in contravention of the foregoing provisions of this Act; or (ii) that the courts of the country of the original court had no jurisdiction in the circumstances of the case; or (iii) that the judgment debtor, being the defendant in the proceedings in the original court, did not (notwithstanding that process may have been duly served on him in accordance with the law of the country of the original court) receive notice of those proceedings in sufficient time to enable him to defend the proceedings and did not appear; or (iv) that the judgment was obtained by fraud; or (v) that the enforcement of the judgment would be contrary to public policy in the country of the registering court; or (vi) that the rights under the judgment are not vested in the person by whom the application for registration was made;

"(b) may be set aside if the registering court is satisfied that the matter in dispute in the proceedings in the original court had previously to the date of the judgment in the original court been the subject of a final and conclusive judgment by a court having jurisdiction in the matter."

17. Section 4(2) deals with cases in which the country of the original court is to be deemed to have had jurisdiction. It deals with three separate cases: first, the case of a judgment given "in an action in personam"; second, the case of a judgment given of which the subject matter was immovable property or an action in rem, and third, by sub-section (2)(c): "in the case of a judgment given in an action other than any such action as is mentioned in paragraph (a) or paragraph (b) of this subsection, if the jurisdiction of the original court is recognised by the law of the registering court."

Section 6 of the Act provides:

"No proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which this part of this Act applies, other than proceedings by way of registration of the judgment, shall be entertained by any court in the United Kingdom."

18. Two of the definitions in section 11 are relevant. They are, first, the definition of "Judgment", which reads as follows: "'Judgment' means a judgment or order given or made by a court in any civil proceedings, or a judgment or order given or made by a court in any criminal proceedings for the payment of a sum of money in respect of compensation or damages to an injured party." The phrase "a judgment or order given or made by a court in any civil proceedings" is followed in the text of the Act by a comma.
19. In his judgment, Barrett J. held that his order could not be registered because it was not an order for the payment of money in respect of compensation or damages to an injured party. However, in so deciding, Barrett J. overlooked the comma after the phrase "In any civil proceedings,". Commas in Acts of Parliament can be significant as Sir Roger Casement found to his cost.
20. Mr. Moss QC, appearing for the liquidator, did not feel able to support Barrett J's reasoning. In my judgment, the final phrase of the definition qualifies orders made in criminal proceedings only. Any doubt about that is laid to rest by the report of the Committee on which the Act was based. The particular ground, therefore, that Barrett J. gave for concluding that his judgment could not be registered under the 1933 Act is, in my respectful opinion, erroneous.
21. The second relevant provision is section 11(2), which provides: "For the purposes of this Act, the expression 'action in personam' shall not be deemed to include any matrimonial cause or any proceedings in connection with any of the following matters, that is to say, matrimonial matters, administration of the estates of deceased person, bankruptcy, winding up of companies, lunacy or guardianship of infants."
22. It is plain from section 11(2) that the order under consideration in the present case is not a judgment in personam for the purposes of the Act. Nor is it a judgment in personam for the purposes of the common law. This is clearly established by Cambridge Gas Transportation Corp v. Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508 and Rubin v. Eurofinance SA [2011] 2 WLR 121. I should mention that Mr. Knowles QC said that Rubin is wrong, but that must be decided by someone above my pay grade.
23. If, therefore, the judgment falls within the 1933 Act at all, it will do so under section 4(2)(c). But in my judgment the 1933 Act does not apply to orders made in insolvency proceedings at all. The report of the Committee makes it clear that that was not its intention; and the fact that the 1933 Act left section 122 of the Bankruptcy Act in place also shows that there was no intention to include bankruptcy within its scope. This is in contrast with section 7 of the 1933 Act, which provides that if the Crown directs that the 1933 Act is to apply to the Crown's dominions outside the United Kingdom, then the Administration of Justice Act 1920 shall cease to apply. Of the two parallel systems that were in place before the passing of the 1933 Act, the 1933 Act was only meant to replace one of them.
24. In addition, as mentioned, the 1933 Act only applies to the extent that an Order in Council so provides. The relevant order in the present case is the Reciprocal Enforcement of Foreign Judgments (Australia) Order 1994. Article 4 of the Order says that the Act will apply to judgments for the payment of money given by a recognised court "in respect of a civil or commercial matter". By 1994 the phrase "civil or commercial matter" was one that was used in international conventions, notably the Brussels Convention, which is specifically mentioned in the agreement between the United Kingdom and the Government of Australia, which is itself scheduled to the 1994 Order. Under the Convention, civil and commercial matters do not include insolvency proceedings, and that remains the position under the Judgments Regulation that has replaced the Brussels Convention.
25. Mr. Knowles argues that the 1993 Act divides the world into civil, on the one hand, and criminal, on the other; and that the Order uses the phrase "civil or commercial" for the purpose of excluding criminal proceedings. But if that was so, why use the phrase "civil or commercial" rather than just "civil"? In my judgment, the draftsmen of the 1994 Order chose the phrase "civil or commercial" in order to capitalise on its established meanings in international conventions.
26. The ambit of insolvency proceedings will include claims by an office holder to satisfy transactions entered into by the insolvent before the onset of insolvency. Lord Hoffmann said as much in Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 and the Court of Appeal so held in Rubin. These kinds of claim differ from claims in contract or claims to title to immovable property. That kind of claim is one that can be brought by the company itself, whether or not it is insolvent. A claim to set aside a transaction entered into before the onset of insolvency is a claim which arises only as a result of the insolvency legislation itself and can be brought only by the office holder. Thus, in my judgment, Barrett J's order is part of the insolvency proceedings.
27. I hold, therefore, that Barrett J's order is not one to which the 1933 Act applies or could apply. Even if parts of Barrett J's order could have been registered under the 1933 Act, the whole of it could not have been because it contained declarations as well as orders for the payment of money. By virtue of section 8 of the 1933 Act, the respondents are bound by the declaration unless the judgment, if registered, could have been set aside, but in the light of of Rubin Mr Knowles concedes that it could not.
28. In my judgment, therefore, the position is as follows. First, there is power at common law for this court to assist the Australian court and, second, in any event, this court has power under section 426 to assist the Australian court.
29. The next question is should either of those powers be exercised? I start with section 426. Section 426(4) provides: "The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory." Australia is a relevant country as a result of the The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986.
30. Section 426(5) provides: "For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matter specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law."
31. Thus the combination of the letter of request and section 426(5) gives the English court authority to act, whether or not it would otherwise have had the power to do so. The power includes the application not only of its own law but also the law of the foreign country from which the request came.
32. Although section 426(4) is couched in mandatory terms, it is common ground that the court retains a discretion, but the discretion is a limited one. The discretion should be exercised in favour of assisting a foreign court unless it would be improper to do so. The scope of the discretion has been considered twice by the Court of Appeal in Hughes v. Hannover Re [1997] 1 BCLC 497, and England v. Smith [2000] BPIR 28. Morritt LJ gave the leading judgment in both cases. To the untutored eye, they exhibit different approaches; but the latter case must be taken as having explained the former. The latter case emphasises the mandatory terms in which section 426(4) is drawn; the important public policy of comity between nations; and the weight that must be given to the very fact that a foreign court has asked for assistance, all the more so if the foreign court has itself considered whether a request should be made.
33. In addition, the fact that there may be differences at the margins between our insolvency law and the insolvency law of the foreign state will rarely be of importance; first, because the Secretary of State will have taken that into account in deciding whether to designate the foreign state at all, and second because section 426 itself gives the English court power to apply the law of the foreign state.
34. In the present case, the respondents had ample opportunity to participate in the Australian proceedings. They chose not to do so formally but tried to secure the best of both worlds by arguing their case in correspondence which was then placed before the Australian court. The Australian court considered the liquidator's application in painstaking detail. The respondents have also participated out of court in the insolvency by voting on various matters and by submitting proofs of debts.
35. Mr. Knowles says that his clients are willing to be sued in England and have a good defence on the merits; but the seat of the insolvency is Australia and I do not accept that Lloyd's syndicates are hampered in conducting proceedings in Australia. Moreover, even if Mr. Knowles is right about the 1933 Act, his clients are still bound by the declaration with the result that these defences could not be run. Like Ward LJ in Rubin, I have little sympathy for the respondents' position. They took their chance and the law has moved against them.
36. The only other factor that Mr. Knowles relies on is that the claim is stale. I cannot see that that is a factor of any weight, especially since Mr. Knowles' alternative is that the liquidator begins all over again in England, which would make the claim even more stale.
37. In my judgment, there is every reason to assist the Australian court and no reason not to.
38. That leaves the position at common law. Strictly speaking, it is unnecessary to consider this since I hold that I have power under section 426. Nevertheless, it is clear from Rubin that in cases where section 426 does not apply, the common law power to assist survives. It is not so clear from Re HIH Casualty and General Insurance Ltd whether the common law is superseded by or runs in parallel with the statutory power. Lords Hoffmann and Walker said that the powers were parallel. Lords Scott and Neuberger thought that the statutory power succeeded the common power, and Lord Phillips was, if I may respectfully say so, somewhat gnomic. But in Rubin the Court of Appeal applied the approach of Lords Hoffmann and Walker, so that is the path that I must follow.
39. On the basis that the common law power subsists in parallel with the statutory power, the discretionary considerations that have led me to exercise the statutory power would lead me to exercise the common law power in favour of assisting the Australian court. By either or both of these routes, therefore, I grant the relief sought by the liquidator.

MR. MOSS: I am much obliged, my Lord. The next matter is that of costs. I, respectfully ask for the costs of the proceedings to be assessed if not agreed. There is just one slight quirk that has been pointed out to me, and that is that some costs were reserved to your Lordship in a consent order of Floyd J., which your Lordship will find at tab 7 of volume 1.

MR. JUSTICE LEWISON: Was that the stay, which was part of your application? What was that?

MR. MOSS: This was, as your Lordship may recall, an application for a preliminary issue. We objected to that and the respondents agreed to have that dismissed. As I understand it – I think no one attended on that occasion – correspondence shows that the objections to the costs included the costs of the third witness statement of the liquidator. Your Lordship will see that point at paragraph 4 of the order. That, apparently, was based on the fact that some of the evidence in Mr. Gibbons' third witness statement would be relevant to the trial and therefore not entirely wasted. Since we have won the trial, it must follow that we should have these costs, too, in our respectful submission.

My learned friend will probably have some applications after the issue of costs. We would appreciate a period of ten minutes. We have thought about this quite carefully. We just want to finalise our position on this application.

MR. JUSTICE LEWISON: Costs, Mr. Knowles?

MR. KNOWLES: First of all, I am not going to seek to sub-divide costs in relation to a witness statement or not, and nor do I, in the light of your Lordship's decision, resist an order in the normal form on the standard basis. There is a link with the question of appeal, which I will ask your Lordship to entertain in ten minutes time if that is sensible. I will be suggesting that there is an arrangement pending any appeal which can keep the financial sums in a suitable shared location; for example, a joint account. I just signal that as well. So far as the costs in a self-contained way are concerned, there is nothing I can add.

MR. JUSTICE LEWISON: In that case, I will rise for ten minutes or so. I will not take a great deal of persuading that it is an appropriate case for permission to appeal. Whether I go further and say it is a suitable case for a leapfrog, which is one of the things that Mr. Knowles canvassed, is a different question.

(Adjourned for a short break) (For continuation, see main transcript proceedings)