Jersey Unreported Judgments

Injunction

[2021]JRC233

Royal Court

(Samedi)

21 September 2021

Before     :

R. J. MacRae Esq., Deputy Bailiff, and Jurats Ronge and Christensen

 

Advocate H. B. Mistry for the Plaintiff.

Advocate S. J. Alexander for the Defendant.

judgment

the deputy bailiff:

1.        We heard the Plaintiff's application for an interim injunction in this case on 27^th August 2021.  We reserved our decision and now give that decision and our reasons.

Background

2.        The Plaintiff's action began by way of an Order of Justice seeking various ex parte relief, some of which was granted by the Deputy Bailiff on 7^th June 2021 but, importantly, for the purposes of this hearing, the second prayer for interim relief was refused by the Deputy Bailiff and the Plaintiff was given liberty to pursue the same at an inter-parties hearing.  The application that was heard on 27^th August was the Plaintiff's application for a restraining order in these terms, namely that 'The Defendant is ordered to restrain pursuit of the Petition [before the English High Court] forthwith and any questions regarding the conduct of the winding up of the Company shall be raised with the Royal Court of Jersey'.

3.        Hereinafter in this judgment the Plaintiff will be described as the 'Company'. 

4.        The Company was incorporated in Jersey on 17^th December 2013.  The Company now has one shareholder, a Mr John Downer, who is also, now, the sole director of the Company.

5.        As the name of the Company implies, its principal purpose was to develop a commercial property called Quay House, in London, which was purchased on 28^th February 2014 for £11 million. 

6.        For most of its life, from incorporation until relatively recently, the majority of the Company's directors were based in Jersey and all meetings of the Company's board took place in Jersey.

7.        Mr Downer says that the funding for the purchase of Quay House came from financial institutions and himself. 

8.        The Defendant was appointed architect for the project under a contract dated September 2017.  Quay House was to be an hotel.  The contract between the Company and the Defendant was governed by English law and subject to an exclusive jurisdiction clause in favour of the Courts of England and Wales. 

9.        Quay House was sold in July 2018 for about £26 million.  The Company's assets are now only approximately £91,000.  It appears that Mr Downer received £17 million in loan repayments and £5.6 million in interest payments when the property was sold. 

10.      During its life, the Company had seven directors - six of whom were resident in Jersey.  They were directors provided by the JTC Group who were, at the material time, service providers for the Company.

11.      The JTC directors resigned in July 2019 leaving Mr Downer as the Company's sole director.  Mr Downer lives in Portugal and has done for some years. 

12.      The Company no longer carries on any business and is unable to pay its debts, including its liability to the Defendant in the sum of £354,000 plus interest arising from an English Court judgment dated November 2019.  The total judgment debt, including interest, due to the Defendant from the Company, was £433,713 as at 9^th July 2021. 

13.      There are two other significant creditors of the Company who have had awards or orders made in their favour, namely Local London (Quay House) Limited which claim £665,300 plus interest, and TC Developments (South East) Limited which claims £180,000 plus interest pursuant to an English Court order.

The petition

14.      The Defendant issued a winding-up petition against the Company before the English Courts on 27^th July 2020.  The High Court granted the Defendant permission to serve the petition on the Company via the lawyer for Countrywide Project Management Limited on 16^th October 2020 and issued an order that the petition be listed on the general winding-up list on 18^th November 2020.

15.      The Company filed an application for permission to appeal this order on 3^rd November 2020 and the High Court ordered that the Defendant not take any further steps in furtherance of the petition until further order of the Court. 

16.      On 18^th November 2020, by consent, the High Court ordered that the petition be removed from the general winding-up list of 18^th November 2020 and gave leave to the Company to file and serve evidence in opposition to the petition, including evidence challenging the English Court's jurisdiction to wind-up the Company, and made various further ancillary orders. 

17.      In May 2021, the Defendant learnt that the Company had called a meeting of its shareholders and creditors on 3^rd June 2021 to consider and vote on whether or not to wind-up the Company in Jersey by way of a creditors' winding-up under Article 157 of the Companies (Jersey) Law 1991 ("the Law").  There was then correspondence between the advocates representing the Defendant in Jersey and the Company / its proposed liquidators.  Notwithstanding the opposition of the Defendant to the initiation of a Jersey insolvency process, the Company, through its sole shareholder and director, Mr Downer, resolved to place itself into voluntary liquidation in Jersey by way of a creditors' winding-up on 3^rd June 2021.  The shareholders' meeting to consider the winding-up of the Company was called by Mr Downer in his capacity as sole director and as a purported creditor of the Company.  Mr Downer says he is owed in excess of £2.3 million by way of an unpaid loan.  It is noted that, accordingly, Mr Downer attended the meeting of the Company as a creditor, director and shareholder and the resolution to place the Company into a creditors' winding-up was approved by Mr Downer in his capacity as sole shareholder.

18.      The day before the English High Court hearing, listed for 8^th September 2021, the Company made the ex parte application to the Royal Court referred to above seeking, inter alia, injunctive relief preventing the Defendant from pursuing its petition through the English Courts.

The Company's arguments

19.      The Company argued that this is a Jersey company which has always been registered in Jersey and has always conducted its management and decision making in Jersey, and that those dealing with the Company, including the Defendant, have always been aware that they were dealing with a Jersey company; Jersey is the Company's domicile and whatever may be said about the Company's centre of main interest (of which more below) this is a Company that has always been managed and controlled in and from Jersey.  It was argued by the Company that the Court should ensure that creditors are not permitted to pursue 'competitor' proceedings in other jurisdictions and that the principle of 'universalism', which underpins the insolvency regimes in other jurisdictions throughout the world, be upheld.

20.      The Company argued that universalism in this context means that where a company is being wound up in the jurisdiction of its incorporation, the courts of that jurisdiction ought to view their own insolvency proceedings as paramount.  It is said that there is a powerful public interest argument in support of such an approach and that it is in the interest of every country that companies with multinational assets and operations should be wound up in an orderly fashion under the law of the place of their incorporation.  We agree that this is the appropriate starting point and all things being equal we would have granted the injunctive relief being sought by the Company in this case.  In Singularis Holdings v Price Waterhouse Coopers [2014] UKPC 36, Lord Sumption said at paragraph 23:

"The principle of modified universalism is a recognised principle of the common law. It is founded on the public interest in the ability of foreign courts exercising insolvency jurisdiction in the place of the company's incorporation to conduct an orderly winding up of its affairs on a world-wide basis, notwithstanding the territorial limits of their jurisdiction. The basis of that public interest is not only comity, but a recognition that in a world of global businesses it is in the interest of every country that companies with transnational assets and operations should be capable of being wound up in an orderly fashion under the law of the place of their incorporation and on a basis that will be recognised and effective internationally. This is a public interest which has no equivalent in cases where information may be sought for commercial purposes or for ordinary adversarial litigation. The courts have repeatedly recognised not just a right but a duty to assist in whatever way they properly can."

21.      Lord Sumption and Lord Toulson said in Stichting Shell Pensioenfonds v Krys [2014] UKPC 41 (an appeal from the British Virgin Islands) that where a company is to be wound up in the jurisdiction of its incorporation, there is a broader public interest in the ability of that Court:

(i)        To conduct an orderly winding-up of its affairs on a worldwide basis, notwithstanding the territorial limits of its jurisdiction; and

(ii)       To protect its insolvency jurisdiction.

22.      The alternative to such an approach is, or may be, an unattractive free for all in which the distribution of assets depends upon a race to begin insolvency proceedings in other jurisdictions in which particular creditors may perceive particular advantages for themselves. 

23.      Again, we accept these principles as applicable and likely to prevail on the facts of most cases. 

The Defendant's arguments

24.      The Defendant argues that the Company's claim for injunctive relief is purely tactical (for reasons we consider below) and, in particular, designed to prevent a claim being made in the English winding-up against Mr Downer personally and, accordingly, unlikely to be in the best interests of the Company's creditors (other than Mr Downer). 

25.      They also rely on the judgment of the High Court handed down on 20^th August 2021.  That judgment records that the petitioner's (i.e. the Defendant's) principal position was that the Company's COMI (centre of main interest) has always been in England and in the alternative that even if that is not right the English Court nonetheless may wind-up the Company as an unregistered company.

26.      It is not necessary for us to recite the passages of the judgment which deal with the effect of Brexit on the relevant EU regulation which introduced the concept of COMI.  The judge noted, at paragraph 31, that as insolvency proceedings had not 'opened' for the purposes of the relevant regulation, that regulation as amended on the UK's effective withdrawal at 11pm on 31^st December 2020 applied and accordingly there was jurisdiction to open insolvency proceedings where the proceedings were for a debt and 'the centre of the debtor's main interest is in the United Kingdom'.  The High Court judge noted that Jersey was not a member of the EU and not a member state for the purposes of the regulation.

27.      Article 3 of the relevant regulation provided:

"The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. 

In the case of a Company or a legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary."

28.       As the Court of Justice of the European Communities said in Re Eurofood IFSC Limited [2006] Ch 508:

"31.    The concept of the centre of main interest is particular to the Regulation.  Therefore, it has an autonomous meaning and must therefore be interpreted in a uniform way, independently of national legislation....

33.      That definition shows that the centre of main interest must be identified by reference to criteria that are both objective and ascertainable by third parties.

34.  It follows that, in determining the centre of the main interests of a debtor company, the simple presumption laid down by the Community legislature in favour of the registered office of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect."

29.      Having set out the arguments of the Petitioner and Respondent respectively, which is not necessary for us to repeat, Judge Mullen concluded that the COMI of the Company was at all times in England and Wales because, inter alia, the Company's sole economic purpose was to carry on business in the UK by the element of its principal asset, Quay House; its contracts were governed by English law subject to the jurisdiction of the Courts of England and Wales; Mr Downer made decisions on the spot in England and Wales, and head office functions were carried out at the offices of Countrywide Project Management Limited, an English company of which Mr Downer was the sole shareholder until 2015; and although the Company was administered in Jersey, the head office functions were undertaken in England - the location of meetings of the board were not ascertainable by third parties.

30.      In the alternative, the judge held that the Company could be wound up as an unregistered company (i.e. any company not registered under the Companies Act 2006) under the provisions of the Insolvency Act 1986 on the footing that it had sufficient connection with England and Wales.  In this regard, there must be a reasonable possibility of a winding-up order being made to benefit those applying for the same and one or more persons interested in the distribution of assets of the company must be persons over whom the High Court can exercise a jurisdiction. 

31.      As to the Company's potential preference claim against Mr Downer, it is unchallenged that the Company paid in excess of £20 million to him between 30^th July and 17^th September 2018.  This is something that may be pursued in due course by a liquidator appointed by the English Courts.  This is a consequence of the provisions of section 240 of the Insolvency Act 1986 which provide:

"240.  Relevant time under ss. 238, 239.

(1)       Subject to the next subsection, the time at which a company enters into a transaction at an undervalue or gives a preference is a relevant time if the transaction is entered into, or the preference given-

    (a)   in the case of a transaction at an undervalue or of a preference which is given to a person who is connected with the company (otherwise than by reason only of being its employee), at a time in the period of 2 years ending with the onset of insolvency (which expression is defined below),The onset of the insolvency in the English Courts began within two years of the alleged preference claim."

32.      The next hearing before the English High Court is due imminently and, pursuant to the UK insolvency rules, the petition is likely to be advertised then determined, the Company wound up, a liquidator appointed and the preference claim determined in 2022.  The preference claim would be pursued under section 339 of the Insolvency Act 1986. 

33.      As to the position in Jersey, under Article 167A of the Law, a company that has given a preference to a person may, on the application to the Court made by the liquidator in a creditors' winding-up, be required to restore the position to that that it would have been had the preference not been given.  However, the period during which such a preference may be challenged is limited to the twelve month period immediately preceding the commencement of the winding-up.  Accordingly, to pursue a preference claim under Jersey law now in respect of payments made in 2018 would be impossible as the proceedings would be time barred.

34.      It is the Defendant's case that Mr Downer, purely for reasons of self-interest, has commenced a creditors' winding-up in Jersey at the eleventh hour in order to defeat the preference claim for his personal benefit.

35.      The Defendant also relies on the fact that the two other creditors, referred to above, will simply take over the winding-up before the English Courts if the Company's claim for injunctive relief succeeds.

Application of the principles for injunctive relief

36.      Although the Court ordered that this matter be determined as a cause de brievété, we agree with the Defendant that the Court was sitting to determine the claim for interlocutory injunctive relief on an inter-parties basis and not the trial of the action as a whole.

37.      Accordingly, we apply the well-known principles set out in American Cyanamid v Ethicon [1975] AC 396.  Applying those principles to the facts of this case, we hold:

(i)        That there is a serious issue to be tried between the parties. 

We disagree with the Defendants in this regard.  We agree with the Company that merely because the Company's centre of main interest is in one jurisdiction does not necessarily mean that it is not managed and controlled in another.  In any event, as we have set out, the starting point for the Court should be that insolvency proceedings should take place in the jurisdiction in which a company is incorporated for the reasons we have given.

(ii)       Are damages at trial an adequate remedy?

We find that on the facts of this case, damages are an adequate remedy for neither party.  If the injunction is refused, then damages will not be an adequate remedy for the Company at trial, as the Company will face the English winding-up petition with all the consequences that may follow.  If the injunction is granted, then damages at trial are not an adequate remedy for the Defendant in circumstances where the claim is so substantial and the Company would be unable to meet any damages claim owing to its limited resources.   

(iii)      Where does the balance of convenience lie?

If the Defendant is prohibited from pursuing the petition before the English proceedings, particularly in circumstances where the High Court has made the findings that it has, there is no prospect of the preference claim against Mr Downer being pursued, let alone realised.  The potential injustice to the Defendant and other creditors of the Company is significant and outweighs the inconvenience to the Company, and Mr Downer its sole shareholder in particular.

When addressing the balance of convenience we have taken into account the broader considerations in relation to insolvency and the desirability of there being one set of insolvency proceedings in one jurisdiction and we agree that, in most circumstances, it is the jurisdiction where the debtor resides or is incorporated.  However, in the particular circumstances of this case we have no doubt that it is appropriate to decline the application for interim relief sought so as to permit the English insolvency proceedings to continue. 

38.      Our decision may well have been different had the Jersey insolvency process began (say) a year ago.  But it did not and, on the facts of this case, there is some evidence (although we make no findings) that Mr Downer is attempting to prefer himself to other creditors and we hold that we should not, in the particular circumstances of this case, grant the relief sought by the Company for the purpose of enabling Mr Downer to rely upon certain features of Jersey insolvency legislation in order to defeat the legitimate claims of third parties. 

39.      Although not relevant for the purposes of our decision, we do not, having considered the arguments presented to us, find that the Company failed to make full and frank disclosure to the Court when seeking ex parte relief.  Accordingly, we do not discharge the injunctions obtained by the Company on 7^th June 2021.  Having said that, there may be little merit in the Company now proceeding with this action.  That is a matter for the Company and its advisors. 

Costs

40.      The Court is prepared to entertain the Defendant's application for an interim payment of costs but await the further information sought in order to ensure that the Defendant's application is compliant with the approach referred to at paragraph 16 in Chernukhin v Deripaska [2020] JRC 208.

41.      If the Defendant wishes to maintain its application for a costs order against Mr Downer personally then, without prejudging the outcome of the same, Mr Downer would need to be convened personally to such an application.

Authorities

Companies (Jersey) Law 1991. 

Singularis Holdings v Price Waterhouse Coopers [2014] UKPC 36. 

Stichting Shell Pensioenfonds v Krys [2014] UKPC 41. 

Re Eurofood IFSC Limited [2006] Ch 508. 

American Cyanamid v Ethicon [1975] AC 396. 

Chernukhin v Deripaska [2020] JRC 208.