UKPC 41
Privy Council Appeal No 0097 of 2013
Catherine Newman QC
Arabella di Iorio
(Instructed by Herbert Smith Freehills LLP)
Paul Girolami QC
(Instructed by Wragge Lawrence Graham & Co LLP)
LORD SUMPTION AND LORD TOULSON:
Bernard L. Madoff Investment Securities LLC and Fairfield Sentry Ltd
The Dutch proceedings
(1) Where the asset attached is a debt, the fact that the debtor (in this case Citco Bank Nederland) is amenable to the jurisdiction of the Dutch courts is a sufficient basis on which to establish the jurisdiction of the Dutch courts to hear the substantive claim. Fairfield Sentry being resident outside the European Union, it is the only basis of jurisdiction available in the present case. It was a term of the court's permission to attach assets of Fairfield Sentry that Shell should begin proceedings in support of its substantive claim within four months.
(2) The attachments do not, as a matter of Dutch law, create any kind of proprietary interest in the balances on the Dublin account. But they purport to conserve the funds in the account so that they will be available to satisfy any judgment which may be obtained against Fairfield Sentry in due course. Subject to any relevant period of limitation, it would be open to any other person with claims against Fairfield Sentry to take the same course as Shell has done, and apply in the Dutch courts to attach its assets in the hands of Citco Bank. Where there is more than one judgment creditor with attachments over the same assets, the funds attached will then be shared between them.
(3) In principle a claimant is entitled as of right to attach assets in support of an arguable claim, subject only to the reservation that an attachment will not be authorised if the substantive claim is unarguable or the attachment would put the garnishee at risk of having to pay twice. However, except in cases governed by the insolvency legislation of the European Union, the fact that the debtor is in liquidation elsewhere and that the attachment will prevent its assets from being distributed pari passu, is regarded as irrelevant to the exercise of the power to authorise an attachment. In rejecting Fairfield Sentry's challenge to the attachment order, the District Court of Amsterdam explained that Dutch law does not treat a foreign insolvency, even where it is proceeding in the jurisdiction of incorporation, as applying to assets located in the Netherlands.
The winding-up proceedings
Anti-suit injunctions in insolvency cases
"an attempt to put a ring fence around either the assets or the creditors to be found in any one jurisdiction is, at least under English law as I understand it, not correct, and destined to failure. I believe the position will prove to be the same in most other countries and jurisdictions."
"In general, after a decree under which the creditors of a Testator may come in and obtain payment of their demands, the Court does not permit a creditor to institute proceedings for himself. The decree is said to be a judgment, or in the nature of a judgment, for all the creditors. The court takes possession of the assets, and distributes them rateably, on principles of equality, giving, however, due effect to any legal rights of preference which any one creditor may possess. To allow a creditor, after such a decree, to institute proceedings for himself, would give rise to great inconvenience and injustice: it would disturb the general principle of equal distribution which the court is always anxious to enforce, and would leave the executors exposed to actions after the assets have been taken out of their hands. Of the general justice, therefore, of the rule on which the court acts, no doubt can, I think, be entertained."
The basis of this conclusion, as the reasoning of all three members of the House shows, is that the court has an equitable jurisdiction to restrain the acts of persons amenable to the court's jurisdiction which was calculated to violate the statutory scheme of distribution.
"All the assets there would be liable to be torn to pieces by creditors there, notwithstanding the winding-up, and there would be an utter incapacity of the Courts there to proceed to effect an equitable distribution of them. The English Act of Parliament has enacted that in the case of a winding-up the assets of the company so wound up are to be collected and applied in discharge of its liabilities. That makes the property of the company clearly trust property. It is property affected by the Act of Parliament with an obligation to be dealt with by the proper officer in a particular way… One creditor has, by means of an execution abroad, been able to obtain possession of part of those assets. The Vice-Chancellor was of opinion that this was the same as that of one cestui que trust getting possession of the trust property after the property had been affected with notice of the trust. If so, that cestui que trust must bring it in for distribution among the other cestuis que trust . So I, too, am of opinion, that these creditors cannot get any priority over their fellow-creditors by reason of their having got possession of the assets in this way. The assets must be distributed in England upon the footing of equality."
"Under the Companies Act of 1862 it was clear that after a winding up order the assets of the company were to be collected and applied in discharge of its liabilities, and that the assets were fixed by the Act of Parliament with a trust for equal distribution among creditors (In re Oriental Steam Company, L.R. 9 Ch App at p. 559); In re Vron Colliery Company L.R. 20, Ch. D., 442). No creditor, therefore, could be allowed, by taking proceedings at his own will and pleasure, to destroy, waste, or impair assets which were subjected to a trust for the general benefit of all creditors alike."
"… a creditor who successfully completes a foreign execution is able to gain priority over the unsecured creditors. To prevent this, the English court has jurisdiction to restrain creditors from bringing or continuing the foreign execution process."
"At the time of these proceedings, as for many years before, the Commonwealth of Massachusetts had an elaborate system of insolvent laws, designed to secure the equal distribution of the property of its debtors among their creditors. Under these insolvent laws, all preferences were avoided and all attachments in favor of particular creditors dissolved. The transfer of the debtor's property to his assignees in insolvency extended to all his property and assets, wherever situated. This was expressly provided as to such as might be outside the state…. Nothing can be plainer than that the act of Butler, Hayden & Co. in causing the property of the insolvent debtors to be attached in a foreign jurisdiction tended directly to defeat the operation of the insolvent law in its most essential features, and it is not easy to understand why such acts could not be restrained within the practice to which we have referred."
The Court regarded this, as the English courts do, as the enforcement of an equitable right: see p 116.
"The decided cases, stretching back over a hundred years and more, provide however a useful source of experience from which guidance may be drawn. They show, moreover, judges seeking to apply the fundamental principles in certain categories of case, while at the same time never asserting that the jurisdiction is to be confined to those categories. Their Lordships were helpfully taken through many of the authorities by counsel in the present case. One such category of case arises where an estate is being administered in this country, or a petition in bankruptcy has been presented in this country, or winding up proceedings have been commenced here, and an injunction is granted to restrain a person from seeking, by foreign proceedings, to obtain the sole benefit of certain foreign assets. In such cases, it may be said that the purpose of the injunction is to protect the jurisdiction of the English court…. Another important category of case in which injunctions may be granted is where the plaintiff has commenced proceedings against the defendant in respect of the same subject matter both in this country and overseas, and the defendant has asked the English court to compel the plaintiff to elect in which country he shall alone proceed. In such cases, there is authority that the court will only restrain the plaintiff from pursuing the foreign proceedings if the pursuit of such proceedings is regarded as vexatious or oppressive: see McHenry v. Lewis (1882) 22 ChD 397 and Peruvian Guano Co. v. Bockwoldt (1883) 23 ChD 225."
It is clear from Lord Goff's formulation that he was making the same distinction as Lord Cranworth made in Carron Iron between cases such as the insolvency cases, in which there is an equitable jurisdiction to enforce the statutory scheme of distribution according to its terms, and cases in which the court intervenes on the ground of vexation or oppression.
"what is the consequence of creditors coming in under a liquidation or bankruptcy? They come in under what is as much a compact as if each of them had signed and sealed and sworn to the terms of it - that the bankrupt's estate shall be duly administered among the creditors. That being so, the administration of the estate is cast upon the court, and the court has jurisdiction to decide all questions of whatever kind, whether of law, fact, or whatever else the court may think necessary in order to effect complete distribution of the bankrupt's estate…. can there be any doubt that the Appellant in this case has agreed, as far as he is concerned, the law of bankruptcy shall take effect as to him, and under this jurisdiction, to which he is not only subjected, but under which he has become an active party, and of which he has taken the benefit. . . . [The Appellant] is as much bound to perform the conditions of the compact, and to submit to the jurisdiction of the court, as if he had never been out of the limits of England."
"formal submission of a proof of debt to the insolvency administration will generally be adequate to support a conclusion that the court supervising the administration thereafter has jurisdiction to make orders in matters connected with the administration against the creditor who has proved."
The same view was taken by the Supreme Court in Rubin v Eurofinance SA  1 AC 236. Lord Collins (with whom on this point the rest of the court agreed) held at paras 165, 167, citing Ex p Robertson, that there was:
"no doubt that orders may be made against a foreign creditor who proves in an English liquidation or bankruptcy on the footing that by proving the foreign creditor submits to the jurisdiction of the English court .... having chosen to submit to New Cap's Australian insolvency proceeding, the syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding. It should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding."
Application to foreign litigants
"the first question is, whether there is any rule or principle of the Court of Chancery which, after a decree for administering a Testator's assets, would induce it to interfere with a foreign creditor resident abroad, suing for his debt in the courts of his own country? Certainly not. Over such a creditor the courts here can exercise no jurisdiction whatever. He is altogether beyond their reach, and must be left to deal as he may with his own forum, and to obtain such relief as the courts of his own country may afford."
The observation that over such a person the English court can exercise "no jurisdiction whatever" shows that Lord Cranworth was in fact addressing the question of personal jurisdiction. The issue which divided the House was whether the Carron Iron Company was domiciled in England as well as Scotland (as Lord St. Leonards thought) or only in Scotland (as the majority thought). The injunction was refused for want of personal jurisdiction, not because the Carron Iron Company was a Scottish company proceeding in the Courts of Scotland. That this was the issue is apparent from Lord Cranworth's observation at pp 442-443 that the position would have been different if the Carron Iron Company had "come under the decree so as to obtain payment partially from the English assets" or had "sought or obtained any relief in this country".
"…although it would be desirable in the interests of the person concerned in the litigation to make that creditor come in with the rest, yet the Court cannot restrain the action for want of power - not from want of will or want of provisions in the Act of Parliament, but simply that the Act of Parliament cannot give this Court jurisdiction over Turkey or over Russia. That is the only reason…. Therefore, as to a purely foreign country, it is of no use asking for an order, because the order cannot be enforced."
In In re North Carolina Estate Co Ltd (1889) 5 TLR 328, Chitty J observed that it was:
"quite true… that Parliament did not legislate for a foreign country. The point, however, was would the Court grant an injunction which was ineffectual, not as being against the foreign court but as being against a person who could not be reached?"
"I can find, however, no reason to doubt that a person domiciled abroad can sue in his own Courts a company which, in carrying on business there, has incurred a debt or liability to him, whether or not that company is being wound up in this country, to which he owes no allegiance and with the laws of which he is not acquainted; though, as pointed out in Dicey, p 377, if he desires to benefit under the English winding-up he must, generally speaking (see for an exception Moor v. Anglo-Italian Bank), give up for the benefit of other creditors any advantage which he may have obtained for himself by the proceedings abroad. If these views be well founded it is difficult to see why an English Court should attempt to restrain such a creditor from enforcing his rights in his own country merely because it is possible to serve him with process here. To prevent a misconception I should point out that I am not here dealing with the case of a British subject or a corporation incorporated under our law, nor am I dealing with the case where the person sought to be restrained from proceedings abroad has made himself a party to the proceedings in the liquidation, for instance by putting in a proof or in some other way."
Maugham J concluded (at p 210) that where a foreigner is proceeding in his own courts
"in general it will be more conducive in such a case to substantial justice that the foreign proceedings should be allowed to proceed."
These observations were not a statement of law. As Millett LJ observed in Mitchell v Carter  1 BCLC 673, they went to the court's discretion. What is thought to be "conducive to the ends of justice" is liable to change over time. The Court of Appeal in the present case considered that Maugham J's remarks could no longer be regarded as consistent with the policy of the law relating to international insolvencies. The Board is of the same view. Maugham J's approach would be fair enough if the common law regarded insolvency proceedings as purely territorial. But it has not taken that view for many years, either in relation to its own winding up proceedings which have always been universal, or in relation to the corresponding proceedings of foreign courts dealing with the insolvency of their own companies. The object of the winding up court in dealing with an international insolvency is to ensure, so far as it properly can, that the world-wide assets of the company and the world-wide claimants to those assets are treated on a common basis: see Re HIH Casualty and General Insurance  1 WLR 852, 30 (Lord Hoffmann); Singularis Holdings Ltd v PriceWaterhouseCoopers  UKPC 36, 19.
The scope of the order