Anti-suit injunctions in insolvency proceedings

Rachel Price

In Stichting Shell Pensioenfonds v Krys and another (British Virgin Islands) [2014] UKPC 41, the Privy Council considered the question of whether, when a company is being wound up in the jurisdiction where it is incorporated, an anti-suit injunction should be issued to prevent a creditor from pursuing proceedings in another jurisdiction which are calculated to give them an unjustifiable priority.

Although the company in question was incorporated in the BVI, the decision is of wider significance because the Privy Council treated the law of the BVI and of the UK as the same for the purpose of the issue falling to be determined.

Facts

On 21 July 2009 an order was made by the High Court of the BVI for the winding-up of Fairfield, a Madoff feeder-fund incorporated in the BVI.  A creditor of Fairfield, Shell, brought proceedings in the Netherlands against Fairfield and obtained an order attaching certain assets of the company.

In November 2009 Shell submitted a proof of debt in the liquidation. The liquidators of Fairfield applied for an anti-suit injunction to restrain Shell from taking steps to enforce the attachments.  At first instance, the District Court of Amsterdam rejected Fairfield’s challenge to the attachments.

On 8 March 2011 the liquidators of Fairfield applied in the High Court of the BVI for an anti-suit injunction restraining Shell from prosecuting its proceedings in the Netherlands. The application was rejected in August 2011, for the primary reason that the BVI would not prevent a foreign creditor from resorting to his own courts, even if he was amenable to the BVI Court’s jurisdiction.

The liquidators of Fairfield appealed, which appeal was allowed by the BVI Court of Appeal and the anti-suit injunction was duly granted. The primary reasons given were:

  • Shell was subject to the personal jurisdiction of the BVI Court by virtue of having lodged a proof in the liquidation; and
  • Shell should not be allowed to avail itself of the Dutch jurisdiction so as to gain a priority to which it was not entitled under the statutory rules of distribution applying in the BVI.

The Privy Council upheld the injunction in 2014, finding that there is no principle that an anti-suit injunction will not issue so as to prevent a foreign litigant from resorting to the courts of his own country.

Anti-suit injunctions

The use of anti-suit injunctions is most commonly associated with proceedings commenced in breach of a jurisdiction or arbitration agreement. However, jurisprudence has built up over the years to enable the courts to order such injunctions in other situations where the principles of justice require that an injunction should be ordered. A fundamental principle, which is applicable to all anti-suit injunctions, is that although the court does not purport to interfere with any foreign court, it may restrain a defendant commencing or continuing proceedings in a foreign court where the ends of justice requires this (Bushby v Munday (1821) 5 Madd 297), for example where the foreign proceedings are contrary to equity and good conscience (Carron Iron Company Proprietors v Maclaren (1855) 5 HLC 415).

In the leading modern authority on the jurisdiction to restrain foreign proceedings, Société Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] AC 871, the court noted that insolvency cases proceed on a different principle to other anti-suit cases: they are based not on protecting litigants against vexation or oppression, but on protecting the court’s jurisdiction to do equity between creditors to an insolvent estate.

Decision

The distribution of an insolvent company’s assets among creditors is normally determined by the law of the jurisdiction where the insolvent company is incorporated unless there has been a transfer of a proprietary interest in an asset prior to the winding-up order. In this case, the attachments did not, as a matter of Dutch law, create any kind of proprietary interest: they sought merely to conserve funds in the relevant account such that they would be available to satisfy any judgment. Under BVI law the world-wide assets of Fairfield fell to be distributed pari passu among unsecured creditors of the company.

The real purpose of the Dutch proceedings was to gain a priority over other creditors whose claims were limited to the BVI liquidation. Consequently, while the Privy Council acknowledged that there was no general rule against creditors seeking the adjudicatory jurisdiction of a foreign court, the justification for the anti-suit injunction was that it protected the proper distribution in the BVI liquidation. Whilst the District Court of Amsterdam explained that Dutch law does not treat a foreign insolvency as applying to assets located in the Netherlands, the Privy Council held that the court has an equitable jurisdiction to restrain acts calculated to violate the statutory scheme of distribution. It would be contrary to the proper winding-up process for a creditor to be permitted to enforce a foreign order which would result in his enjoying prior access to the insolvent estate.

In his judgment, Lord Sumption made reference to the recent decision in Singularis Holdings Ltd v PriceWaterhouse Coopers [2014] UKPC 36: “there is a broader public interest in the ability of a court 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”.

The Privy Council’s decision supports the Supreme Court’s conclusion in Rubin v Eurofinance SA: Re New Cap Reinsurance [2012] UKSC 46 that a foreign creditor who proves in a liquidation submits to the jurisdiction of the court responsible for supervising that liquidation. In so doing, the proving creditor submits to a statutory regime which precludes it from acting so as to prevent assets from being distributed in accordance with the liquidation.

Comment

The decision in Stichting makes clear that where a company is being wound up in the jurisdiction where it was incorporated, and a foreign creditor has submitted a proof of debt to the liquidators, that creditor will be deemed to have submitted to the jurisdiction of the court responsible for administering the insolvency process and cannot pursue proceedings in its domestic jurisdiction with a view to obtaining a priority over other creditors. The case provides a clear illustration of the rationale behind the use of anti-suit injunctions in insolvency cases – to protect the court’s jurisdiction to do equity between creditors to an insolvent estate.

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