Originally published by International Law
Office, October 12, 2012
High Court decision
Supreme Court decision
The courts recently considered the issue of enforceability in
Ireland of an order if made by Swiss courts in Swiss liquidation
proceedings.1 The order would require the return of
monies paid – at a disadvantage to creditors – to Irish
company Flightlease which had since been liquidated in Ireland.
High Court decision
The Irish High Court2 had decided that although it
found a real and substantial connection between Switzerland and the
cause of action before the Swiss court, as Flightlease was not
present or carrying on business through an agent in Switzerland
when the proceedings were instituted and had not submitted to the
jurisdiction of the Swiss courts, it would be inappropriate for the
Irish court to recognise any judgment on the relevant matter in the
Swiss liquidation proceedings. The High Court rejected the real and
substantial connection test developed in Canada3 and
followed common law principles.4 The court found that
while it is inherent in the common law that it will necessarily
evolve to meet new circumstances, caution is needed given the
possibility of adversely affecting in a retrospective way parties
which had ordered their affairs (eg, by not participating in
foreign proceedings) on the basis of a reasonable understanding of
what the law currently was; the courts cannot engage in an
alteration to the common law which amounted to legislation.
Supreme Court decision
The decision was appealed to the Supreme Court which
upheld5 the High Court decision and rejected the real
and substantial connection test.
Justice Finnegan stated:
"Central to the issue is
whether the claim sought to be maintained in the Swiss proceedings
is to be categorised under Irish law as a claim in the liquidation
or as a claim in personam. If the former an order of the
Swiss Court would not be recognised and enforced by the Irish
Courts. If the claim before the Swiss Court is a claim in
personam then the issue is whether Rule 36 in Dicey
represents the law in Ireland and if it does whether the Court
should declare and/or develop the common law of Ireland in
accordance with contemporary requirements of private international
law and the principles of comity and adopt the principles of
international law and principles of international comity in
accordance with Canadian jurisprudence. According to Rule 36
of Dicey if a judgment debtor was, at the time the
proceedings were instituted present in a foreign country or if the
judgment debtor submitted to the jurisdiction of the courts of the
foreign country the Irish Courts would recognise and enforce a
judgment of a Court of that country. Under the Canadian
jurisprudence Canada applies a real and substantial connection
test."
The Supreme Court referred to an action in personam as
an action with a view to enforcing the doing of some particular
thing, including actions on contract and tort, rather than the
insolvency process itself involving the gathering in of assets and
their distribution in accordance with the appropriate insolvency
law.
The Supreme Court stated:
"The effect of any order
made in the Swiss proceedings will be to require repayment by
Flightlease of a sum of money. The nature of that order is that it
is an order in personam. Insolvency proceedings are
concerned with collective execution. They are not concerned with
establishing a liability. The nature of the Swiss proceedings is to
establish a liability on Flightlease to repay monies. Such an order
will only be enforced in this jurisdiction if Flightlease is
present in Switzerland at the commencement of the action or has
submitted to the jurisdiction of the Swiss Court. Neither is the
case.
Proceedings which seek to
establish a liability to pay a sum whether taken within insolvency
proceedings or separately will result in a judgment in
personam."
As regards international developments, the Supreme Court
stated:
"In the area of conflicts of
law it is desirable to await developments of a broad consensus
before developing the common law and it has not been suggested that
such a consensus exists among common law jurisdictions. It is in
any event desirable that such a significant change in the common
law should be by legislation.
Persons will order their affairs
based upon a view as to the law. Where a person is sued in a
foreign jurisdiction he will be required to make an important
decision as to whether to participate in the proceedings on the
basis of a view as to whether such judgment would be recognised in
Ireland. Accordingly a change in the law should not be lightly
engaged in."
The Supreme Court also referred to the UK case of Cambridge
Gas Transportation Corporation v Unsecured Creditors of Navigator
Holdings Plc (2007 1 AC 508). It referred to adopting the
approach of providing assistance by doing whatever the court could
have done in the case of a domestic insolvency. It stated that by
adopting this approach, orders made in the US proceedings for the
restitution of unjust enrichment and for the return of improperly
preferential payments were liable to be recognised and enforced as
part of the insolvency proceedings, notwithstanding that the US
courts had no jurisdiction to give a judgment in personam
to the like effect which would be recognised and enforced. The
Supreme Court also referred to the request in Re HIH Casualty
and General Insurance Limited (2008 1 WLR 852) from the
Australian court asking that the English provisional liquidators
remit assets to the Australian liquidators for distribution. The
Supreme Court stated that it was satisfied that the approach
adopted was dependent on the statutory framework which exists in
the United Kingdom:
"I am satisfied that In
Re Lines Brothers Limited6 represents the common law
in Ireland.
As to whether, notwithstanding
its uncertain state this Court should adopt the approach in
Cambridge Gas Transportation Corporation I am satisfied it
should not."
Justice O'Donnell, while agreeing with the conclusion and
result proposed by the Supreme Court, noted:
"It also seems particularly
appropriate that in cases of insolvency there should be a central
location for the consideration and determination of disputes. In
this case for example the end result may be three sets of
proceedings in respect of a single claim by Swissair against
Flightlease: the Swiss proceedings, these proceedings under
S[ection] 280, and the possibility of future proceedings by
Swissair against Flightlease in an Irish Court. Such a
proliferation of litigation can only deplete the assets of already
insolvent companies. No reason was given to doubt the Swiss
Court[']s ability to determine what is after all a dispute
under Swiss law and no juridicial [sic] advantage was identified in
insisting that proceedings should be heard in Ireland, which was
the agreed alternative should it be impossible to enforce any order
obtained in the Swiss proceedings. Accordingly for my part, I would
not wish to entirely rule out the possibility of the development of
an insolvency principle as a matter of common law as indeed was
discussed by Lord Hoffman in Cambridge Transportation v
Unsecured Creditors of Navigator Holdings Plc and Re HIH
Casualty and General Insurance Limited and in the
United Kingdom Court of Appeal in Rubin v Eurofinance SA
2010 EWCA 895. It would of course be desirable that this situation
could be achieved by international agreement and domestic
legislation, but I would not rule out the possible development of
the common law, if that appeared necessary. However that question
was not argued in any detail on this appeal. The Cambridge Gas
case was referred to in the context of whether or not any order
obtained in the Swiss proceedings would be an in personam
judgment. Accordingly I would reserve that question for another
day, when it could be the subject of focussed argument in the
context of all the conditions then prevailing."
The effect of the Supreme Court decision was subsequently
considered by the High Court in Mount Capital
Fund,7 in a case involving liquidators appointed in
the British Virgin Islands of a BVI company. Justice Laffoy
stated:
"In this case the
Liquidators are not seeking to establish a liability to pay a sum
and to that extent this application is distinguishable from
the Flightlease case.
The dilemma with which this Court
is faced is whether the decision of the Supreme Court precludes
this Court from following the approach adopted by Finlay Geoghegan
J in the Fairfield case in finding that this Court has
inherent jurisdiction to recognise orders of a Court outside the
European Union ordering the winding up of a company, the
appointment of a liquidator and giving liberty to the Liquidator to
apply for assistance in aid of the Court making the
order."
In Fairfield8 Justice Finlay-Geoghegan
stated:
"In my judgment, it is
correct that pursuant to the common law in Ireland, the Court has
an inherent jurisdiction to recognise orders of foreign courts (in
the sense of non-EU courts) for the winding up of companies and the
appointment of liquidators.
Earlier in this judgment I agreed
with the statement by Lord Hoffman in Cambridge Gas that
as a matter of common law the principle of universality of
insolvency proceedings is given effect by recognising the person
who is empowered under the foreign bankruptcy law to act on behalf
of the insolvent company as entitled to do so in Ireland. As
pointed out the common law is undeveloped in relation to any
further assistance to be given to foreign liquidators.
On the facts herein, such
principle is given effect to by the recognition by the Irish courts
of the entitlement of the Liquidator to maintain on behalf of
Fairfield the proceedings in this jurisdiction seeking declarations
in relation to Fairfield's entitlement to the monies in the
Dublin Account."
In Mount Capital Fund Laffoy stated as follows
regarding whether the Supreme Court decision in
Flightlease precluded her from following the approach
adopted by Finlay- Geoghegan in Fairfield:
"Having carefully considered
the matter, I am satisfied that this Court is not so precluded. I
am satisfied that the ratio decidendi of the decision in
the Flightlease case, which I have analysed extensively
above, is limited to the situation in which it is sought to enforce
at common law liability to pay a sum on foot of a judgment made by
a foreign Court in liquidation proceedings being conducted in this
jurisdiction in accordance with Irish law. I am of the view that it
does not preclude this Court from giving recognition to orders of
the type made by the High Court of Justice of the British Virgin
Islands in relation to the companies. On this application, relief
in the nature of enforcement, as distinct from recognition, is not
sought. In any event it would be wholly inappropriate to consider
an application for relief in the nature of enforcement on an
ex parte application. I consider that the Court does have an
inherent jurisdiction to give recognition to insolvency proceedings
in jurisdictions outside the European Union. However I consider
that in the exercise of that jurisdiction the Court should be
satisfied that recognition is being sought for a legitimate
purpose. I believe that a legitimate purpose has been demonstrated
in this case, in that the objective of the liquidators is to seek
to obtain relief of the nature provided in [Section] 245 of the
Companies Act 1963, having demonstrated that there is equivalence
between the law of the British Virgin Islands and the law in this
jurisdiction in relation to corporate insolvency generally and in
particular in relation to disclosure, production of documentation
and suchlike for the purpose of performance by a liquidator of his
principal duties of taking possession, protecting and realising the
assets of the company and distributing the assets, or the proceeds
of realisation, in accordance with law."
Laffoy further stated:
"As is clear from the
judgment of Dunne J[ustice] in the Drumm case, as long ago
as 1920, in In Re Bolton [1920] 2 I.R. 324 the King's
Bench Division of the Irish High Court acted in aid of the Supreme
Court of South Africa in relation to bankruptcy in that
jurisdiction. Therefore, prior to the conferring of power by
Section 250(1) there appears to have been recognised an inherent
common law jurisdiction to provide assistance to a foreign Court in
relation to insolvency proceedings. Section
250(1),9 in my view, did not eliminate that
jurisdiction."
In Drumm10 Justice Dunne referred to the
fact that the bankrupt had submitted to the jurisdiction of the US
courts and that one of the principal creditors was participating in
those proceedings, and that decisions cited to the court tended to
be decisions which came under Section 71 of the Bankruptcy
(Ireland) Amendment Act 1872 (no longer in force). She held that
she had an inherent discretionary jurisdiction and granted an order
giving liberty to a US trustee in bankruptcy to deal with immovable
real property in Ireland.
The Re Bolton case, under which immovable property in
Ireland was vested in a South African insolvency trustee, not only
refers to statutory provisions but also to Roman law and
comity.
In Mount Capital Fund Laffoy stated that she discerned
no prejudice to any creditor in Ireland or the infringement of any
local law in affording recognition, so that there was no
discretionary reason for withholding recognition. She then made
orders recognising the appointment of the liquidators by the BVI
courts and gave the liquidators liberty to apply for orders under
Section 245 of the Irish Companies Act 1963(11) and such further
and other reliefs as shall appear appropriate to them in the
exercise of their functions as liquidators of the companies –
subject to the proviso that any party against which the liquidators
shall apply for orders shall be at liberty to challenge the Irish
court's jurisdiction to make the order insofar as it affects
that party.
Endnotes
1 Switzerland is not a member of the European Union and
thus is not covered by the EU Insolvency Regulation
(1346/2000).
2 Re: Flightlease (Ireland) Limited (In
Voluntary Liquidation), 2006 IEHC 193, Justice
Clarke.
3 De Savoye v Morguard Investments Limited
and Credit Foncier Trust Company, (1990) 3 SCR
1077, Supreme Court of Canada; Salndahna v Frederick
H Beals, (2003) 3 SCR 416, Supreme Court of
Canada.
4 As expressed in Rule 36 of Dicey, Morris
& Collins, 14th edition.
5 In the Matter of Flightlease (Ireland)
Limited (In Voluntary Liquidation), 2012 IESC 12,
written judgments of Justice Finnegan and Justice
O'Donnell.
6 In Re Lines Bros Limited,
1983 Ch 1 20, Justice Brightman L.
7 Re Mount Capital Fund Limited (In
Liquidation), 2012 IEHC 97, Justice
Laffoy.
8 Fairfield Sentry Ltd (In Liquidation) v
Citco Bank Nederland NV, 2012 IEHC 81 –
judgment of Justice Finlay-Geoghegan delivered five days after the
Supreme Court decision in
Flightlease, in which Finlay-Geoghegan
granted an order recognising liquidators appointed in the British
Virgin Islands of a BVI company and accepting their power to
maintain proceedings in Ireland. Those proceedings concerned
whether monies held in a Dublin account to the order of a company
in liquidation in the British Virgin Islands were subject to orders
of conservatory attachment issued by the Dutch courts.
Finlay-Geoghegan stated: "On the facts herein,
to succeed in this defence, the Plaintiffs would have to establish
that it would be manifestly contrary to the public policy of
Ireland to recognise a judgment which would permit a creditor of an
insolvent BVI company being wound up in accordance with the laws of
British Virgin Islands, obtain a right to assets of the company
other than pari passu with the other
unsecured creditors. However, there does not appear to me any basis
for the proposition that the protection of a right of unsecured
creditors of a BVI company being wound up in accordance with the
laws of the BVI to share pari passu
in the distribution of the assets of the company (after
statutory priorities) is a fundamental principle of Irish law such
that it forms part of the Irish Public Policy for the purposes of
art [icle] 34(1) of the Regulation" [(ie, EU
Regulation 44/2001 on Jurisdiction and the Recognition and
Enforcement of Judgments in Civil and Commercial
Matters)].
9 Section 250(1) of the Companies Act provides:
"Any order made by a court of any country
recognised for the purposes of this section and made for or in the
course of winding up a company may be enforced by the High Court in
the same manner in all respects as if the order had been made by
the High Court." Only Northern Ireland and
Great Britain were formally recognised under this section, under
provisions repealed following the introduction of the EU Insolvency
Regulation which superseded the same.
10 In the Matter of David K Drumm, a
Bankrupt, 2010 IEHC, December 13 2010, Justice
Dunne.
11 Section 245 of the Irish Companies Act 1963 concerns the
power of the court to summon persons for examination, with power to
require such person to produce documents relating to the company
(with powers in default of arrest and seizure of documents and
movable personal property).
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