UK: Privy Council Hands Down Judgment In PwC V Saad Investments Company And Singularis Holdings V PwC

Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36

PricewaterhouseCoopers v Saad Investments Company Limited [2014] UKPC 35

The Privy Council gives credence to the concept of "modified universalism" (being the court's common law power to assist foreign winding up proceedings) and notes some of the circumstances which would permit a "stranger" to a winding up order the opportunity to challenge that order.

The facts:

These connected appeals were heard by the Privy Council in April this year and concerned two related companies incorporated in the Cayman Islands. Both appeals related to attempts by the companies' liquidators to obtain information about the companies from their former auditors, PricewaterhouseCoopers ("PwC"). PwC provided documents to the liquidators in accordance with an order of the Cayman Grand Court. However, the liquidators considered that many of those documents were "heavily and unjustifiably redacted" and the disclosure was inadequate. In an effort to compel PwC to disclose further information, the liquidators sought to move the winding up process to Bermuda and invoke the wider powers of the Bermudan court for disclosure, as permitted under section 195 of the Bermudan Companies Act 1981. Section 195 would allow the courts to compel PwC to provide information which not only belonged to Singularis and Saad but also belonged to PwC, and would include PwC's working papers. Such powers however are only exercisable in respect of a company which the Bermudan court has ordered to be wound up.

The liquidators of Saad and Singularis adopted different tactics in their efforts to invoke the powers available under section 195:

Saad Investments appeal:

In this instance, the liquidators of Saad obtained an order from the Supreme Court of Bermuda to order the winding up of Saad and also to compel PwC to disclose further documents under section 195. PwC appealed against this order to the Privy Council. The issues before the Privy Council were: (1) whether the Supreme Court of Bermuda had jurisdiction to wind up Saad; and (2) if not, was PwC, as a stranger to the winding up order, able to challenge the winding up and section 195 orders.

(1) The jurisdiction of the Supreme Court of Bermuda to wind up companies derives wholly from statute:

(a) considering the Bermudan Companies Act 1981, the Privy Council ruled that jurisdiction under it only applied to "companies" and that expression did not include "overseas companies";

(b) in considering The External Companies (Jurisdiction in Actions) Act 1885, the Privy Council noted that the statute provides that companies "incorporated out of Bermuda...and doing business in Bermuda...may be sued in the Supreme Court for any cause of action". Agreeing with PwC, the Privy Council concluded that Saad were not "do[ing] business in Bermuda" simply because they held assets, namely shares in a Bermudan company. Further, a winding up order did not constitute a "cause of action", it therefore ruled that the Supreme Court of Bermuda did not have jurisdiction to grant the winding up order and so made an order staying the winding-up.

(2) In considering the second issue, the Privy Council noted that PwC was a stranger to the winding up order, in that it was neither the company subject to the order, nor the Official Receiver, the liquidator, the contributories or the creditors and that the courts would not normally be prepared to entertain submissions from a stranger. However, the Privy Council considered that this rule should not be an immutable principle, applicable in every case irrespective of the facts.

In this instance, the Privy Council ruled that:

(a) the ground of opposition to the winding up was based purely on jurisdictional grounds and therefore should be seriously addressed; and

(b) PwC were only strangers in the most technical sense, being in fact the sole direct target of the order.

The Privy Council concluded that they saw no reason why in appropriate circumstances a party directly affected by a winding up order should not have the right to be added as a party to the proceedings; however such a course of action would require exceptional circumstances. In this instance, the Privy Council considered it would be a denial of natural justice if PwC were denied the opportunity to challenge the orders: it had a right to be added as a party to the petition, receive notice of the petition, and be able to challenge it.

Appeal allowed.

Singularis Holdings appeal:

In this matter, the liquidators of Singularis did not seek a winding up order from the Bermudan courts. Instead the liquidators obtained an order from the Bermudan courts which recognised their status as Grand Cayman liquidators and applied section 195 by analogy to PwC, exercising its common law power to give assistance to the liquidator of a foreign company. This order was overturned by the Court of Appeal of Bermuda whose decision was then appealed to the Privy Council.

In reaching its decision, the Privy Council unanimously determined that the principle of "modified universalism" still applied. This is the principle that the court has a common law power to assist foreign winding up proceedings so far as it properly can. In their judgment, the Privy Council reined back the extent of this common law power to assist which had been extended by the decision in Cambridge Gas1. In doing so the Privy Council gave support to the decision in Rubin2 which followed Cambridge Gas. In reaching its conclusions the Privy Council did not agree with Cambridge Gas that a domestic court could, when asked to assist by a foreign court, apply the statutory provisions that would be available to it as if it were a domestic insolvency. The Privy Council also rejected the proposition in Cambridge Gas that the domestic court had jurisdiction over the parties simply by virtue of this power to assist and that the absence of jurisdiction in rem or in personam was irrelevant. However as mentioned, the Privy Council did unanimously agree with the proposition in Cambridge Gas that the common law power to assist in cross-border insolvencies continued to exist. Although the judges differed on what limitations that power should have placed on it.

Three of the five judges (although all for different reasons) felt that this power could be extended to providing ancillary relief such as ordering the production of documents and information held by third parties for the use of a foreign liquidator. The extent of this principle however would be subject to the limitations of the substantive law and public policy of the assisting court. In this instance, the power of assistance could not be used to make good a limitation on the powers of a foreign court of insolvency jurisdiction under its own law. Other limitations would apply, including that:

(a) the power should only be available to assist the officers of a foreign court of insolvency jurisdiction or equivalent and on this interpretation it should not therefore be available to assist in a voluntary winding up as this essentially amounts to a private arrangement;

(b) power of assistance should not be available to enable officers to do something they could not do under the law by which they were appointed; and

(c) powers of assistance should only be available when they are necessary for the performance of the office-holder's functions.

In contrast, Lord Mance and Lord Neuberger considered that it was not appropriate to extend the common law power to assist to allow courts to use powers similar to those contained in section 195 i.e. the power to question or request disclosure from anyone, innocent or not, simply to assist a liquidator in the recovery or identification of assets anywhere in the world.

In this instance, the concept of modified universalism could not be applied by the Bermudan courts because of the limited powers of disclosure under the laws of the Cayman Islands. Cayman statute only had the power to compel PwC to disclose documents belonging to Singularis, and did not have the power to order further disclosure of documents belonging to PwC nor did it have the power to order the examination of witnesses.

Appeal dismissed.

Footnotes

1. Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2006] UKPC 26

2. Rubin v Eurofinance SA [2012] UKSC 46

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