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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