Schmitt v Deichmann & Ors [2012] EWHC 62 (Ch)

Case No 142 of 2008Appeal Ref: CH/2010/0684[2012] EWHC 62 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE MATTER OF PHOENIX KAPITALDIENST GmbH
and IN THE MATTER OF THE INSOLVENCY ACT 1986
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23/01/2012
Before
MRS JUSTICE PROUDMAN
Between
FRANK SCHMITTApplicantHENNING DEICHMANNAppellantsAnd 14 OthersAppellant
David Marks QC (instructed by Dewey & Le Boeuf LLP) for ApplicantDavid Wolfson QC and Adam Rushworth (instructed by Kennedys, solicitors) for AppellantsHearing Hearing dates: 5, 6, 7 and 10 October 2011
JudgmentMrs Justice Proudman :
[1]This is an appeal from Mr Registrar Jaques’s Order of 8th April 2008 (“the Recognition Order”) granting the applicant, the German administrator of Phoenix Kapitaldienst GmbH (“Phoenix”), recognition under the common law and authority to exercise the powers afforded to licensed insolvency practitioners under the Insolvency Act 1986 (“the Act”). The Recognition Order was made on a without notice application.[2]Phoenix was a German company carrying on business in Germany and elsewhere, pursuant to contracts with individuals, including the appellants. Phoenix held all the money collected from its investors in a single managed account. Phoenix represented that it was a trustee of the money which would be invested in the futures market. The administrator alleges that the enterprise was loss-making from the start; all or most of the money invested was used to cover existing overheads and to pay fictitious profits to other investors rather than being invested in the futures market. In short it is said that there was a world-wide fraud in the form of a “Ponzi” scheme. Criminal proceedings have been successfully brought against the principal directors of, and those controlling, Phoenix.[3]On 15 March 2010 the administrator, pursuant to the Recognition Order, issued an application for relief under s. 423 of the Act (“s. 423”) against the appellants. He claims back both the initial invested amounts and the alleged fictitious profits. There have been some 240 sets of proceedings in over 20 other jurisdictions in which former investors are being sued, or have already been successfully sued, for recovery.[4]It is common ground that the Council Regulation (EC) No 1346/2000 on Insolvency Proceedings does not apply because the company was an investment undertaking. Again, it is common ground that the UNCITRAL Model Law (the Legislative Guide on Insolvency Law (2005) as reflected in the Cross-Border Insolvency Regulations 2006 SI 2006/1030 could not be invoked because of the date when it was incorporated into English law. As a result the administrator’s only recourse in this court is to common law principles.[5]I observe in passingthat if the Model Law had been applicable the court could grant a range of remedies including relief that would be available to a British insolvency holder under English law: see article 21 (1)(g).[6]I have to determine whether this court has an inherent common law jurisdiction to permit the statutory power under s. 423 to be applied to a foreign administrator not falling within the express scope of the Act. The appellants maintain that there is no jurisdiction to do so; the administrator maintains that there is.[7]S. 423 contains a statutory power to set aside transactions entered into at an undervalue for the purpose of defrauding creditors. S. 426 of the Act (“s. 426”) contains provisions for co-operation between courts exercising jurisdiction in relation to insolvency. The section provides that the courts having jurisdiction in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction, not only in any other part of the UK but also in “any relevant country or territory”. Germany is not a relevant country or territory within the definition contained in c. 426 (11) (b) since it has not been designated as such by statutory instrument.[8]S. 426 (4) and (5) provide as follows:
“(4) The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory. (5) For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.”
For the purposes of the two subsections, insolvency law in England and Wales means any provision made by or under the Act: see s. 426(10). In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.” Appeal Notice[9]At the court’s insistence the appellants amended the appeal notice to raise the question at paragraph 6 above in an unambiguous fashion. Prior to that amendment, the appeal was primarily based on the distinction between the enforcement and establishment of rights. It was alleged that the common law power enables the court to assist a foreign office-holder to enforce pre-existing rights but not to establish them. In this connection I later refer to the decision of the Court of Appeal in Rubin and Anor v. Eurofinance SA and others [2011] Ch 133. An appeal is to be heard by the Supreme Court in 2012, so that although I am bound by Rubin, the issues in that case remain live for present purposes.[10]The primary issue before me is the question whether the common law power to assist an office-holder permits him to establish and exercise statutory powers in circumstances not falling within their express scope. Case-law[11]There is a great deal of case-law touching on this area, but the issue has not been authoritatively decided in this jurisdiction. Many of the cases address the different question whether the English court has jurisdiction to implement orders made in countries overseas.[12]In Re Dallhold Estates (UK) Pty Ltd [1992] BCC 394, the issue was whether the court had jurisdiction under s. 426 to make an administration order in relation to an overseas company. The company was incorporated under the laws of Western Australia. Australia was a “relevant country or territory” within s. 426 (11). The Federal Court of Australia requested the assistance of the Chancery Division to act in aid of and be auxiliary to the Federal Court of Australia (via an administration order under the Act) to preserve a leasehold interest in England in proceedings on the petition in Australia. In deciding that the English Court did have jurisdiction under s. 426, Chadwick J said (at 398-9), “The two subsections, (4) and (5), read together envisage that assistance will be requested by a foreign court to the English court. If the English court were only to exercise the jurisdiction which it would have anyway in relation to the assistance requested, there would be no need for the provisions of subsec. (5). It appears to me clear that the purpose of sec. 426(5) of the Insolvency Act 1986 is to give to the requested court a jurisdiction that it might not otherwise have in order that it can give the assistance to the requesting court which, by subsec. (4), it is directed to give. The scheme of subsec. (5) appears to me to be this. The first step is to identify the matters specified in the request. Secondly, the domestic court should ask itself what would be the relevant insolvency law applicable by the domestic court to comparable matters falling within its jurisdiction. Thirdly, it should then apply that insolvency law to the matters specified in the request, which, on this hypothesis, are not matters which would otherwise fall within its jurisdiction, or may not be. Also, of course, the domestic court is authorised to apply those provisions of the foreign insolvency law which the foreign court could apply to comparable matters falling within the jurisdiction of the foreign court; but that is not an issue in this case.”[13]Thus although Chadwick J was dealing with a different situation (as to which see the observations of Lord Hoffmann quoted in para 59 below), it would appear from the above quotation that he took the view that absent ss (5) (i.e. if the section was inapplicable according to its terms) the court might not have had jurisdiction to grant assistance.[14]The principal authority in this area, and the one on which the administrator placed particular reliance, is the decision of the Privy Council in Cambridge Gas Transportation Corpn v. Official Committee of Unsecured Creditors of Navigator Holdings plc and Ors [2007] 1 AC 508. In that case Lord Hoffmann confirmed what he described as the “underlying principle of universality”, namely that under the English common law there should be a single insolvency process, both in corporate and personal bankruptcies, whereby the English court will recognise and assist a foreign insolvency representative empowered under his local law.[15]Lord Hoffmann cited a South African case, Re African Farms Limited [1906] TS 37, in which the Transvaal Court recognised an English winding-up and stated that recognition carried with it the active assistance of the court. Such active assistance could include a declaration that the liquidator was entitled to deal with the assets in the Transvaal in the same way as if they were within the jurisdiction of the English court.[16]Lord Hoffmann went on to say (at [22]) “In cases in which there is a statutory authority for providing assistance, the statute specifies what the court may do. For example, section 426(5) of the Insolvency Act 1986 provides that a request from a foreign court shall be authority for an English court to apply ‘the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction.’ At common law…it is doubtful whether the assistance could take the form of applying the provisions of the foreign insolvency law which form no part of the domestic system. But the domestic court must at least be able to provide assistance by doing whatever it could have done in the case of a domestic insolvency… The purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum.”[17]In Cambridge Gas the US bankruptcy court had approved a Chapter 11 plan requiring shares in an Isle of Man company to be vested in certain creditors. The New York Court sent a letter of request to the Manx court for assistance to give effect to the plan. The common law doctrine only was available since s.426 was not duplicated in Manx law. However in that case there was no suggestion that an Isle of Man creditor might be prejudiced by the assistance or that local law would be infringed. It seems to have been implicit in the decision that the domestic court could only grant such assistance as was available in a domestic insolvency. However as a company and its creditors can, under Manx law, enter into a compromise or arrangements achieving the same result as the Chapter 11 plan, the Privy Council held that it could and would exercise the discretion to give comity to the request of the New York Court.[18]In his reliance on Cambridge Gas, Mr Marks QC for the administrator emphasised the breadth of the court’s powers and the importance of the obligation to assist the foreign liquidator in accordance with the principle of universality and international comity.[19]In his judgment in the present case Registrar Jaques, relying on CambridgeGas, said that the order sought by the administrator enabled him to:
“exercise such powers and rights as are conferred upon insolvency practitioners under the Insolvency Act 1986 and any other provisions of the relevant laws of England and Wales. …[to] eliminate the need…to commence parallel insolvency proceedings in this country…[I]t is highly desirable that foreign office holders should be given such assistance by the English court as will enable them to exercise the powers that are open to an English insolvency practitioner…without having to go through the expense, cost and delay of initiating parallel insolvency proceedings here.”
[20]In Al Sabah and another v. Grupo Torras SA [2005] 2 AC 333 the issue of cross-border insolvency jurisdiction came before the Privy Council again. The Board comprised Lord Hoffmann, Lord Scott, Lord Walker, Lord Rodger and Lord Brown. In that case the trustee in bankruptcy of a Bahamian debtor obtained a letter of request from the Bahamian Court addressed to the Cayman Grand Court seeking its aid in setting aside two Cayman trusts which the debtor had established. The Grand Court was asked to provide such assistance under(i) a section of a Cayman island bankruptcy statute,(ii) s. 122 of the Bankruptcy Act 1914 which provided for mutual assistance between bankruptcy courts throughout the UK and the Empire (and thus was broadly similar to s. 426 of the Act although the latter section is in different terms: see generally [38]-[46]) and(iii) the inherent jurisdiction of the Grand Court. The trustee in bankruptcy prayed in aid s. 107 of the Bankruptcy Law of the Cayman Islands which enabled settlements to be set aside by the court if the settlor was made bankrupt within a certain time period and if certain other conditions were satisfied.[21]The Privy Council held(i) that the section of the Cayman bankruptcy law did not apply, but that(ii) s. 122 had not been repealed in its application to the Cayman Islands and did apply, so that there was jurisdiction to authorise the Bahamian trustee to exercise the statutory power even though it might not have been available to him if the trusts had been governed by Bahamian law. Thus the finding in relation to issue(iii) was per curiam only, and in a case which, as it was a decision of the Privy Council, is not itself binding on this court. Nevertheless it is hard to imagine a more persuasive authority. The Board’s views on the issue are contained in [35] of the judgment (which was delivered by Lord Walker on behalf of the full Board) as follows:
“The respondents relied in the alternative…on the inherent jurisdiction of the Grand Court. This point was not much developed in argument and their Lordships can deal with it quite shortly. If the Grand Court had no statutory jurisdiction to act in aid of a foreign bankruptcy it might have had some limited inherent power to do so. But it cannot have had inherent jurisdiction to exercise the extraordinary powers conferred by s. 107 of its Bankruptcy Law in circumstances not falling within the terms of that section. The non-statutory principles on which British courts have recognised foreign bankruptcy jurisdiction are more limited in their scope (see Dicey & Morris, Conflict of Laws, 13th ed (2000), vol 2, pp1181-2, 1186-3) and the inherent jurisdiction of the Grand court cannot be wider.”
[22]Mr Marks QC sought to disapply what is said in this passage by distinguishing the facts of Al Sabah (and in particular matters raised in [7] of the judgment) from those of the present case. In addition, he pointed out that the reference to Dicey & Morris appears to be defective; it is not clear to which passages Lord Walker intended to refer. However, the Board’s view (after “not much developed…argument”) was evidently that there was no inherent jurisdiction (whether under English law or under Cayman law) to grant a party a power to obtain relief under a statute the terms of which did not expressly entitle that party to relief. It was different where (as in Al Sabah but not in the present case) the court had a statutory route into the jurisdiction, as with s. 122 of the Bankruptcy Act 1914 or the similar provisions of s. 426.[23]In Re HIH Casualty and General Insurance Limited, McGrath v. Riddell [2008] UKHL 21, an Australian insurance group had gone into liquidation in Australia and ancillary provisional liquidation in England. The Australian Court issued a letter of request to the High Court pursuant to s. 426, requesting that the provisional liquidators remit the assets under their control to the Australian liquidators. Certain creditors would be treated differently under Australian law priorities; in short, the insurance creditors would be better off than under English law. At first instance David Richards J held that he could not remit since the substantive rules of distribution applicable under English law would not apply. The Court of Appeal held that there was jurisdiction but that as a matter of discretion the request would not be granted because of the disadvantage to be suffered by certain classes of creditors. However, the House of Lords reversed the decision, holding both that the English Court had jurisdiction and that it should exercise the discretion to remit.[24]The speeches in the House of Lords in HIH were divided as to the extent of the jurisdiction. Lord Scott and Lord Neuberger held that the jurisdiction to remit arose solely from the fact that Australia is a relevant country for the purposes of s. 426. Lord Scott said that the court does not have an inherent jurisdiction to remit in circumstances where the distribution was not in accordance with the English statutory scheme. However as Australia was included within s. 426 of the Act its insolvency regime was necessarily acceptable. On the question of discretion he decided that there was no manifest injustice to creditors justifying a refusal. He had given the lead speech in Re Bank of Credit and Commerce International SA(No 10) [1997] Ch 213 but he was able to distinguish that case on the basis that Australia was, but Luxembourg was not, a designated relevant country within s. 426. Lord Neuberger agreed with Lord Scott.[25]Lord Hoffmann’s approach, approved by Lord Walker (who made no reference to what he had said in Al Sabah at [35]), referred to international judicial cooperation, the principle of “modified universalism”, the “golden thread” running through English cross-border insolvency law since the 18th century, enabling the court, if consistent with justice and UK public policy, to achieve the aim of a unitary and universal bankruptcy law. He said that s. 426 simply extended the choice of law which could be applied to achieve this aim. The fifth member of the House, Lord Phillips, would not be drawn on the question whether the court had an inherent jurisdiction to remit in a case to which s. 426 did not apply.[26]As Lewison J observed at first instance in New Cap Reinsurance and Another v. AE Grant and Others [2011] EWHC 677 (Ch) at [32], “Although section 426(4) is couched in mandatory terms, it is common ground that the court retains a discretion, but the discretion is a limited one. The discretion should be exercised in favour of assisting a foreign court unless it would be improper to do so. The scope of the discretion has been considered twice by the court of Appeal in Hughes v. Hannover Re [1997] 1 BCLC 497, and England v. Smith [2000] BPIR 28…The latter case emphasises the mandatory terms in which section 426(4) is drawn; the important public policy of comity between nations; and the weight that must be given to the very fact that a foreign court has asked for assistance, all the more so if the foreign court has itself considered whether a request should be made.”[27]Lewison J went on to consider the effect of HIH. He said at [38] and [39]:
“That leaves the position at common law. Strictly speaking, it is unnecessary to consider this since I hold that I have power under section 426. Nevertheless it is clear from Rubin that in cases where section 426 does not apply, the common law to assist survives. It is not so clear from [HIH] whether the common law power is superseded by or runs in parallel with the statutory power. Lords Hoffmann and Walker said that the powers were parallel. Lords Scott and Neuberger thought that the statutory power succeeded the common [sic] power, and Lord Phillips was, if I may respectfully say so, somewhat gnomic. But in Rubin the Court of Appeal applied the approach of Lords Hoffmann and Walker, so that is the path that I must follow. On the basis that the common law power subsists in parallel with the statutory power, the discretionary considerations that have led me to exercise the statutory power would lead me to exercise the common law power in favour of assisting the Australian court…”
[28]When New Cap went to the Court of Appeal at [2011] BCC 937, [2011] EWCA Civ 971, Lloyd LJ (with whom the other members of the Court, McFarlane LJ and Mummery LJ, agreed) said, at [83 vii)], that it was unnecessary on the facts of that case to consider or decide whether the court’s common law power to assist a foreign liquidator is exercisable where, as in that case, the statutory power was available.[29]The answer to the question of which side of the division between members of the House of Lords in HIH was correct does not strictly solve the present dilemma. HIH was not concerned with the question of whether the court has a common law power to make orders which could otherwise only be made pursuant to statute. This is underlined by the fact that although Lord Walker in HIH was firmly on the side which said that the common law power was available even where s. 426 was also applicable, in Al Sabah he equally firmly stated that the court could not have inherent jurisdiction to assist a foreign bankruptcy through the exercise of powers conferred by a particular section of a Cayman statute in circumstances not falling within the terms of that section.[30]I now turn to the Court of Appeal decision in Rubin. In that case the foreign officeholders brought proceedings in the US bankruptcy court for restitution of moneys and obtained default judgments. Those judgments included the avoidance of transactions at an undervalue under powers which it was accepted were broadly equivalent to those contained in s. 238 and s. 239 of the Act.[31]One of the issues was whether those judgments could be enforced in England. Ward LJ, with whom the other members of the court agreed, relied on the definition of bankruptcy given by Lord Hoffmann in Cambridge Gas at [15], “The important point is that bankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them.”[32]The respondents were unable to rely on the facts that the judgments were in personam or that they had not submitted to the jurisdiction of the foreign court. It was held that bankruptcy proceedings included the mechanisms enabling an office holder to bring actions against third parties for the collective benefit of all creditors. Accordingly the US judgments could be enforced in this court, a result which, (as Ward LJ said, referring back to Lord Hoffmann in HIH) was a desirable development of the common law founded on the principles of modified universalism. Where the relevant foreign proceedings were integral to the scope of insolvency proceedings, the court therefore had jurisdiction to grant recognition followed by enforcement.[33]Ward LJ considered the authorities and a number of passages from textbooks which were also cited to me (in particular, Fletcher’s Law of Insolvency and Goode’s Principles of Corporate Insolvency Law), and concluded at [61] that, “(1) the ordinary rules for enforcing, or more precisely not enforcing, foreign judgments in personam do not apply to bankruptcy proceedings. (2) Bankruptcy proceedings include the mechanisms provided by sections 238 and 239 of the Insolvency Act 1986, and the equivalent provisions in the United States which allow for the office holder/legal representative to bring actions against third parties for the collective benefit of all creditors. These mechanisms are integral to and central to the collective nature of bankruptcy and are not merely incidental procedural matters. (3) I am reinforced in my view that the orders with which we are concerned are part of the bankruptcy proceedings because in ReHIH… para 19 Lord Hoffmann himself said:
“Furthermore the process of collection of assets will include, for example, the use of powers to set aside voidable dispositions, which may differ very considerably from those in the English statutory scheme.” (4) Albeit they have the indicia of judgments in personam, the judgments in the New York court made in the adversary proceedings, are nonetheless judgments in and for the purposes of the collective enforcement regime of the bankruptcy proceedings and as such are governed by the sui generis private international law rules relating to bankruptcy and are not subject to the ordinary private international law rules preventing enforcement of judgments because the defendants were not subject to the jurisdiction of the foreign court. This is a desirable development of the common law founded on the principles of modified universalism. It does not require the court to enforce anything that it could not do, mutatis mutandis, in a domestic context… …There remains the question of enforcement of the judgments against the defendants. I accept the general private international law that bankruptcy, whether personal or corporate, should be unitary and universal. There should be a unitary bankruptcy proceeding in the court of the bankrupt’s domicile which receives worldwide recognition and it should apply universally to all the bankrupt’s assets. That is the law stated in the Cambridge Gas case…and the HIH Insurance case… and I would follow it. Add to that the further principle that recognition carries with it the active assistance of the court which should include assistance by doing whatever this court could have done in the case of domestic insolvency. As Lord Hoffmann said in the Cambridge Gas case, at para 22: “The purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum.”
In my judgment that assistance extends to enforcing against the defendants the orders made by the New York court. Applying the common law, I would therefore allow the appeal.”[34]I note however that Ward LJ placed great importance on the similarity between the relevant US law and the relevant provisions of the Act. He said at [60], “The striking similarities conceded by the defendants between sections 238 and 239 of the Insolvency Act 1986 and sections 547 and 548 of the American Code, and thus between these aspects of our law and the equivalent parts of the American law, justify a harmonised interpretation.”[35]It seems to me that I cannot accede to the distinction put forward by Mr Wolfson QC on behalf of the appellants between, on the one hand, the enforcement, and on the other, the establishment, of rights since Rubin cites, explains and confirms Lord Hoffmann’s statements in Cambridge Gas as authority for the proposition that bankruptcy proceedings, personal or corporate, are necessarily collective proceedings for the enforcement of rights even when those proceedings include proceedings to set aside antecedent transactions.[36]However, Rubin does not directly deal with the issue I have to decide as it was concerned with the enforcement of a foreign judgment obtained in the country of the bankrupt’s domicile rather than the use by a foreign administrator of provisions of the Act which(a) expressly do not apply to the jurisdiction from which he derives his authority and(b) have no direct equivalent in that jurisdiction.[37]I should acknowledge that I was taken to and have considered very many authorities illuminating this area of the law, such as Re Stanford International Bank [2010] EWCA Civ 137, [2011] Ch 33. However there is only one case of which I have been made aware which purports directly to address the present issue. That is the decision at first instance in Re Kingate (in liquidation) 2010: No 262 in the Commercial Court of the Supreme Court of Bermuda. The case went to appeal but was decided on a different point and the Court of Appeal of Bermuda noted that it expressed no view on either aspect of the first instance judgment.[38]Kingate arose out of investments placed with Bernard L Madoff Securities Limited LLC in New York. In the action the joint liquidators of the applicant companies, hedge funds in liquidation in the British Virgin Islands managed in Bermuda, were trying to ascertain whether the companies’ auditors, PwC Bermuda, might be partly responsible for losses sustained by the companies’ creditors. The joint liquidators applied to the High Court of Bermuda, pursuant to a letter of request from the BVI court, for recognition at common law of their status and for common law assistance by way of a discovery order. The application was to my mind an odd one as it appears to have proceeded on a hypothetical basis, namely in case a previous decision was reversed on appeal. In any event Kawaley J seems to have changed his mind about the scope of his powers in a later case, Re Founding Partners Global Fund Ltd (No 2)[2011] SC (Bda) 19 Com. However, his reasoning in Kingate was as follows.[39]As Bermuda did not have the equivalent of s. 426 or of UNCITRAL (2006 Rules), the question was whether the general discretionary common law duty to assist foreign insolvency proceedings embraced the power to make discovery orders applying either(i) the principles embodied in statutory provisions which were for jurisdictional reasons inapplicable to the applicant companies or(ii) other jurisdictional powers. S. 195 of the Bermudian Companies Act 1981 gave the court power to order discovery but the effect of s. 4 was that it only applied to companies registered under that Act. In his judgment Kawaley J considered Cambridge Gas, Al Sabah and HIH but not Rubin.[40]Under the heading “does the Court possess the common law power to make an order in terms of section 195 of the Companies Act 1981 in favour of an overseas company to which the statute does not apply?” Kawaley J said at [18]-[20], “Mr Hill for the JLs was unable to formulate any coherent juristic basis for contending that, in circumstances in which the local insolvency statute does not apply to the overseas company seeking assistance pursuant to due recognition of its winding-up abroad, this Court has the common law power to make orders which could otherwise only be made pursuant to statute. Nor was there any convincing basis for contending that the effect of recognition of the foreign liquidators was to “domesticate” their appointment and afford them the same legal rights as would be enjoyed by liquidators to whom our statutory regime applies. As Mr Riihiluoma rightly submitted, all that common law recognition achieves is to enable the recognised foreign liquidator to act within this jurisdiction on behalf of the company (in place of the directors) and to seek whatever assistance this Court can properly afford having regard to the terms and effect of local law as it applies to the foreign company. It is ultimately obvious that assistance can only be given by way of the deployment of common law powers forming part of the general law of Bermuda or statutory powers which apply to the foreign insolvent company which is seeking specific relief…”[41]Kawaley J decided that a statutory power could not be deployed in aid of foreign liquidation proceedings unless the company could demonstrate that the relevant statutory provisions applied to it. He declined to follow the decision of Deemster Doyle in the Isle of Man in Re Impex Services Worldwide Ltd [2004] BPIR 564 and held that the common law power did not enable him to make pre-litigation discovery orders.[42]Of course the decision in Kingate is not binding on me and Mr Marks QC invited me to ignore it on the basis that it is, as Kawaley J himself seems to have later thought, simply wrong. Litigation in Germany[43]I heard expert evidence from Professor Stürner (for the appellants) and Professor Pfeiffer (for the administrator) on German law. There was also other expert evidence of German law but it was agreed that I should consider only those two experts.[44]The evidence was however deprived of its point in that by the time skeleton arguments were exchanged and the matter came to court it was common ground between the parties that the expert evidence was of limited if any relevance. Each side seemed to rely on it only in case the other did. It was accepted on both sides that the existence and possible effect of proceedings in the home jurisdiction did not represent a bar to recognition and assistance in England. The English court does not have to satisfy itself that the foreign administrator cannot obtain relief at home before jurisdiction can be established.[45]The administrator says that it is not open to him to bring proceedings in Germany against the appellants; the appellants say that it is. Both sides now say that this question is a red herring but as I heard evidence on it I propose to make some brief observations about it.[46]It is common ground that neither the Brussels Regulation (Council Regulation (EC) No 44/2001 of 22 December 2000) nor the European Insolvency Regulation (Council Regulation (EC) No 1346/2000 of 29 May 2000) applies. The entitlement of the administrator to bring proceedings is thus a question of German domestic law.[47]The administrator’s expert said that under German law clawback proceedings were not available against persons resident and domiciled outside Germany. However it then became clear that the appellants refer principally to claims for unjust enrichment rather than insolvency clawback claims as such. The administrator maintains that all actions claiming unjust enrichment would be time-barred.[48]Much of the argument centred on s. 23 and s. 31 of the Zivilprozessordnung (German Civil Procedure Code) (“ZPO”).[49]The general rule is that jurisdiction is established at the place of residence of the defendant: s. 12 and 13 ZPO. In the absence of a court having exclusive jurisdiction, however, the claimant may select any court having jurisdiction under the other provisions of ZPO. S 23 gives the German court jurisdiction against non-resident defendants where the defendant has property in Germany (which includes claims situated in Germany) and there is some other connection with Germany.[50]Professor Pfeiffer denied that s.23 is capable of application. He invoked the rule that under German law a claimant cannot rely upon a potential claim of the defendant disputed by the claimant. In OLG Saarbrucken (13th October 1999) it was held that a claimant cannot sue for non-delivery of goods and base jurisdiction on the defendant’s potential claim for the price. It is said by analogy that as the administrator denies that the appellants are entitled to counterclaim against the company for restitution of the capital that they invested, even if the avoidance action is successful, the administrator cannot rely on s. 23 ZPO. The appellants riposte that there is no particularisation of the denial and it was the administrator’s choice to shut himself out of the German court by issuing the bare denial, so that the Saarbrucken case is inapplicable. The administrator alleges that claims in unjust enrichment are in any event time-barred. In any event all that there is to found jurisdiction is an inchoate or contingent claim dependent upon the administrator succeeding in the main action.[51]As to s. 31 ZPO the issue was whether that section (the special jurisdiction for investment management relationships) arises out of an asset management contract and is capable of application to this type of insolvency claim at all. Professor Stürner relied in support on a case in the German Senior regional Appeal Court. I was provided with a copy of one case in the German original without a translation into English and accordingly found Professor Pfeiffer’s response difficult to follow.[52]Professor Stürner said that the German court would assume jurisdiction if this court did not in order to provide access to justice to the administrator even, apparently, if the statute did not precisely fit the case. He maintained that this was a constitutional right enabling claimants to bring actions in Germany against non-residents. I found this evidence unconvincing. If there is no relief in Germany and no relief in England so be it; the administrator may “find himself…falling between two stools”, as in Galbraith v. Grimshaw [1910] AC 508, 510.[53]The following points emerged from the expert evidence. First, there is doubt as to the jurisdiction of the German court. Secondly, if I had to decide between the experts I would prefer the evidence of Professor Pfeiffer.[54]However, I accept there is something to be said for the proposition that Germany, the place of the insolvency proceedings, is the country which should have primary jurisdiction over the claims since this prevents shopping for a forum which provides the most favourable domestic law provisions: compare C-339/07 Seagon v. Deko Marty [2009] 1-767 at [22]-[24]. Conclusions[55]One view is that the principle of universalism requires that the English court should give active assistance to a foreign administrator and that by saying such assistance includes (as Ward LJ did in Rubin) “assistance by doing whatever this court could have done in the case of domestic insolvency”, the remedies afforded by the Act may be deployed. That was the view taken by Registrar Jaques in the passage I have quoted from his judgment.[56]Those who would benefit from s. 423 relief include the appellants in their capacity as creditors of the company. The purpose of the proceedings is to restore the estate and allow the administrator to enforce his rights for the collective benefit of all creditors: see [15] and [16] of Lord Hoffmann’s speech in Cambridge Gas and the ‘signposts’ from para 151 of UNCITRAL referred to by Ward LJ in Rubin at [52].[57]The powers contained in s. 423 can be characterised as part of the collective enforcement regime of the bankruptcy proceedings. Ward LJ in Rubin (citing Lord Hoffmann in Cambridge Gas at [15] and in HIH at [19]) emphasised that bankruptcy proceedings comprised the process of collection of assets which included the use of powers to set aside voidable dispositions. He approved Professor Fletcher’s statement:
“It is therefore seen as an essential aspect of the process of liquidation that antecedent transactions whose consequences have been detrimental to the collective interest of the creditors must be amenable to adjustment or avoidance.”
[58]An important question is whether s. 426 of the Act does or does not, in a relevant respect, enlarge the jurisdiction which would otherwise apply. If it does not, it is hard to see how it can simply be sidelined by deployment of the common law power. If it does, then it does not exclude use of the common law power to allow a foreign administrator to enforce his rights for the benefit of the company’s creditors as a whole.[59]Mr Marks QC when asked by the court why, if the common law power was so extensive, one needed s. 426 at all, responded merely that s.426 conferred “a variety of other remedies”. I therefore turn to what Lord Hoffmann said in HIH at [28], “Section 426…extends the jurisdiction of the English court and the choice of law which it can make in the exercise of its own jurisdiction, whether original or extended. For example, section 426 can confer jurisdiction to make an administration order in respect of a foreign company when that jurisdiction is ordinarily confined to UK companies: In Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621. Or it may enable the court to apply a foreign law when, as in In Re Suidair International Airways Ltd[1961] Ch 165, it would otherwise be obliged to apply only English law, as in England v. Smith [2001] Ch 419 (Australian law applied to examination of accountant connected with insolvent Australian company).”[60]Mr Wolfson QC is right in saying that the law so far has only either(i) recognised the foreign office-holder’s ability to maintain actions to enforce pre-existing rights (see e.g. Copin v. Adamson 1 Ex D 17, Re Davidson’s Settlement Trusts (1873) LR 15 Eq 383 and Bank of Credit & Commerce Hong Kong Ltd v. Sonali Bank [1994] CLC 1171, Alivon v. Furnival (1834) 1 Cr M & R 27 and Macauley v. Guaranty Trust Co of New York [1927] 44 TLR 99) or(ii) (as in Cambridge Gas and Rubin) recognised and enforced rights deriving from a foreign judgment. Strictly speaking, in Cambridge Gas all the court did was enforce a plan confirmed by a foreign bankruptcy court requiring shares in a holding company to be transferred to the creditors’ representative. Again, strictly speaking, all the Court in Rubin did was enforce a judgment given by a foreign court setting aside transactions at an undervalue pursuant to powers similar to those available under English law.[61]Neither case is authority for the proposition that the Court can, pursuant to common law powers, treat Germany (which has not been designated as such by the Secretary of State) as if it were a relevant country or territory under s. 426(11).[62]However it does not necessarily follow that deployment of the common law powers has this effect. Reading together Cambridge Gas, HIH, New Cap and Rubin, I derive the following propositions:(i) there is power to use the common law to recognise and assist an administrator appointed overseas,(ii) assistance includes doing whatever the English court could have done in the case of a domestic insolvency,(iii) bankruptcy proceedings are collective proceedings for the enforcement (not establishment) of rights for the benefit of all creditors, even when those proceedings include proceedings to set aside antecedent transactions,(iv) proceedings to set aside antecedent transactions are central to the purpose of the insolvency.[63]I am however faced with Lord Walker’s remarks at [35] of Al Sabah, suggesting that to deploy the common law to allow (for present purposes) a foreign administrator to sue under s. 423 could be said (to use Lord Neuberger’s words in HIH at [76]), “to involve the inherent jurisdiction almost thwarting the statutory purpose.”[64]In the absence of a determinative decision explaining the apparent conflict between the statement in [35] of Al Sabah and the broad brush approach of Cambridge Gas and HIH, it seems to me that I should take the later and more considered views expressed by Lord Hoffmann and approved by Lord Walker in HIH. If there is a conflict in a case of this sort between the application of black letter law and a broad commercial support of international comity there can be only one answer. I therefore agree with the learned Registrar below that the Court had jurisdiction to grant recognition and assistance.[65]If I am right and the Court has jurisdiction to authorise the administrator to use s. 423 it seems to me that I ought to do so as a matter of discretion. The appellants make much of the fact that the administrator’s application under that section seeks not only repayment of profits but also of the initial amount deposited and that this is different from the position taken in other jurisdictions. I follow what was said in HIH to the effect that the English court should cooperate with the country of the principal liquidation, “to ensure that all of the company’s assets are distributed under a single system of distribution.”[66]It would in my judgment be perverse to refuse relief on discretionary grounds in circumstances where recoveries have been made in more than 20 other major jurisdictions of proceeds of an alleged fraud in the context of a formal insolvency. There is no prejudice to creditors resident in England. The alleged unfairness in pursuing the principal amount invested and not merely the profit element can be argued if necessary at the hearing of the application for substantive relief where the court has a very wide discretion: see s. 425 of the Act.[67]I therefore dismiss the appeal.[68]I am handing down this judgment in the absence of the parties and their legal representatives and I adjourn all consequential matters to a further hearing which has been fixed for 23rd February 2012.

Cited in 1 later judgment