Kemsley v Barclays Bank Plc & Ors [2013] EWHC 1274 (Ch)

[2013] EWHC 1274 (Ch)Case No 306 of 2012IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONIN BANKRUPTCYVenue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15/05/2013
Before
MR JUSTICE ROTH
Between
PAUL ZEITAL KEMSLEYApplicant(1) BARCLAYS BANK PLCRespondents(2) MARK FRYRespondent(3) KIRSTIE JANE PROVANRespondent
SIMON MORTIMORE QC (instructed by Lawrence Stephens) for ApplicantROBIN DICKER QC and RICHARD FISHER (instructed by Clifford Chance LLP) for 1 st RespondentHearing Hearing dates: 8 and 11 March 2013
Judgment
[1]This is an application by Mr Kemsley to restrain two sets of proceedings brought by the 1st Respondent (“Barclays”) in the United States. At the conclusion of the hearing, I announced my decision to refuse the application, since I was told that a hearing was due to take place in the New York court in one of those two actions the following day. These are my full reasons for that decision.

THE FACTS

[2]At least until late 2008, Mr Kemsley was a very wealthy individual. This explains the fact that on 25 June 2008, Barclays granted him a personal loan of £5 million on an unsecured basis. The loan was repayable after a year but the loan period was subsequently extended.[3]In 2009, Mr Kemsley’s business in England collapsed when the Rock group of companies went into administration. As a result, he experienced financial difficulties. Already on 23 October 2008, Spreadex Ltd (“Spreadex”) had started proceedings against him on a claimed debt of £6.5 million. On 21 December 2012, after it had obtained a judgment against him, Mr Kemsley reached a settlement with Spreadex but he failed to pay the instalment due in December 2011 and on 17 February 2012 Spreadex served a statutory demand for £6.8 million.[4]Mr Kemsley was also unable to keep up repayment to Barclays of instalments under the extended loan. On 24 February 2012, Barclays demanded payment under the loan agreement of £5.1 million.[5]Mr Kemsley is a British citizen and had lived until 2009 in England, most recently in rented premises in Radlett. Following the collapse of his business here, he moved in June 2009 with his wife and family to the house in Boca Raton, Florida (“the Florida Property”) which they had purchased in 2007. They moved to New York City in about May 2010 but subsequently Mr and Mrs Kemsley became estranged and Mrs Kemsley moved back with their children to England in about June 2012. Mr Kemsley has remained in the United States.[6]On 15 November 2011, Her Majesty’s Revenue and Customs (“HMRC”) presented a bankruptcy petition based on a debt of £3 million.[7]On 13 January 2012, Mr Kemsley presented his own bankruptcy petition to the High Court. His petition was based, as set out in his witness statement of 16 January 2012, on his physical presence in England on the date of presentation, within the terms of s 265(1)(b) of the Insolvency Act 1986 (the “IA”), and on his having had a place of residence in England within three years of presentation: IA s 265(1)(c).[8]On 31 January 2012, the court adjourned both HMRC’s and Mr Kemsley’s petitions to 26 March 2012. On that date, Mr Kemsley was adjudicated bankrupt on his own petition. The 2nd and 3rd Respondents (“the Trustees”) were appointed his trustees.[9]On 1 March 2012, shortly before Mr Kemsley became bankrupt, Barclays commenced proceedings against him under the loan agreement in the Supreme Court of the State of New York (respectively, “the NY Proceedings” and “the NY Court”). The NY Proceedings were served on him shortly afterwards. On 10 July 2012, Barclays applied for summary judgment in the NY Proceedings.[10]On 21 August 2012, the 2nd Respondent, Mr Fry, as joint trustee in bankruptcy applied in the US Bankruptcy Court for the Southern District of New York under Chapter 15 of the US Bankruptcy Code for recognition of the English bankruptcy as a foreign main proceeding. Chapter 15 is the provision implementing the UNCITRAL Model Law on insolvency. The Trustee’s petition in the US Bankruptcy Court estimated Mr Kemsley’s debts at between US$10-50 million, and stated the Trustee’s belief that the majority of Mr Kemsley’s primary assets and creditors are in England. Barclays filed objections to the Trustee’s application.[11]On 14 November 2012, the NY Court adjourned the application for summary judgment in the NY Proceedings to await the outcome of the application for recognition under Chapter 15 in the US Bankruptcy Court. The trial of that application was heard in the US Bankruptcy Court on 11 December 2012 and 29 January 2013, during the course of which Mr Kemsley was cross-examined. Judgment was reserved and had not been given as at the time that the present application was argued.[12]In the meantime, on 26 November 2012, Barclays commenced proceedings in the Florida State Court against Mr and Mrs Kemsley in relation to the Florida Property (“the Florida Proceedings”). In the Florida Proceedings, Barclays seeks to set aside certain transfers of the Florida Property as, in effect, fraudulent transfers designed to defeat the interests of creditors. I was told that those proceedings were commenced just before the limitation period under Florida law for such claims would have expired.[13]It was common ground that if the US Bankruptcy Court granted the Trustee’s petition for recognition under Chapter 15, then the NY Court would stay the NY Proceedings. It appears that if the NY Proceedings were stayed, Barclays may not effectively be able to pursue the Florida Proceedings that are founded on the same debt.

THE PRESENT APPLICATION

[14]Mr Kemsley seeks to restrain Barclays from pursuing both the NY Proceedings and the Florida Proceedings against him. His application was put forward on two grounds: i) that Barclays would obtain as a creditor an advantage for itself over the equitable distribution among creditors that is fundamental to the bankruptcy regime; ii) that Barclays’ actions would avoid the operation of the British bankruptcy regime whereby Mr Kemsley will be released from his bankruptcy debts on his discharge from bankruptcy. Unless the Trustees apply to extend the period, that would expire on 26 March 2013. Although the Trustees would of course still be able to recover the debt against the estate in bankruptcy, any property Mr Kemsley might acquire after discharge will be free from Barclays’ claims. However, if Barclays is able to obtain a judgment in the NY Proceedings, that judgment would be enforceable against Mr Kemsley under the New York Civil Practice Law, section 211(b), for 20 years in the United States and other jurisdictions that would recognise it.[15]The application had been adjourned in the hope that judgment might be given in the US Bankruptcy Court. However, it was now urgent since if Mr Kemsley was discharged from his bankruptcy on 26 March 2013 and his debt to Barclays released, Barclays may then be unable to obtain judgment in the NY Proceedings. Presumably for that reason, the hearing of its motion for summary judgment was due to be heard in the NY Court on 12 March.[16]The first of the above two grounds was effectively resolved in the course of the hearing by an undertaking offered by Barclays that it would transfer to the Trustees any assets recovered in the United States that form part of the estate in bankruptcy, subject to deduction of its reasonable costs and expenses. Accordingly, the thrust of Mr Kemsley’s application was directed at the second ground. As Mr Mortimore QC put it on behalf of Mr Kemsley:
“this is, in a sense, a one-point case,… based on the fact that a bankrupt, in this case, needs the protection of an injunction to preserve the rehabilitation and release of debts which he is allowed under the bankruptcy regime of this jurisdiction.”
[17]It is appropriate to record the position of the Trustees, who were served with the application but did not appear. Mr Leese, of Barclays’ solicitors, said in his witness statement of 3 December 2012 that Barclays had been told by the Trustees that the pursuit by Barclays of the NY Proceedings against Mr Kemsley which pre-dated the bankruptcy was not objectionable, and that Barclays remained in discussion with the Trustees regarding those proceedings. However, in his declaration filed on 7 December 2012 in the US Bankruptcy Court in support of his petition under Chapter 15, Mr Fry as Trustee stated that:
“Barclays’ litigation against Mr Kemsley in the US seeks to circumvent the UK statutory regime of debtor and creditor rights.”
And in the hearing in the US Bankruptcy Court on 29 January 2013, counsel for the Trustee told the court:
“The trustee believes that Barclays is spending a lot of money on pointless litigation in [sic] the Florida property.”
Mr Kemsley has supported the Trustee’s Chapter 15 petition. In that regard, I note that in his remarks at the conclusion of that hearing, the Hon

Judge Peck observed:

“[Mr Kemsley’s] support through friends of the Trustee’s litigation effort frankly casts a net of suspicion over the entire process of seeking recognition and that’s a factor that I need to take into consideration.”
[18]Spreadex has stated through its solicitors that it supports Barclays’ opposition to the present application.

THE LAW

(a) The British bankruptcy regime

[19]Under the statutory regime, Mr Kemsley’s estate vested in the Trustees, whose function it is to get in, realise and distribute it: IA, ss. 305-306. His bankruptcy estate comprises all property belonging to or vested in him (subject to some exceptions) at the start of his bankruptcy, i.e. 26 March 2012, whether within or outside the jurisdiction: IA, s. 283. The bankruptcy estate may be supplemented if(i) there are successful claims to adjust prior transactions: IA, ss. 339-344; or(ii) the Trustees claim for the estate any property which has been acquired by, or has devolved on, Mr Kemsley since the commencement of his bankruptcy and before his discharge: IA s 307. The IA contains extensive provisions for the investigation of the bankrupt’s dealings and property.[20]Unless extended on the application of the Trustees or the official receiver, Mr Kemsley would be discharged from bankruptcy at the end of a period of a year, i.e. on 26 March 2013: IA s. 279. Such discharge has the consequences that: i) he will be released from all bankruptcy debts: IA s. 281. This includes his debt to Barclays, but does not affect Barclays’ right to prove for its debt in the bankruptcy; ii) he will have the right to enjoy all property acquired by him after discharge (“after-discharge property”) free from the claims of creditors with bankruptcy debts: IA s. 307(2)(c).[21]IA s. 285 provides, insofar as material: “Restriction on proceedings and remedies(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall— (a) have any remedy against the property or person of the bankrupt in respect of that debt, or (b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose. This is subject to section 346 (enforcement procedures) and 347 (limited right to distress). … (6) References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate.” (a) have any remedy against the property or person of the bankrupt in respect of that debt, or (b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.[22]Accordingly, if Barclays as a creditor had commenced the proceedings on its debt not in New York but in England, since they were commenced after the date of presentation of the bankruptcy petition but before the date of the order, s. 285(1) would apply and the action would probably be stayed. Further, Barclays would not be permitted to obtain any remedy against Mr Kemsley’s property: s. 285(3)(a). However, it is common ground that s. 285(1) and (3) do not apply to foreign proceedings and enforcement measures. Nonetheless, the court has jurisdiction to grant an injunction restraining the pursuit of foreign proceedings under s. 37 of the Senior Courts Act 1981.

(b) Anti-suit injunctions in insolvency proceedings

[23]It is also common ground between the parties that the jurisdiction to grant an anti-suit injunction is one to be exercised with caution: see Société Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] AC 871 at 892E. Delivering the judgment of the Privy Council, Lord Goff there referred to:
“One such category of case arises where an estate is being administered in this country, or a petition in bankruptcy has been presented in this country, or winding up proceedings have been commenced here, and an injunction is granted to restrain a person from seeking, by foreign proceedings, to obtain the sole benefit of certain foreign assets. In such cases, it may be said that the purpose of the injunction is to protect the jurisdiction of the English court.”
[24]Aerospatiale concerned a claim by the deceased’s estate against a French helicopter manufacturer arising from his death in a helicopter crash in Brunei. The claimant brought proceedings in the courts of both Brunei and Texas and the defendant applied in Brunei for an injunction to restrain pursuit of the Texas proceedings. Lord Goff stated (at 896):
“In the opinion of their Lordships, in a case such as the present where a remedy for a particular wrong is available both in the English (or, as here, the Brunei) court and in a foreign court, the English or Brunei court will, generally speaking, only restrain the plaintiff from pursuing proceedings in the foreign court if such pursuit would be vexatious or oppressive. This presupposes that, as a general rule, the English or Brunei court must conclude that it provides the natural forum for the trial of the action; and further, since the court is concernedwith the ends of justice, that account must be taken not only of injustice to the defendant if the plaintiff is allowed to pursue the foreign proceedings, but also of injustice to the plaintiff if he is not allowed to do so. So the court will not grant an injunction if, by doing so, it will deprive the plaintiff of advantages in the foreign forum of which it would be unjust to deprive him.”
And further (at 899E-F):
“The mere fact that the courts of Brunei provide the natural forum for the action is, for reasons already given, not enough of itself to justify the grant of an injunction. An injunction will only be granted to prevent injustice, and, in the context of a case such as the present, that means that the Texas proceedings must be shown in the circumstances to be vexatious or oppressive.”
[25]Further, in Turner v Grovit [2001] UKHL 65, [2002] 1 WLR 107, Lord Hobhouse (with whose speech the other members of the House of Lords agreed) said (at [24]):
“The power to make the order is dependent upon there being wrongful conduct of the party to be restrained …”
[26]The application of the jurisdiction to proceedings brought by creditors is summarised as follows in Dicey, Morris & Collins: The Conflict of Laws (15th edn, 2012) at para 31-039:
“The courts will, in certain circumstances, restrain a creditor from taking proceedings abroad to recover a debt due from the bankrupt, in order to maintain an equal distribution of the assets among creditors generally. They will grant an injunction to restrain a creditor resident in England from suing abroad; but they will not restrain a creditor resident abroad from suing abroad, unless he had claimed to prove in the English bankruptcy. In all the reported cases, the creditor restrained was either resident in England or had proved in the English bankruptcy.”
[27]There are several 19th century cases where such injunctions have been granted, some of them cited in the notes to that passage in Dicey. In Re Distin (1871) 24 LT 197, the court enjoined English creditors from pursuing actions in the court in Antwerp on debts incurred in England against an English debtor who had gone to live in Antwerp, after a receiver had been appointed by the English court. In Re Tait (1872) LR 13 Eq 75, the court granted an injunction to restrain a creditor living in Ireland, whose claim had been rejected in the English bankruptcy, from pursuing an action on the debt in the Irish courts. The reasoning of Bacon CJ in his short judgment is not very clear but in In re Chapman (1873) LR 15 Eq 75, the same judge explained his earlier judgment as turning on the fact that the proof of debt had been rejected in the English bankruptcy. In the latter case, Bacon CJ refused to restrain American creditors of the bankrupt from pursuing actions in the New York court commenced shortly before the filing of the petition for the appointment of a receiver in England. The chief judge observed that:
“… the power of the injunction is not to interfere with any rights of the creditors, but only to protect the property of the bankrupt.”
[28]I was referred also by Mr Mortimore QC to In re International Pulp and Paper Co (1876) 3 ChD 594, where the court granted an injunction to restrain a creditor in Ireland of an English company in liquidation from pursuing an action in the Irish court regarding a transaction concerning the company’s property in Ireland. But of course at that time, Ireland was a part of the United Kingdom, and the case concerned the application of the provisions for a stay of proceedings in s. 87 of the Companies Act 1862. Hence the reasoning of Jessel MR at 598:
“What is the object of winding up? It is to distribute the assets of the company rateably amongst its creditors, and enforce contributions against its shareholders or contributories, and make them pay what they are liable to pay with a view to liquidating the affairs of the company. That is the object of the [Companies] Act. How is that object effected? By stopping all actions or suits brought against the company when the winding-up is commenced, so as to compel the creditors to come and share rateably. It would be a very strange result, therefore, if the Legislature, contemplating companies formed to carry on business in any part of the United Kingdom, or in the whole of the United Kingdom, should allow creditors in one part of the United Kingdom to go on with their actions, and not in another part, it being entirely against the spirit and meaning of the Act.”
[29]Of greater relevance, in my view, are the more modern authorities. Barclays Bank plc v Homan [1993] BCLC 680 concerned the claim for an anti-suit injunction to restrain the administrators of one of the Maxwell group companies from challenging in the US courts a payment to Barclays as a preference under US bankruptcy legislation. At first instance, Hoffmann J noted the shift in the attitude of the English courts to anti-suit injunctions concerning foreign jurisdictions since the nineteenth century, when such injunctions were seen by the old Court of Chancery as analogous to the injunctions granted by the court of equity to restrain proceedings in an English common law court.

The judge said (at 687):

“Today the normal assumption is that an English court has no superiority over a foreign court in deciding what justice between the parties requires and in particular, that both comity and common sense suggest that the foreign judge is usually the best person to decide whether in his own court he should accept or decline jurisdiction, stay proceedings or allow them to continue. The principle, as Lord Scarman said in British Airways Board v Laker Airways Ltd [1984] 3 All ER 39 at 57, [1985] AC 58 at 95, is that: ‘[The] equitable right not to be sued abroad arises only if the inequity is such that the English court must intervene to prevent injustice.’ [My emphasis.] In other words, there must be a good reason why the decision to stop the foreign proceedings should be made here rather than there. Although the injustice which can justify an anti-suit injunction must inevitably be judged according to English notions of justice, it will usually be assumed that a similar quality of justice is available in the foreign court. So the fact that the proceedings would, if brought in England, be struck out as vexatious or oppressive in the domestic sense, will not ordinarily in itself justify the grant of an injunction to restrain their prosecution in a foreign court. The defendant will be left to avail himself of the foreign procedure for dealing with vexation or oppression: Midland Bank plc v Laker Airways Ltd [1986] 1 All ER 526 at 534, [1986] QB 689 at 700, per Lawton LJ. It is the exceptional cases in which justice requires the English court to intervene which cannot be categorised or restricted. But a theme common to certain recent decisions is that the foreign court is, judged by its own jurisprudence, likely to assert a jurisdiction so wide either as to persons or subject matter that to English notions it appears contrary to accepted principles of international law.”
And after referring in detail to Aerospatiale, Hoffmann J summarised the position as follows (at 691): “In other words, the normal assumption is that the foreign judge is the best person to decide whether an action in his own court should proceed. Comity requires a policy of non-intervention not only for the same reason that appellate courts are reluctant to interfere with the exercise of a discretion, namely that in the weighing of the various factors, different judges may legitimately arrive at different answers. It is also required because the foreign court is entitled, without thereby necessarily occasioning a breach of international law or manifest injustice, to give effect to the policies of its own legislation.” ‘[The] equitable right not to be sued abroad arises only if the inequity is such that the English court must intervene to prevent injustice.’ [My emphasis.][30]The Court of Appeal dismissed the appeal against Hoffmann J’s refusal to grant an injunction and in effect approved his reasoning. And Hoffmann J’s analysis was expressly approved in Mitchell v Carter [1997] 1 BCLC 673, in the context of an application for an anti-suit injunction to stop a creditor from bringing or continuing a foreign execution process. Millett LJ (with whom Leggatt LJ agreed) said (at 687):
“There must be a good reason why the decision to stop foreign proceedings should be made here rather than there. The normal assumption is that the foreign judge is the person best qualified to decide if the proceedings in his court should be allowed to continue. Comity demands a policy of non-intervention.”
[31]Of particular significance is the decision of the Court of Appeal in Bloom v Harms Offshore GmbH & Co [2009] EWCA Civ 632, [2010] Ch 187. Two German creditors of an English company which had entered administration pursuant to an order of the English court started proceedings in the US District Court for sums allegedly due from the company and obtained ex parte maritime attachment orders under its admiralty jurisdiction against the company’s tangible and intangible assets. The creditors had not informed the English administrators that they had commenced the US proceedings or that they had obtained and were seeking to enforce the attachment orders, and did not serve those orders (obtained in late January) on the administrators until 24 March. As a result, unaware of the attachments, the administrators on 19 March paid over US$3 million to a post-administration supplier to the company, which money went to the supplier’s account in a New York bank where it became subject to the attachment.[32]The administrators applied to the US Bankruptcy Court to recognise the administration order under Chapter 15 of the US Bankruptcy Code and vacate the attachments, but they also sought injunctions in the English court. The High Court granted an injunction ordering the creditor companies to use their best endeavours to procure release of the attachments and also restraining them from taking any steps in the substantive proceedings seeking judgment on their monetary claims. On the creditors’ appeal, the Court of Appeal varied the order so as to limit it to cover release from attachment of moneys paid by the administrators in respect of post-administration liabilities and where such payments were made through New York before 25 March, i.e. the date when the administrators were on notice of the District Court’s orders, but otherwise dismissed the appeal.[33]Giving the lead judgment, Stanley Burnton LJ (with whom Ward LJ agreed) said, at [27]:
“The court should exercise its powers so as to enable theadministrators to exercise their statutory functions and to fulfil their statutory duties, so far as necessary in any particular case. The comity owed by the courts of different jurisdictions to each other will normally make it inappropriate for the court to grant injunctive relief affecting procedures in a court of foreign jurisdiction. In this particular case, this court recognises that the bankruptcy and district courts are experienced in commercial and insolvency matters. None the less, the conduct of the creditor against whom an injunction is sought, and the circumstances of the attachment of the property of the company, may justify the grant of an injunction despite the strong presumption that this court will not interfere with the proceedings of a foreign court. In particular, if the conduct of the creditor can be castigated as oppressive or vexatious … or otherwise unfair or improper, this court can and should grant relief in order to protect the performance by administrators of their functions and duties, and thus the creditors of the company, pursuant to orders of the court.”
[34]Stanley Burnton LJ highlighted the various factors that he regarded as relevant in that case. These included the facts that the company was English and had its place of business in England and that neither the company nor the creditors carried on business in the United States. The company was in administration under the orders of the English Companies Court. The creditors had not informed the US District Court when applying for the attachments of the fact that the company was in administration and had given a very misleading picture to the US court. The attachments did not fasten on any pre-administration property of the company in New York: their success therefore depended on property coming into the US court’s jurisdiction during the administration. This was a case of officers of the court seeking to secure the best outcome for the company’s creditors: the debtor was not seeking to evade its liabilities to these particular creditors but they nonetheless had not informed the administrators of the attachments they had obtained until after they had succeeded in attaching sufficient funds. And they knew that the administrators proposed to carry on the company’s business and thus would be making payments to suppliers’ bank accounts which might be in New York or involve dollar payments cleared through New York. The creditors “thus established a trap for the administrators. The creditor companies’ conduct was unconscionable.” And finally, the funds subject to the attachment were transmitted to New York to pay for post-administration services contracted for pursuant to an order of the court, and the attachments therefore interfered with the performance by the administrators of their duties.[35]It was in the light of all these factors that Stanley Burnton LJ concluded (at [29]) that:
“the conduct of the creditor companies and the circumstances of the attachments brought it into the exceptional category in which the grant of injunctive relief is justified, notwithstanding comity and notwithstanding the outstanding application of the administrators in New York.”
I note that Stanley Burnton did not include in his list of relevant factors the fact that the respondent creditors were not English.[36]In his brief concurring judgment, Sir John Chadwick stressed the variation of the judge’s order made on the appeal, in a way that emphasised that the effect of the creditors’ conduct had been: “to set a trap for the administrators which, when sprung, obstructed the proper discharge of the functions for which the High Court had appointed them. It is that feature which, to my mind, requires the United Kingdom court to intervene, notwithstanding the strong presumption against interference with proceedings in a foreign court to which Stanley Burnton LJ has referred.

(c) The UNCITRAL Model Law

[37]The UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”), adopted in 1997, provides a structure of procedural mechanisms to facilitate the more efficient and harmonious disposition of cases where the insolvent debtor has assets or debts in more than one State. The Model Law is precisely that, and dependent for its implementation on national legislation. In Great Britain it has been implemented through the Cross-Border Insolvency Regulations 2006 and in the United States through Chapter 15 of the US Bankruptcy Code.[38]Fundamental to the Model Law is the concept of recognition by the court of one State of insolvency proceedings commenced in another State. Those foreign proceedings may be recognised as “foreign main proceedings” if they are taking place in the country where the debtor has his “centre of main interests” (“COMI”), or “foreign non-main proceedings” if the debtor has an “establishment” in that country. Defined as “a place of operations where the debtor carries out a non-transitory economic activity with human means and assets or services.” When foreign proceedings are recognised, various remedies may be available to the “foreign representative”, which for an English bankruptcy effectively means the trustee. If the foreign proceedings are recognised as foreign main proceedings, there is a mandatory stay on the commencement or continuation of individual actions or proceedings concerning the debtor’s assets, and the administration or realisation of the bankrupt debtor’s assets is entrusted to the foreign representative: Art20. If the foreign proceedings are recognised as foreign non-main proceedings, such a stay is discretionary, as are other remedies which may be granted to the foreign representative, having regard to the need adequately to protect the interests of creditors and other interested parties (including, where appropriate, the debtor): Art21. But if the foreign proceedings are not recognised as either “main” or “non-main” proceedings, these remedies are not provided under the Model Law nor does it give rise to any protection of the bankruptcy estate for the benefit of creditors. Further, a core element of the Model Law is co-operation between courts and representatives in different States. See generally, Sheldon (ed), Cross-Border Insolvency (3rd edn, 2011), chap 3.

DISCUSSION

[39]Issues of cross-border insolvency are not uncommon. As regards personal bankruptcy, wealthy individuals now frequently have assets and liabilities in different countries and may move their residence from one State to another. The Model Law is designed to assist over some of the resulting problems and, in my judgment, in the context of the Trustee’s application to the US Bankruptcy Court for recognition of the English bankruptcy, it provides an important consideration for the present application.[40]Mr Kemsley’s COMI for the purpose of the Model Law, is either in England or in the United States. There is no other State that is a candidate for Mr Kemsley’s COMI. If the US Bankruptcy Court grants the Trustee’s petition, which is supported by Mr Kemsley, and recognises the English bankruptcy as foreign main proceedings on the basis that England was Mr Kemsley’s COMI, the NY Proceedings will be stayed and the Trustees will be entrusted with the realisation of Mr Kemsley’s assets in the United States. It seems that, either directly or in consequence, the Florida Proceedings will also be stayed. The need for an anti-suit injunction therefore arises only in the event that Mr Kemsley’s COMI is found to be in the United States. Further, even if the US Bankruptcy Court recognises the English bankruptcy as “foreign non-main proceedings”, the Trustees can then apply to the US Bankruptcy Court for a stay of the NY Proceedings.[41]As recorded above, Barclays has made clear that it is not seeking to obtain an advantage for itself over other creditors and it has given an undertaking to pass over any assets realised in the United States to the Trustees (after deduction of its reasonable costs). A principal basis on which an anti-suit injunction in these circumstances might be justified, as summarised by Lord Goff in Aerospatiale, therefore does not apply in this case. See also Re Newton (reported only in The Times, 24 January 1956), where the bankrupt was refused an injunction to restrain proceedings by a debtor in the California courts on the latter’s undertaking that any assets received would be brought into the bankruptcy.[42]As regards the Florida Proceedings, they manifestly do not concern post-discharge assets. Accordingly, for Barclays to pursue those proceedings cannot be suggested to be encroaching upon the automatic discharge which Mr Kemsley might obtain under the British statute. The pursuit of those proceedings, in the light of Barclays’ undertaking, does not infringe the British bankruptcy regime in any way, and in the end Mr Mortimore did not press the case regarding those proceedings very hard. He submitted that the allegations in the Florida Proceedings regarding the transfers of the Florida Property were misconceived, and his skeleton argument said the claim was vexatious, but those are clearly matters for the Florida court and not a basis for an anti-suit injunction.[43]The substantial burden of Mr Kemsley’s complaint therefore focused on the NY Proceedings, and the effect of a judgment from the NY Court that would be enforceable for 20 years in the United States, and anywhere else that it was recognised, against any assets Mr Kemsley might acquire after discharge from his bankruptcy. Mr Mortimore, who took every point on Mr Kemsley’s behalf that could be taken, argued that this could not be compared to the case of a foreign creditor pursuing a foreign debt. Barclays was an English creditor that had proved in the bankruptcy, the debt was governed by English law, and the loan was entered into at a time when Mr Kemsley was resident in England. Moreover, Mr Kemsley’s petition for bankruptcy that led to the order was not sought by someone who had only a tenuous connection with this jurisdiction but by an individual who had lived and worked here for many years.[44]Mr Mortimore emphasised that the British bankruptcy regime, as set out in the statute, enshrines a policy of rehabilitation of the bankrupt after discharge. He submitted that the English court should therefore ensure that this could not be undermined by an English creditor with an English debt suing in a foreign court.[45]However, in my judgment this ignores the significance of Mr Kemsley, ex hypothesi, being found to have his COMI in the United States. Mr Kemsley’s statutory discharge from his debts under the IA is the main defence that he has filed in the NY Proceedings. On the assumption that Mr Kemsley’s COMI was in the United States, I do not see how it can be regarded as oppressive or unfair or in any way improper for the question whether Barclays should be allowed to maintain its action in the NY Court on an English debt or whether those proceedings should be stayed or dismissed on the basis that Mr Kemsley had become discharged from his debts under the British statute, or indeed whether there should be any restriction on enforcement on post-discharge assets, to be determined by the NY Court. It is not for the English court to intervene by preventing Barclays from pursuing its case there.[46]Moreover, if the US Bankruptcy Court recognises the English bankruptcy proceedings as foreign non-main proceedings, the Trustees will themselves be able to apply to the US Bankruptcy Court for a stay. On the other hand, if such recognition is refused, on the basis that Mr Kemsley had no “establishment” in the United Kingdom at the material time, the Trustees will be unable to pursue any remedies in the courts in the United States regarding the assets which Mr Kemsley may hold there, including as regards the Florida Property.[47]Barclays has shown its willingness to cooperate with the Trustees and is keeping them fully informed of the steps it takes in the NY Proceedings. The situation is a far cry from the underhand conduct of the creditors enjoined in the Bloom v Harms Offshore case. And it seems clear from the witness statements filed on this application that Barclays strongly suspects that Mr Kemsley has significant undisclosed assets in the United States. That is denied by Mr Kemsley. However, it is not for this court to speculate on the present application whether those suspicions are well-founded. If Barclays obtains a judgment against Mr Kemsley in the NY Proceedings, it will then have the assistance of the NY Court in pursuing investigations in the United States to aid enforcement, a step which, in sharp contrast to the position in Bloom, would by reason of Barclays’ undertaking benefit all Mr Kemsley’s creditors.[48]As Mr Dicker QC for Barclays pointed out, the approach of the bankruptcy regimes of different States to the release of bankruptcy debts may differ. Those approaches have not been harmonised through the Model Law, which is largely procedural. The fact that the NY Court may not (and there was no evidence either way) apply the approach of the British insolvency statute does not mean that its approach is so contrary to some fundamental English public policy (particularly if the United Kingdom does not represent Mr Kemsley’s COMI), that this court should take the exceptional step of preventing creditors from invoking the NY Court’s jurisdiction. And it was not suggested (nor could it be) that a potentially different approach by the NY Court offended against accepted principles of international law.[49]Mr Dicker submitted that even if Mr Kemsley’s COMI was not in the United States, this court should not, as a matter of principle, grant an injunction to restrain Barclays from pursuing any proceedings in the United States. However, since on the facts of this case that would mean that the US Court found that Mr Kemsley’s COMI was in the United Kingdom and that the English bankruptcy therefore fell to be recognised as “foreign main proceedings” triggering an automatic stay of the NY Proceedings, the question does not arise. It is unnecessary to decide the hypothetical issue of what would be the position if Mr Kemsley’s COMI was in some third country. Nor did either side suggest that it is for this court to reach a decision as to Mr Kemsley’s COMI. That is for the US Bankruptcy Court to determine, following the hearings at which Mr Kemsley gave evidence and was cross-examined.[50]Accordingly, either Mr Kemsley’s COMI was in England, in which case an anti-suit injunction is unnecessary; or it was in the United States, in which case I regard such an injunction as wholly inappropriate. This application is therefore dismissed.

POSTSCRIPT

[51]Shortly after the hearing of this application, on 22 March 2013, the US Bankruptcy Court issued its judgment on Mr Fry’s application for recognition of the English bankruptcy under Chapter 15: In re Paul Zeital Kemsley, Case no 12-13570 (JMP). The application was refused. The court held that at the time when Mr Kemsley filed his bankruptcy petition (or alternatively when the bankruptcy order was made), his COMI was in the United States. The court also found that Mr Kemsley did not have an establishment in England at the material time so the English bankruptcy also did not qualify as “foreign non-main proceedings”.[52]It is perhaps material to the position of Barclays in seeking to pursue the NY Proceedings that

Judge Peck noted in his judgment:

“… Mr. Kemsley is a bankrupt who does not live like one. Since leaving his debts behind and coming to the United States, his financial difficulties have not diminished his high standard of living. He earns personal income from certain business activities (he has worked for Planet Hollywood and currently represents the iconic Brazilian soccer star Pele through a marketing business with offices in New York known as Legends 10) and rather conveniently also has ready access to abundant free cash (principally in the form of loans or gifts from generous friends) enabling him to live very well.”
[53]Further, although he made clear that there was no suggestion that Mr Fry was not acting in good faith,

Judge Peck observed:

“…it should be noted that [Mr Kemsley], with the aid of surrogates, has been providing indirect financial support to Mr. Fry to cover the trustee's legal expenses in pursuing recognition under chapter 15.… This financial support may indicate that the trustee's petition for recognition is an aspect of a coordinated trans-Atlantic litigation strategy orchestrated by Mr. Kemsley and his advisers to shield [Mr Kemsley's] assets from enforcement actions by Barclays (notably his Florida real estate)…. And noting that the granting of the Trustee’s application for recognition would benefit Mr Kemsley by stopping the NY Proceedings brought by Barclays, he added: “The working arrangement between the trustee and Mr Kemsley is an unlikely one. These are parties who would ordinarily be opposed to each other with respect to claims to recover [Mr Kemsley’s] assets located in the United States for the benefit of UK based creditors. [Mr Kemsley] and the trustee have formed what amounts to a joint venture – with funding from sources loyal to [Mr Kemsley] – to achieve a result that is adverse to the interests of one of its major creditors.”

Cited in 1 later judgment