HIH Casualty and General Insurance Ltd v JLT Risk Solutions Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD HOFFMANN,LORD NEUBERGER OF ABBOTSBURY,LORD WALKER OF GESTINGTHORPE,LORD PHILLIPS OF WORTH MATRAVERS,LORD SCOTT OF FOSCOTE
Judgment Date09 April 2008
Neutral Citation[2008] UKHL 21

[2008] UKHL 21

HOUSE OF LORDS

Appellate Committee

Lord Hoffmann

Lord Phillips of Worth Matravers

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Lord Neuberger of Abbotsbury

McGrath

and another

(Appellants)

and others

and
Riddell

and others

(Respondents)
McGrath

and another and others

(Appellants)
and
Riddell

and others

(Respondents) (Conjoined Appeals)

Appellants:

Jonathan Sumption QC

Simon Mortimore QC

Tom Smith

(Instructed by Norton Rose LLP)

Geoffrey Vos QC

Peter Arden QC

(Instructed by Clifford Chance LLP)

Respondents:

William Trower QC

Jeremy Goldring

(Instructed by Freshfields Bruckhaus Deringer)

LORD HOFFMANN

My Lords,

1

This appeal arises out of the insolvent liquidation of the HIH group of Australian insurance companies. On 15 March 2001 four of them presented winding up petitions to the Supreme Court of New South Wales. Some of their assets - mostly reinsurance claims on policies taken out in London - were situated in England. To realise and protect these assets, provisional liquidators were appointed in England. In Australia, the court has made winding up orders and appointed liquidators. The Australian judge has sent a letter of request to the High Court in London, asking that the provisional liquidators be directed, after payment of their expenses, to remit the assets to the Australian liquidators for distribution. The question in this appeal is whether the English court can and should accede to that request. The alternative is a separate liquidation and distribution of the English assets in accordance with the Insolvency Act 1986.

2

The English and Australian laws of corporate insolvency have a common origin and their basic principles are much the same. The general rule is that after payment of the costs of liquidation and the statutory preferred creditors, the assets are distributed pari passu among the ordinary creditors: see section 107 of the 1986 Act and section 555 of the Corporations Act 2001 (Cth). But Australia has a different regime for insurance companies. I need not trouble your Lordships with the details. It is sufficient to say that, in broad outline, it requires assets in Australia to be applied first to the discharge of debts payable in Australia (section 116(3) of the Insurance Act 1973 (Cth)) and the proceeds of reinsurance policies to be applied in discharge of the liabilities which were reinsured (section 562A of the Corporations Act 2001 (Cth)). It is agreed that if the English assets are sent to Australia, the outcome for creditors will be different from what it would have been if they had been distributed under the 1986 Act. Some creditors will do better and others worse. Approximate figures are given in para 17 of the judgment of the Chancellor in the Court of Appeal. Generally speaking, insurance creditors will be winners and other creditors will be losers.

3

The Australian court made its request pursuant to section 426(4) of the Insolvency Act 1986:

"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 relevant country…"

4

The Secretary of State has power under subsection (11) to designate a country as "relevant" and has so designated Australia. Subsection (5) describes the assistance which a UK court may give. A request from the court of a relevant country 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."

5

This provision was introduced into insolvency law in consequence of a recommendation in fairly general terms by the Cork Committee in 1982 (see Report of the Review Committee on Insolvency Law and Practice (Cmnd 8858) chapter 49.) The Committee drew attention to the inadequacy of the statutory provisions for international co-operation in personal bankruptcy and their complete absence in the law of corporate insolvency.

6

Despite the absence of statutory provision, some degree of international co-operation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely 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 world-wide recognition and it should apply universally to all the bankrupt's assets.

7

This was very much a principle rather than a rule. It is heavily qualified by exceptions on pragmatic grounds; elsewhere I have described it as an aspiration: see Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26; [2007] 1 AC 508, 517 at para 17. Professor Jay Westbrook, a distinguished American writer on international insolvency has called it a principle of "modified universalism": see also Professor Ian Fletcher, Insolvency in Private International Law (2nd ed 2005) at pp. 15-17. Full universalism can be attained only by international treaty. Nevertheless, even in its modified and pragmatic form, the principle is a potent one.

8

In the late nineteenth century there developed a judicial practice, based upon the principle of universalism, by which the English winding up of a foreign company was treated as ancillary to a winding up by the court of its domicile. There is no doubt that an English court has jurisdiction to wind up such a company if it has assets here or some other sufficient connection with this country: Re Drax Holdings Ltd Re InPower Ltd [2003] EWHC 2743 (Ch), [2004] 1 WLR 1049. And in theory, such an order operates universally, applies to all the foreign company's assets and brings into play the full panoply of powers and duties under the Insolvency Act 1986 like any other winding up order: see Millett J in Re International Tin Council [1987] Ch 419, 446-447:

"The statutory trusts extend to [foreign] assets, and so does the statutory obligation to collect and realise them and to deal with their proceeds in accordance with the statutory scheme."

9

But the judicial practice which developed in such a case was to limit the powers and duties of the liquidator to collecting the English assets and settling a list of the creditors who sent in proofs. The court, so to speak, "disapplied" the statutory trusts and duties in relation to the foreign assets of foreign companies. This practice was based partly upon the pragmatic consideration that any foreign country which applied our own rules of private international law would not recognise the title of an English ancillary liquidator to the company's assets. But it was also based upon the principle of universalism. In Re Matheson Brothers Ltd (1884) 27 Ch D 225 Kay J appointed a provisional liquidator, as in this case, to protect the English assets of a New Zealand company which was being wound up in New Zealand. He said, at pp 230-231:

"[What] is the effect of the winding up order which it is said has been made in New Zealand? This court upon principles of international comity, would no doubt have great regard to that winding up order and would be influenced thereby [but there was nevertheless jurisdiction to make a winding up order, and therefore to appoint a provisional liquidator, to protect the English assets]…I consider that I am justified in taking steps to secure the English assets until I see that proceedings are taken in the New Zealand liquidation to make the English assets available for the English creditors pari passu with the creditors in New Zealand."

10

It seems clear from the last sentence that Kay J envisaged the English assets being distributed in the New Zealand liquidation, provided that English creditors shared pari passu with New Zealand creditors. It was on the authority of this and similar statements in other cases that Sir Richard Scott V-C held in Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213, 247 that an English court had power in an ancillary liquidation (provisional or final) to authorise the English liquidators to transmit the English assets to the principal liquidators. The basis for the practice could only be what Kay J called principles of international comity, the desirability of a single bankruptcy administration which dealt with all the company's assets.

11

It is this jurisdiction, reinforced by the provisions of section 426, which the Australian liquidators (supported by two Australian insurance creditors who stand to gain from the application of Australian law) invite the court to exercise. But David Richards J, in a judgment which carefully examined all the arguments and authorities, held that the jurisdiction did not extend to authorising the assets to be remitted to principal liquidators for distribution which was not pari passu but gave preference to some creditors to the prejudice of others. The Court of Appeal (Sir Andrew Morritt C, Tuckey and Carnwath LJJ) held that there was such a jurisdiction, which might be exercised if distribution in the country of the principal liquidation produced advantages for the non-preferred creditors which counteracted the prejudice they suffered. But the present case offered no such advantages. The appeal was therefore dismissed.

12

My Lords, I would entirely accept that there are no administrative savings to be gained from remitting the assets to Australia. In order to avoid delay in distributing the available assets, the English provisional...

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