New Cap Reinsurance Corporation Ltd ((in Liquidation)) v Grant; Rubin v Eurofinance SA
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Lewison,MR. JUSTICE LEWISON |
| Judgment Date | 15 March 2011 |
| Neutral Citation | [2011] EWHC 677 (Ch) |
| Court | Chancery Division |
| Date | 15 March 2011 |
[2011] EWHC 677 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Lewison
In the Matter of New Cap Reinsurance Corporation Limited (in liquidation) and in the Matter of the Insolvency Act 1986
MR. GABRIEL MOSS QC and MR. BARRY ISAACS (instructed by Mayer Brown International LLP) for the Applicants.
MR. ROBIN KNOWLES CBE, QC and MS. BLAIR LEAHY (instructed by Edwards, Angell, Palmer & Dodge LLP) for the Respondents.
New Cap Reinsurance Corporation Limited ("New Cap") is an Australian reinsurer. It was licensed in Australia and conducted its business in Australia. It is now in insolvent liquidation. The respondents are members of two Lloyd's syndicates for the 1997 and 1998 years of account, which placed reinsurance with New Cap through an English broker and New Cap's Australian reinsurance sub-broker.
The reinsurance contracts were subject to English law and the jurisdiction of the English courts. Both reinsurances also contained an arbitration clause which stipulated that the seat of any arbitration was to be London; and the proper law of the arbitration was to be English law. Each reinsurance contract also contained a commutation clause.
Following significant losses which were incurred during the 1997 and 1998 underwriting years, New Cap and the respondents entered into a commutation agreement in December 1998. Under that agreement, New Cap agreed to make a lump sum payment to the respondents. This payment was calculated on the basis of a 7.5% discount. In return New Cap was released from liability under the reinsurances. Just over three months before New Cap went into administration, it made two payments from its Australian bank account to AE Grant Underwriting Agencies Ltd, as agent for the respondents. The first of these payments was for US$2 million on about 8 th January 1999; and the second was for US$3.98 million on about 4 th January 1999.
On 19 th April 2002, just inside the relevant limitation period, Mr. Gibbons, as New Cap's liquidator, brought proceedings in New South Wales under the Corporations Act 2001. The proceedings alleged that the two payments constituted unfair preferences and were thus voidable transactions under that Act. These proceedings were one of a number proceeding in parallel against defendants in various jurisdictions around the world. The respondents refused to accept service of the proceedings and refused to submit to the jurisdiction of the Australian court. However, the court authorised substituted service and the respondents were served in accordance with the order of the Australian court on 23 rd January 2003.
The respondents declined to enter an appearance in Australia and took no formal part in the proceedings, although they were made aware of them; and they argued their case, or parts of it, in correspondence which was drawn to the attention of the Australian court. They say that proceedings in Australia would have involved them incurring increased costs and inconvenience as against proceedings in England. They say they have throughout been willing to submit to the jurisdiction of an appropriate tribunal so that the merits of the liquidator's claim can be addressed.
Barrett J. decided the question of jurisdiction as a preliminary issue and decided that the Australian court had jurisdiction. In a judgment delivered on 30 th September 2008, White J. found that New Cap was insolvent at all relevant times from 31 st December 1998, including as at the date of the two payments. The finding of insolvency at the date of the payments was a crucial building block in the liquidator's claim. On 17 th December 2008, Barrett J. delivered judgment on the liquidator's substantive claim. He decided that each of the payments was an unfair preference; and hence liable to be set aside under the Corporations Act. He also considered some of the defences that the respondents had raised in correspondence and rejected them. More specifically he held, first, that the arbitration clause did not apply to the liquidator's application; and, second, that although the respondents had alleged that they had a defence based on good faith, they had adduced no evidence before the court and therefore had not made out that defence.
Barrett J. also considered whether his order could be registered in England under the Foreign Judgments (Reciprocal Enforcement) Act 1933 ("the 1933 Act") and decided that it could not. He therefore issued a letter of request to the English court. Paragraph 1 of Barrett J's order declared that the two payments were voidable transactions within the meaning of Part 5.7(B) of the Corporations Act 2001. By paragraph 2 ordered that the defendants listed in a schedule to the orders were to pay, first, the sum of US$2.697 million-odd under section 588 FF(1)(a) of the Corporations Act and a further sum of just over US$ 1 million as interest on the principal sum. He also ordered that the defendants listed in the second schedule to the orders to pay the sum of US$3.283 million-odd and a further sum of interest on that principal sum.
The letter of request set out a history of the proceedings and then contained a request in the following terms: "This Court hereby requests the High Court of Justice of England and Wales to exercise its jurisdiction under Section 426 of the Insolvency Act 1986 to act in aid of and assist this Court, if and insofar as the High Court of Justice in England considers it just and appropriate, by:
"(a) Ordering that AE Grant & Others, Lloyd's Syndicate Number 991 for the 1997 year of account (being the persons identified in Schedule 1 to the declarations, orders and directions a copy of which is annexed to this Letter of Request and marked 'A') pay to New Cap Reinsurance Corporation Limited (in liquidation) each of the sums of money ordered by Order 2 of those declarations, orders and directions, as well as the costs thereby ordered to be paid by the defendants."
There was a similar request as regards the 1998 year of account. The letter continued:
"In the alternative: (i) Ordering that the Liquidator be at liberty to file and serve proceedings in the High Court of Justice of England and Wales in, or substantially to the effect of, the form annexed to this Letter of Request and marked 'B'; AND FURTHER (ii) Declaring that the proper law to be applied by the High Court of Justice of England and Wales for the determination of any such proceedings commenced pursuant to that liberty is the law of Australia."
It also contained ancillary requests.
The liquidator puts his case in two ways. First, he says that the court should exercise its power under section 426 of the Insolvency Act 1986. Second, he says that the court also has power at common law to assist a foreign liquidator and should do so. The respondents say that contrary to Barrett J's conclusion, the only theoretical means of enforcement of the Australian court's order is via the 1933 Act. They say that there is no power at common law that survives the 1933 Act. They say that section 426 does not confer enforcement jurisdiction on the English court when neither the 1933 Act nor the common law gives such jurisdiction. If there is a discretion under section 426, they say that it should not be exercised in the liquidator's favour. The liquidator says that the 1933 Act does not apply to orders made in insolvency proceedings.
The 1933 Act was enacted following the report of a committee chaired by Greer LJ. The Committee reported in December 1932. At that time, personal bankruptcy was governed by the Bankruptcy Act 1914. Under Section 122 of that Act the courts exercising insolvency jurisdiction throughout the British Empire were required to act in aid of each other and, upon a request by the non-English court, could exercise the jurisdiction of either court.
The mischief that the Committee was asked to consider was the problem for English businesses in enforcing judgments abroad. The perceived solution to the problem was to encourage foreign countries to recognise English judgments by granting reciprocal rights of enforcement for foreign judgments in order to replace the cumbersome procedure for bringing an action in England on a foreign judgment. In so recommending the Committee drew on the example of the Administration of Justice Act 1920 which allowed the registration of judgments from other countries within the British Empire. That system, under the 1920 Act, plainly existed in parallel with section 122 of the Bankruptcy Act 1914.
The report annexed to it a draft Bill, substantially in the form of the eventual Act, and a commentary on the draft Bill. In paragraph 4 of the Report, the Committee said: "It is not necessary for our present purpose to consider the effect in England of foreign judgments in bankruptcy proceedings or in proceedings connected with the administration of the estates of deceased persons or other similar classes of judgments." This indicates that insolvency was not part of the Committee's remit and that the Bill was not intended to encompass such matters.
The report also annexed to it draft conventions which had been negotiated with Belgium, France and Germany. None of those conventions extended to insolvency matters. The...
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