Originally published March 30, 2011
Keywords: New Cap Re, Lloyd's Syndicate, English Court
On 15 March 2011, the High Court of Justice (the "English Court") used its statutory powers under s.426 of the Insolvency Act 1986 (the "Act") to order a Lloyd's syndicate to pay the amount due under a judgment of the Supreme Court of New South Wales in Australia (the "Australian Court") relating to unfair preference payments. It did so pursuant to a letter of request issued by the Australian Court requesting the English Court's assistance. The English Court also ruled that it had the power to and would assist under common law in the same manner1.
The Facts
The respondents, members of a Lloyd's syndicate for two
years of account (the "Syndicate") had
entered into certain reinsurance contracts with New Cap Reinsurance
Corporation Limited ("New Cap Re"), an
Australian reinsurance company.
The Syndicate and New Cap Re subsequently entered into a
commutation agreement, pursuant to which New Cap Re made lump sum
payments to the Syndicate just over three months before New Cap Re
went into administration (and subsequently liquidation) in
Australia. New Cap Re's liquidator commenced proceedings
against the Syndicate in Australia alleging that the payments
constituted "unfair preferences" and were thus
"voidable transactions" under relevant Australian
insolvency legislation. The Syndicate did not formally file an
appearance before the Australian Court, although their
solicitors' correspondence on various matters was placed before
the Australian Court and considered in its judgment.
The Australian Court held that the payments were
preferential under Australian insolvency law and ordered the
Syndicate to pay corresponding sums plus interest. The Australian
Court also issued a letter of request seeking the English
Courts' assistance in giving effect to the judgment through
making orders for payment of the sums due from the Syndicate.
The Decision
The English Court exercised its discretionary powers under s.426
of the Act in favour of assisting the Australian Court and ordered
the Syndicate to pay amounts corresponding to the Australian
judgment. The Syndicate had argued that proceedings could not be
brought under s.426 of the Act or at common law since s.6 of the
Foreign Judgments (Reciprocal Enforcement) Act 1933 (the
"1933 Act") prohibits proceedings for
the recovery of a sum of money payable under an Australian judgment
other than by way of registration of the judgment under the 1933
Act. The English Court ruled that the 1933 Act did not apply,
because insolvency proceedings (which included preference
proceedings) are not intended to be included within the ambit of
the 1933 Act.
Applying the principle of "modified universalism" hailed
by Lord Hoffman in Cambridge Gas2, and applying
Rubin3, the English Court held that the
preference actions were part of the Australian insolvency
proceedings. As such, the Australian Court was the proper court to
determine the claims and the ordinary rules of private
international law relating to enforcement of judgments in personam
did not apply.
Although the case was decided on the grounds of s.426 of the Act,
the English Court also held, on the basis that common law powers to
assist subsist in parallel4, that the same discretionary
considerations would lead the English Court to exercise its common
law powers of assistance if that were necessary.
Permission to appeal has been granted. Mayer Brown acted for
New Cap Re and its liquidator, together with Henry Davis York in
Australia.
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Footnotes
1. In the matter of New Cap Reinsurance Corporation
Limited (in liquidation) and in the matter of the Insolvency Act
1986
2. Cambridge Gas Transportation Corp v. Official Committee of
Unsecured Creditors of Navigator Holdings plc [2007] 1 AC
508
3. Rubin v. Eurofinance SA [2011] 2 WLR 121
4. Following the approach of Lords Hoffman and Walker in Re HIH
Casualty and General Insurance Ltd [2008] 1 WLR 852, as the
Court of Appeal have done in Rubin v. Eurofinance SA
[2011] 2 WLR 121.
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