BACKGROUND
On 12 December 2008, the day after the arrest of Bernard Madoff, Shell applied to redeem its 46,708.1304 shares in Fairfield Sentry (Fairfield) (the largest Madoff feeder fund) purchased between 2003 and 2006 at subscription prices totalling USD45 million. On 18 December 2008, Fairfield suspended determinations of its Net Asset Value (NAV) per share, effectively putting an end to redemptions.
Shell then applied, on 22 December 2008, in the Amsterdam District Court (District Court) for a pre-judgment attachment (or garnishment) over all Fairfield assets held by custodian Citco Bank Nederland N.V. up to a value of USD80 million, including assets held in Citco's Dublin branch. Attachments were made on 23 December 2008, 21 January 2009 and 16 March 2010 totalling USD71 million. On 16 February 2011, the District Court rejected Fairfield's application to lift the attachments.
Fairfield was put into liquidation by the BVI High Court on 21 July 2009 and Kenneth Krys was appointed one of the joint liquidators.
On 5 November 2009, Shell submitted a proof of debt in the BVI liquidation for just over USD63 million which it said was the redemption price of its shares (calculated by reference to the NAV per share published by Fairfield at 31 October 2008), claimed as a debt due under Shell's 12 December 2008 redemption notice.
THE QUESTIONS BEFORE THE BOARD
The crucial issues in the appeal were (1) whether Shell as a foreign entity was amenable to the BVI High Court's jurisdiction and if the answer to that was in the affirmative, (2) whether an anti-suit injunction should issue to prevent the (foreign) creditor or member from pursuing in another jurisdiction proceedings which were calculated to give him unjustifiable priority access to the assets of the insolvent entity. The answer to both questions was yes.
JURISDICTION
On the issue of jurisdiction, the Board followed Lord Collins in Rubin v Eurofinance SA [2013] 1 AC 236 and found that by submitting a proof of debt (as Shell had done on 5 November 2009) "the creditor obtains an immediate benefit consisting in the right to have his claim considered by the liquidator and ultimately by the court according to its merits and satisfied according to the rules of distribution if it is admitted ... But what he may not do is take any step outside the liquidation which will get him direct access to the insolvent's assets in priority to other creditors."
The Board rejected the appellant's argument that submission to the BVI High Court's jurisdiction was limited to claims under the Insolvency Act and Rules and was not effective for claims under the "general law". The Board held that such submission (upon the filing of a proof of debt) was effective for all purposes. Liquidation, the Board stated, was "a mode of collective enforcement of claims arising under the general law".
The Board also rejected the appellant's submission that a principle exists to the effect that an anti-suit injunction will not issue to prevent a foreign litigant from resorting to the Courts of his own country (or another foreign Court):
"Shell submitted to a statutory regime which precluded it from acting so as to prevent the assets subject to the statutory trust from being distributed in accordance with it ...
... where a creditor or member who is amenable to the jurisdiction of the Court begins or continues foreign proceedings which will interfere with the statutory trusts over the assets of a company in insolvent liquidation, in principle an injunction will be available to restrain their prosecution irrespective of the nationality or residence of the creditor in question".
THE COURT'S DECISION
The grant of any injunction is subject to the Court's discretion to refuse relief if it would not serve the ends of justice. At first instance, having concluded that issue of the injunction would be contrary to principle, the Court of Appeal was entitled to overrule the trial judge and exercise its own discretion, which they did in favour of Mr. Krys.
The only criticism voiced by the appellant (as to the Court of Appeal's exercise of discretion) that the Board recognised as "substantial" was that, the Dutch Court having rejected Fairfield's application to lift the attachments, as a matter of comity, the Courts of the BVI should have respected the Dutch Court's decision. However, in the Board's opinion, that argument reflected a misunderstanding of the role comity plays in a decision of this kind. The question before the Court of Appeal did not turn on the relative convenience or appropriateness of litigation in the Dutch Courts and the BVI, but whether Shell should be allowed to invoke the jurisdiction of the Dutch Courts to obtain an unjustified priority in violation of a mandatory statutory scheme in the BVI. The Board's view was that while both Courts could adjudicate on the substantive dispute (the Dutch Courts in Shell's current proceedings seeking damages for misrepresentation and breach of warranty and the BVI Court in ruling on a proof if Shell lodged one), the BVI was the only forum in which priorities between claimants generally could be determined (with damages for misrepresentation and breach of warranty being capable of being proved in the BVI liquidation). The Board concluded that there was "nothing to suggest that allowing Shell an advantage over other comparable claimants would be consistent with the ends of justice. Nor, in the circumstances should Shell find this surprising. It invested in a company incorporated in the BVI and must, as a reasonable investor, have expected that if that company became insolvent it would be wound up under the law of that jurisdiction."
CONCLUSION
While it remains to be seen what effect the Board's judgment will have on future liquidations, a foreign claimant in a BVI liquidation may now need to decide whether, if he has an alternative potential remedy elsewhere, he can pursue that remedy in parallel with a claim in the BVI liquidation, or if he must now choose to pursue only one or the other.