Case of the Day: Stichting Shell Pensionenfonds v. Krys

The case of the day is Stichting Shell Pensionenfonds v. Krys [2014] UKPC 41. Shell, a Dutch pension fund, had invested in shares of Fairfield Sentry Ltd., a BVI mutual fund and the largest “feeder fund” for Bernard L. Madoff Investment Securities LLC, which needs no introduction. After Madoff’s arrest, Shell immediately sought to redeem its shares in Fairfield, but of course it received nothing. So Shell applied to a court in Amsterdam, its home jurisdiction, for an order attaching bank accounts of Fairfield held by Citco Bank Nederland BV, Fairfield’s asset custodian, in its Dublin branch. The Dutch court approved the attachment; everyone agreed that the Dutch court had jurisdiction over Citco. The High Court of the BVI ordered Fairfield to be wound up and appointed Krys and Lau as liquidators. Shell submitted a claim in the BVI insolvency claim but its claim was rejected. So the situation was that if Shell was allowed to litigate the merits of its claim in the Netherlands and succeeded there, then it would receive the full amount of its claim on account of the attachment, and in effect to have priority over other creditors, who could not hope for such a recovery in the BVI insolvency proceedings. Indeed, as Shell admitted, that was the point of the attachment. Krys and Lau moved in the BVI court for an anti-suit injunction enjoining Shell from prosecuting its claim in the Netherlands and requiring Shell to procure a release of the attachment. The BVI Court of Appeal held in favor of the liquidators, and Shell appealed to the Privy Council.

The opinion was by Lord Sumpton and Lord Toulson. They began with the background principle of private international law that “only the jurisdiction of a person’s domicile can effect a universal succession to its assets.” Each state is not free, in general, to dispose of a debtor’s assets found within its territory according to its own law, although of course the lex situs can be relevant to the question whether particular property belongs to the bankruptcy estate. Courts in the states where assets are located can aid in the winding up, but they do this in ancillary proceedings.

The judges then reviewed the basic doctrine of anti-suit injunctions under English law. In particular, courts will grant anti-suit injunctions against foreign proceedings that are contrary to equity and good conscience, and under Carron Iron Company Proprietors v Maclaren (1855) 5 HLC 415, the court of a debtor’s domicile will grant anti-suit injunctions when, after an insolvency decree, a creditor brings an individual action that could result in the creditor obtaining unfair priority, even though the creditor’s action was not vexatious. I don’t know the history of the US Bankruptcy Code, but I guess that the automatic stay is a statutory version of an anti-suit injunction justified on these principles.

There was a question about the BVI court’s jurisdiction over Shell. Shell had submitted a proof of its claim to the BVI’s court but had received no dividend. The judges ruled that this was enough to vest the BVI court with jurisdiction, even though it had not accepted Shell’s claim, let alone provided for Shell to receive a dividend. But Shell also argued that even if it had submitted to the court’s jurisdiction, it had done so only in connection with adjudication of its claim in the insolvency case, not in connection with the claim for damages it had presented in the Netherlands, over which the BVI court would not have had subject matter jurisdiction. The judges rejected this argument:

There is, in the present context, no relevant difference between the claim for which Shell proved (a debt arising from its redemption notice) and the claim for which it did not prove but which it has put forward in the Dutch proceedings (damages for misrepresentation and breach of warranty). They both arise under the general law. They are both capable of being proved in the liquidation. If they are proved, the BVI courts will have subject-matter jurisdiction to adjudicate on them. And so far as they submitted by proving for anything in the liquidation, 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.

Shell’s final jurisdictional argument was that even given these principles, an injunction was improper because an injunction should not enjoin a foreign creditor from proceeding in his own country’s courts. The judges rejected this argument. In older cases, the fact that the party to be enjoined was foreign was sometimes thought to be a reason not to grant an injunction, because of a fear that the English injunction would not be enforceable abroad. But “in modern conditions, with an increasingly unified global economy, the English courts have generally assumed that their injunctions will be obeyed by those who are subject to their personal jurisdiction, irrespective of their place of residence.”

Last, the judges considered whether, as a matter of comity, the BVI court should have deferred to the Dutch court’s decision not to lift the attachments. There was no room for deference to the Dutch court, they said, because the issue wasn’t the relative convenience of two alternate forums: only the BVI court could determine priority among creditors. The judges also commented critically on Dutch law, which apparently provides an attachment as a matter of right in all but the clearest cases of double-payment. Such an “exorbitant” jurisdiction was so inconsistent with the policy of English (and BVI) law that the BVI court could not defer to it.

One response to “Case of the Day: Stichting Shell Pensionenfonds v. Krys”

  1. Interesting case! It is alway difficult to come to clear decisions in such cases as there is often jurisdiction from different countries available. It is important to make sure which laws are applicable.

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