Sir Geoffrey Vos, Chancellor of the High Court

Insolvency Lecture

Singapore Supreme Court

Modified Universalism: Do we now know what it means?

Thursday 26th October 2017

Introduction

1. Before I turn to the much-vexed subject of universalism in the law of cross-border insolvency, I wanted to share with you briefly some of the relevant procedural developments that we have undertaken in England & Wales over recent months and years.

Relevant developments in England & Wales

2. We have just introduced the Business and Property Courts of England & Wales to encompass all the Rolls Building jurisdictions, including the Commercial Court, the Financial List, the Technology & Construction Court and all the courts of the Chancery Division, including of course, what is now our Insolvency and Companies List. This was launched in July 2017 and went live on 2nd October 2017. It will bring together the business and property work that we do in the Rolls Building in London and in the 5 main regional centres where specialist work is undertaken in Manchester, Birmingham, Cardiff, Bristol and Leeds, and shortly also in Newcastle and Liverpool.

3. Back in October 2015, we introduced the Financial List, which has, thus far, been a huge success. It is now, as I have said, a part of the Business & Property Courts. The

C:\Users\NANSG\Appdata\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\S0HZDJQV\Singapore.Insolvencyspeech.FINAL.F.Doc 30 October 2017 Financial List uses the most highly qualified judges from both the Chancery Division and the Commercial Court and offers the twin advantages of speed and efficiency. It has introduced a market test-case procedure to resolve an uncertain point where resolution of the issue would benefit the financial markets. This has relevance to insolvency lawyers, because it can be used for any issue which requires expertise in the financial markets or which is of general market importance, even if it arises in the context of insolvency or re-insurance or professional negligence, or in a case falling within the normal specialist jurisdiction of the Insolvency and Companies List.

4. Next, there is the initiative of our specialist Insolvency Registrars. They are soon to be renamed Insolvency and Companies Court Judges to reflect their vital role in dealing with insolvency litigation. The initiative is the introduction of Insolvency Express Trials (“IETs”) as from April 2016, alongside the new forms of Shorter and More Flexible Trials Scheme which originated in the recommendations of Lord Justice (now Lord) Briggs in his Chancery Modernisation Review. IETs have been a great success. Their objective is to speed up simple litigation and to curb costs. In insolvency cases, in particular, there is often little need for interlocutory case management, because the case turns on evidence, not complex pleadings. Disclosure is usually confined, because both sides are largely dependent on common documentary sources originating from the company and in the hands of the office-holder. In general terms, there will be just one directions hearing and an expedited hearing date at which judgment will normally be given at once.

5. With that quick tour d’horizon of the insolvency developments in the English & Welsh courts, I will move to a rather more contentious issue.

An introduction to modified universalism

6. I will start, if I may, by paraphrasing an extract from an erudite lecture delivered by Justice Kannan Ramesh at last

2 year’s Annual Conference of the International Association of Insolvency Regulators.

7. In that lecture, Justice Ramesh said this about the doctrine of universalism in the law of cross-border insolvencies upon which I would like to build today:-

“… there are two competing legal theories in this context: universalism and territorialism. Universalism aims to provide a single forum applying a single legal regime to administer the debtor’s assets and liabilities on a worldwide basis. In contrast, territorialism envisages that insolvency proceedings within a jurisdiction have effect only within that jurisdiction. In other words, local assets are meant for local creditors, regardless of proceedings occurring elsewhere”.

8. I cannot better that definition. Justice Ramesh then continued by pointing out that territorialism encourages a multiplicity of proceedings which in turn escalates costs. That is and was an anathema to the maximisation of enterprise value: the core goal of any effective insolvency regime. He then remarked that it was, therefore, encouraging that the prevailing judicial philosophy was that of modified universalism which had been defined by Lord Hoffmann in In re HIH Casualty and General Insurance [2008] 1 WLR 852 (“HIH”) (at paragraph 30) as requiring that the “[local] courts should, so far as is consistent with justice and [local] public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution”. This was recognised in the Singapore Court of Appeal’s decision in Beluga Chartering GmbH v. Beluga Projects (Singapore) Pte Ltd [2014] 2 SLR 815, where the court’s inherent discretion to assist foreign liquidation proceedings was accepted.

9. Justice Ramesh then said that “whilst there appears to be a general convergence towards the theory of modified universalism in global judicial attitudes, there also appears to be a divergence in the application of the theory”. The

3 Singapore and United Kingdom courts had, he said, taken opposing approaches to the issue of the recognition and enforcement of foreign insolvency proceedings. And, of course, he pointed to the well-known decision of the UK Supreme Court in Rubin v. Eurofinance SA [2013] 1 AC 236 (“Rubin”), where a new basis for recognition in relation to insolvency proceedings had been rejected in favour of the traditional bases for the recognition and enforcement of foreign judgments.

10. Finally in this connection, Justice Ramesh expressed the view that:-

“The decision in Rubin has reverberated in international insolvency circles. It has been said by Professor Bob Wessels that the decision is “at odds with tendencies of convergence … to a more efficient and coordinated multi-jurisdictional system with an openness for the interests of the global spread of all parties involved”. I do not propose today to analyse the merits of the decision in Rubin, save to point out that it appears that a different judicial philosophy has been adopted in Singapore”.

11. With that introduction, I should say at once, no doubt to the disappointment of you all, that I too do not intend today to analyse the merits of the decision in Rubin. It would be inappropriate for me to do so. But I can just remark that I was one of the successful leading counsel in HIH, and some have suggested that both Rubin and the Privy Council decision in Singularis Holdings Ltd v. Price WaterhouseCoopers [2014] UKPC 36, [2015] A.C. 1675 (“Singularis”) go against the grain of at least Lord Hoffmann’s speech in HIH.

12. What, however, I do want to do today is to examine where the doctrine of universalism or modified universalism in the English common law has actually reached.

4 13. It is worth noting first why universalism is thought to be a good thing. There are perhaps 6 reasons, some of which were touched upon by Justice Ramesh:

(1) Market Symmetry: which is the principle that the law should be symmetrical with the market places in which it operates.

(2) Economic reasons: universalism is a more economic approach for a number of reasons, including the fact that it is a more efficient use of international judicial resources, and cheaper for the body of creditors as a whole.

(3) Efficiency: the identification of a single principal insolvency jurisdiction allows for a far speedier, simpler and more efficient insolvency process.

(4) Reduction of forum shopping: a universalist approach discourages creditors from pursuing local insolvency procedures to pursue their personal advantage.

(5) Rough wash: the disadvantage to one group of creditors is balanced over time by cases in which local creditors achieve priority in other jurisdictions.

(6) Transactional gain: universalism increases the recoveries made from insolvencies viewed as a whole.

Where are we now with modified universalism?

14. It is perhaps worthwhile to start with Lord Hoffmann speech in Cambridge Gas Transportation Corporation v. Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508 (“Cambridge Gas”). There he analysed the difference between judgments in rem and in personam on the one hand, and bankruptcy proceedings on the other hand, as follows:

“13. … Judgments in rem and in personam are judicial determinations of the existence of rights: in the one case, rights over property and in the other, rights

5 against a person. When a judgment in rem or in personam is recognised by a foreign court, it is accepted as establishing the right which it purports to have determined, without further inquiry into the grounds upon which it did so. The judgment itself is treated as the source of the right.

14. The purpose of bankruptcy proceedings, on the other hand, is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established. …

15. … [B]ankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them. Of course, as Brightman LJ pointed out in In re Lines Bros Ltd [1983] Ch 1, 20, it may incidentally be necessary in the course of bankruptcy proceedings to establish rights which are challenged: proofs of debt may be rejected; or there may be a dispute over whether or not a particular item of property belonged to the debtor is available for distribution. There are procedures by which these questions may be tried summarily within the bankruptcy proceedings or directed to be determined by ordinary action. But these again are incidental procedural matters and not central to the purpose of the proceedings.”

15. This dichotomy between judgments in personam and in rem on the one hand and insolvency as a process of collective execution on the other hand, is at the core of the different approaches that have been adopted. I would not go so far as to say that it is what divides universalists and the territorialists, but it goes some way to explaining that divide.

16. Insolvency lawyers have long understood what the description of an insolvency process as a mechanism of collective execution against the debtor’s property in favour of creditors, actually means. The process is begun by the

6 commencement of winding up proceedings. It is the winding up that gives rise to the mechanism of collective execution.

17. In Rubin, Lord (Lawrence) Collins was unable to find any way of overcoming the fact that the judgments to which the Court was being asked to give effect were acknowledged to be in personam judgments, and were, therefore governed by the normal English conflict of laws principles applicable to all in personam judgments. This is evident from the way in which he stated the issues in the case as follows at paragraph 91:-

“Is the judgment in each case to be regarded as a judgment in personam within the scope of the traditional rule embodied in the Dicey Rule, or is it to be characterised as an insolvency order which is part of the bankruptcy proceedings, i.e. part of the collective proceeding to enforce rights and not to establish them? Is that a distinction which has a role to play? Is there a distinction between claims which are central to the purpose of the proceedings and claims which are incidental procedural matters? As a matter of policy, should the court, in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to liquidators, trustees in bankruptcy, receivers and other officeholders, than the traditional common law rule embodied in the Dicey Rule, or should it be left to legislation preceded by any necessary consultation?”

18. In Singularis, Lord Sumption sought to explain why Lord Hoffmann’s decision in Cambridge Gas was, at least partially, in error. He held that Cambridge Gas was, if correct, authority for the following three propositions:

“The first is the principle of modified universalism, namely that the court has a common law power to assist foreign winding up proceedings so far as it

7 properly can. The second is that this includes doing whatever it could properly have done in a domestic insolvency, subject to its own law and public policy. The third (which is implicit) is that this power is itself the source of its jurisdiction over those affected, and that the absence of jurisdiction in rem or in personam according to ordinary common law principles is irrelevant”.

19. Lord Sumption explained why he thought the second and third propositions were wrong at paragraph 19 of his judgment as follows:-

“So far as it held that the domestic court had a common law power to assist the foreign court by doing whatever it could have done in a domestic insolvency, its authority is weakened by the absence of any explanation of whence this common law power came and by the direct rejection of that proposition by the Judicial Committee in Al Sabah v. Grupo Torras SA [2005] 2 AC 333, a case cited in argument in Cambridge Gas but not in the advice of the Board.

Lord Walker, giving the advice of the Board in Al Sabah, had expressed the view that there was no inherent power to set aside Cayman trusts at the request of a foreign court of insolvency, in circumstances where a corresponding statutory power existed under the Cayman Bankruptcy Law but did not apply in the circumstances.

The Board considers it to be clear that although statute law may influence the policy of the common law, it cannot be assumed, simply because there would be a statutory power to make a particular order in the case of domestic insolvency, that a similar power must exist at common law.

So far as Cambridge Gas suggests otherwise, the Board is satisfied that it is wrong … If there is a corresponding statutory power for domestic

8 insolvencies there will usually be no objection on public policy grounds to the recognition of a similar common law power. But it cannot follow without more that there is such a power. It follows that the second and third propositions for which Cambridge Gas is authority cannot be supported”.

20. Lords Mance and Neuberger in the same case threw a measure of cold water on even the principle of modified universalism, but did not go so far as saying that such a principle did not exist in English law. Rather, they set their face against allowing the creation of any new common law power to order information to be provided to a liquidator, foreign or otherwise, where there was no statutory power. Lord Collins’s trenchant judgment concluded by suggesting that any other result and, by implication the decision in Cambridge Gas, were “profoundly unconstitutional” and “also profoundly contrary to the established relationship between the judiciary and the legislature”. Along the way, he roundly rejected two first instance decisions by Proudman J in England and Andrew Jones J in the Cayman Islands, which were, he thought, impermissibly allowing a common law power to recognise and assist an administrator appointed overseas to include doing whatever the [domestic] court could have done in the case of a domestic insolvency. Legislation could not, he said, be applied by analogy (see In re Phoenix Kapitaldienst GmbH [2013] Ch 61 and Picard v. Primeo Fund [2013] CILR 164 in the Madoff case).

21. The position is, therefore, now somewhat polarised. The Supreme Court has made it very clear that new common law rules will not be promiscuously created to come to the aid of foreign liquidators. I shall come back to that promiscuity. Proper procedures will need to be followed under statutory provisions, the UNCITRAL Model Law, the Cross Border Insolvency Regulations or the Insolvency Regulation (for example) if a foreign liquidator is to be assisted in pursuit of any universalistic objective, modified or otherwise.

22. This somewhat black letter approach comes, it is to be observed, from judges who did not in most cases specialise

9 in insolvency. The approach of our specialist insolvency judges such as Lord Hoffmann and Lord Millett has been generally rather more forgiving.

What is the relevance of an ancillary winding up?

23. The English court has long had the jurisdiction not only to wind up English companies, but also to wind up foreign companies, even foreign companies that are already being wound up in another jurisdiction. The cases I have referred to make clear that, if such a jurisdiction exists, then any orders can only be made under it when an appropriate ancillary winding up order has been made and not by analogy with the jurisdiction that might exist in that situation – i.e. had such an ancillary order been made.

24. In England & Wales, and also I think in some other jurisdictions, there are two stages to the consideration of whether to make a winding up order in respect of a foreign company: the first question is whether the court has jurisdiction to wind up the company, and the second question is whether, as a matter of discretion, it is appropriate to do so. The jurisdictional requirements are broadly that there is a sufficient connection with the local jurisdiction, a reasonable possibility of benefit to those applying for the order, and one or more persons interested in the distribution of the assets being amenable to the jurisdiction: See Re Real Estate Development Company per Knox J; although compare Re Drax Holdings Limited [2004] 1 WLR 1049, where Lawrence Collins J held that only the first factor went to jurisdiction, with the second and third factors going to discretion.

25. The discretion to wind up is then exercised taking into account principles of comity, universality, whether there is some other more appropriate jurisdiction for the winding up, and if there is, whether an ancillary winding up is necessary to protect local assets or creditors, and whether the liquidator should be limited in his functions or powers.

10 26. I shall not spend time here discussing what is rapidly becoming an old chestnut – namely whether the primary winding up should always be in the company’s place of incorporation or whether a winding up in its COMI will also be recognised. In that regard, though, I might refer to Justice Segal’s recent decision in China Agrotech Holdings Limited Grand Court of the Cayman Islands 19th September 2017, where he authorised an application for a scheme of arrangement in Cayman by liquidators appointed in what was effectively the company’s COMI, namely Hong Kong.

27. It is then important to understand that a primary winding up order made in respect of any company has, unless it is limited in any way, theoretical unlimited territorial and international effect. That distinguishes it from an ancillary winding up. Millett J explained why that was the case in Re International Tin Council [1987] Ch 419 at pages 446-7 as follows:-

“Although a winding up in the country of incorporation will normally be given extra-territorial effect, a winding up elsewhere has only local operation. In the case of a foreign company, therefore, the fact that other countries, in accordance with their own rules of private international law, may not recognise our winding up order or the title of a liquidator appointed by our courts, necessarily imposes practical limitations on the consequences of the order. But in theory the effect of the order is worldwide. The statutory trusts which it brings into operation are imposed on all the company’s assets wherever situate, within and beyond the jurisdiction. Where the company is simultaneously being wound up in the country of its incorporation, the English court will naturally seek to avoid unnecessary conflict, and so far as possible to ensure that the English winding up is conducted as ancillary to the principal liquidation. In a proper case, it may authorise the liquidator to refrain from seeking to recover assets situate beyond the jurisdiction, thereby protecting him from any complaint that he has been derelict in his

11 duty. But the statutory trusts extend to such assets, and so does the statutory obligation to collect and realise them and to deal with their proceeds in accordance with the statutory scheme”.

28. In these circumstances, there is, I would suggest, perhaps a certain lack of logic to the present position. Under English law, a foreign winding up of a company incorporated (or now perhaps having its COMI) abroad brings into play a process of collective execution over all its assets. The English courts will recognise that foreign winding up as creating trusts over all its assets wherever situate. The English common law will seek to assist a foreign liquidator to give effect to those trusts. It may, as a matter of discretion, order an ancillary winding up to assist in that process, invoking domestic insolvency powers, or it may invoke express powers in section 426 of the Insolvency Act 1986 (as in HIH), or in article 25 of the UNCITRAL Model law. But the English court may not, as a matter of discretion or otherwise, assist the foreign liquidator in other ways, even if that would support the implementation of the statutory trusts that the common law recognises - unless of course, there already exists a common law power to do so – which makes this possibility restrictive as we can see from Rubin and Singularis. To do so would be an impermissible judge- made extension of the common law. Lord Neuberger, in Singularis, thought that “confusion underlines the need for caution”, and “[t]he extent of the extra-statutory powers of a common law court to assist foreign liquidators is a very tricky topic on which the [Privy Council], the House of Lords and the Supreme Court have not been conspicuously successful in giving clear or consistent guidance”. I am in respectful agreement with that latter proposition.

So, what is the position now?

29. My own view here is that judges have become somewhat overwrought in dealing with these vexing cases. I am not sure that there is ever a need for strident statements. All that is happening is that the tiny global world in which we now all live is testing the boundaries of the common law.

12 Businesses are now mostly multi-national. When they fail, international insolvencies are also now commonplace. What began with cases such as the Maxwell litigation back in the early 90s now throw up a different “tricky” situation every week.

30. Regard should be had, as is usual in these circumstances, to the fundamental principles of the common law. But it should be remembered that such principles include the principles of insolvency law. Insolvency is a largely, but not entirely, statutory regime.

31. Lord Sumption described it thus at paragraph 10 of the Singularis decision: “The English courts have for at least a century and a half exercised a power to assist a foreign liquidation by taking control of the English assets of the insolvent company. The power was founded partly on statute and partly on the practice of judges of the Chancery Division”. The first statute was, of course the Companies Act 1862 that provided by section 191 for jurisdiction to wind up unregistered companies, including those incorporated outside the United Kingdom. But the common law as represented by the practice of judges of the Chancery Division over several centuries should not be overlooked.

32. Lord Collins’s judgment in Singularis was at pains to point out the limited effect of his approach, because “only some British colonies, dependencies, and overseas territories, such as Bermuda, and the Isle of Man, [do] not have the statutory powers to assist foreign office-holders which exist under United Kingdom law”. The solution, therefore, must be the wider adoption of international insolvency agreements such as the UNCITRAL Model law and the increased use of court co-operation frameworks such as the JIN Guidelines adopted by the Singapore and English courts.

33. Lord Sumption emphasised at paragraph 19, again in Singularis, that the principle of modified universalism was part of the common law, but that it was necessary to bear in mind, first, that it was subject to local law and local public policy and, secondly, that the court could only ever act

13 within the limits of its own statutory and common law powers, including any proper development of the common law. The $64,000 question will be what developments in the common law will, in the future be considered “proper” in this important context. In Lord Sumption’s view, though there was a power at common law to assist a foreign court of insolvency jurisdiction by ordering the production of information in oral or documentary form which is necessary for the administration of a foreign winding up, the Privy Council did not want to “encourage the promiscuous creation of other common law powers to compel the production of information”.

34. None of us would wish to encourage promiscuity, but some of our insolvency judges brought up in the 1960s, might baulk at labelling as “promiscuous” a moderately liberal approach to the development of the common law.

Is the law now reasonably certain?

35. It is comforting, but not surprising, that the Supreme Court and the Privy Council have recognised the common law ability to support a foreign insolvency process. Since at least Solomons v. Ross (1764) 1 HBI 131n, where the English court recognised a Dutch curator in bankruptcy, and allowed him to recover the bankrupt’s property in priority to an English creditor, that principle has been established.

36. Moreover, Lord Dunedin’s famous dictum in Galbraith v Grimshaw [1910] AC 508 at 513 would be set at nought if no such universalist principle were to be recognised. He said: “Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the court finds that there is already pending a process of universal distribution of a bankrupt’s effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution.”

37. Looking at the matter from here in one of the strong common law jurisdictions of the Far East, I can completely

14 understand how you might think that the UK’s judges have been timid in failing to tackle the in personam/in rem conundrum. You might reasonably think that it is obvious that the process of collective execution that is a bankruptcy or a winding up is something quite separate from any ordinary form of judgment. You might think that an order obtained by an office holder in his or her home jurisdiction, when he is himself recognised by another jurisdiction, should also be recognised by that other jurisdiction, irrespective of the principles of private international law that were devised and written for quite different situations. You might also reasonably think that international co-operation between insolvency courts should not be subjected to artificial limitations that are derived from one nation’s domestic insolvency law, when everyone seems to agree that, in a global world, a single process of collective execution is for the benefit of all creditors where corporations have, as so many now do, operated in several countries across continents.

38. I have much sympathy for these points of view, but I think we should take care before embarking on uncharted waters. The judgments delivered in Singularis are perhaps the most well-considered contribution to this debate. What emerges from those speeches is that most problems can be solved by the existing approach. At least we now know where we are. The only uncertainty is what developments in the common law will be permitted over time.

39. I am a reformer by nature, but I accept that it would be dangerous for judges to set sail on a voyage of unrestrained universalism without the benefit of a statute, or better still an international treaty, as their map and guide.

40. Although some insolvency judges might prefer to throw their natural judicial caution to the wind, I think we should proceed incrementally. That is, in effect, what has occurred with the successive decisions in Cambridge Gas, HIH, Rubin and Singularis. We all now know – anyway pretty well - where we stand, and, even if we might prefer a faster development of the common law, there will as Lord Collins

15 said, be relatively few cases that are affected by the gaps in the existing structures.

41. I should conclude on this subject perhaps by mentioning once again the JIN guidelines. A huge amount has already been achieved in numerous cases by co-operation between courts and liquidators since it all began in Maxwell. The acceptance of mutually agreed guidelines can make up in many cases for both the slow development of the common law, and the lack of a universally ratified international insolvency treaty.

GV 26th October 2017

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