Press Notices > Mayer Brown Insurance Industry Alert
06 May 2008
THE HOUSE OF LORDS CONSIDERS THE ABILITY OF THE ENGLISH COURTS TO ACCEDE TO A REQUEST THAT ENGLISH (RE)INSURANCE ASSETS BE REMITTED TO A FOREIGN LIQUIDATOR FOR DISTRIBUTION TO CREDITORS PURSUANT TO FOREIGN LAW
The issue
The House of Lords in McGrath & Others v Riddell & Another1 unanimously agreed that a Letter of Request sent by the Supreme Court of New South Wales to the High Court in London, asking that (re)insurance assets held by the provisional liquidators in England be remitted to the liquidators in Australia for distribution pursuant to Australian law, should be acceded to. However, this does not necessarily make it more likely that English (re)insurance assets will be transferred to the control of foreign liquidators for distribution in accordance with their practice, as the facts of each case will be decisive.
The background
This appeal arose out of the insolvent liquidation of the HIH group of Australian companies in 2001. Some of their assets, mostly reinsurance claims on policies taken out in London, were situated in England. To realise and protect those assets, provisional liquidators were appointed in England. In Australia, the court has made winding up orders and appointed liquidators. The Australian judge sent a letter of request to the High Court in London asking the provisional liquidators to be directed, after payment of expenses, to remit the assets to the Australian liquidators for distribution. Such assets would be distributed in accordance with Australian law. The question arose whether the English court could or should agree.
The request was made under s426(4) Insolvency Act 1986 ("IA"): "The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any relevant country". Australia has been designated a "relevant country"2. Under s426(5) IA, the English court has authority to apply, "in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction", having regard to the rules of private international law.
At first instance, the High Court directed that the English provisional liquidators were not to pay over any sums and refused to extend their powers to enable them to do so. The Court of Appeal dismissed the Australian liquidators' appeal and the case came before the House of Lords.
The appeal to the House of Lords
Their Lordships overruled the earlier decisions and made the order requested but, importantly, disagreed on the basis for doing so. Lord Hoffmann based his decision on the common law. He referred to the principle of "(modified) universalism" which requires that an English court, so far as is consistent with justice and UK public policy, is to 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.
Lord Scott and Lord Neuberger opposed this view, making the order sought solely on the basis of the statutory power under s.426(4) IA. Lord Phillips also relied on this statutory discretion noting that such exercise of discretion was consistent with the principles of universalism expressed by Lord Hoffmann).
Conclusions
The decision clarifies the scope of s426 IA, confirming that this provision affords the English court the discretion to remit English assets to a foreign liquidator for distribution in accordance with the insolvency laws of that jurisdiction, even if these laws are not in accordance with the English insolvency regime. However, whether the English courts will exercise that discretion in the future will depend on the facts of the particular case. The decision casts doubt, notwithstanding the opinion of Lord Hoffmann, on the scope of the English court's ability at common law to cooperate with the courts of a jurisdiction which has not been designated a "relevant country or territory" for the purposes of s426 IA.
The decision is also a useful prompt to the (re)insurance industry that, when doing business with a foreign (re)insurer, your claim as a creditor in the event that the (re)insurer is wound up, may be governed by the law of another jurisdiction, notwithstanding any choice of English law in the policy.
For further information about the (re)insurance implications of this decision, please contact one of our specialist (re)insurance industry partners, or your usual Mayer Brown contact.
