Law Report: English court will not block United States proceedings - Barclays Bank plc v Homan and others. Chancery Division (Mr Justice Hoffmann), 28 July 1992

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The proper forum for deciding whether it would be unjust to apply the United States Bankruptcy Code to a transaction between two English companies but involving American assets was the US Bankruptcy Court.

Mr Justice Hoffmann dismissed an application by Barclays Bank plc for an injunction to restrain Maxwell Communications Corporation plc (MCC) and its administrators, Andrew Mark Homan, Colin Graham Bird and Jonathan Guy Anthony Phillips, from invoking the jurisdiction of the US Bankruptcy Court in order to claim, under paragraph 547 of the US Bankruptcy Code, the recovery, as a preference, of dollars 30m which MCC had repaid to Barclays shortly before the commencement of MCC's administration proceedings in the United Kingdom and Chapter 11 proceedings in New York.

Nicholas Merriman QC, and Ali Malek (Richards Butler) for Barclays; John Higham QC, and Robin Dicker (Norton Rose) for MCC and its administrators.

MR JUSTICE HOFFMANN said that Barclays was confident it could resist a claim to recover the dollars 30m as a preference under section 239 of the Insolvency Act 1986, but thought it might be vulnerable to a claim under the corresponding provisions of paragraph 547 of the US Bankruptcy Code. It argued that such a claim would be unjust because the transaction had no sufficient connection with the US and the natural forum for deciding whether it was a preference was England. MCC was an English company which until its collapse had been managed in London, but the US Bankruptcy Court had jurisdiction because MCC's principal assets were shares in American companies.

Section 239 of the Insolvency Act 1986 defined a preference to include the company doing anything which had the effect of putting a creditor in a better position, if the company became insolvent, than if that thing had not been done. But, by section 239(5), liability to repay a preference depended on the subjective intentions of the person making the payment. Barclays was protected because, it said, the dollars 30m was not repaid in order to improve its position in the event of MCC's insolvency. Paragraph 547 of the US Bankruptcy Code contained a similar definition of a preference and allowed a trustee to avoid the payment if made within 90 days before filing of the petition. But there was no protection merely on the ground that there was no subjective desire to prefer.

Barclays therefore applied, in the UK administration proceedings, for injunctive relief to stop the administrators and the MCC itself making any claim for repayment of the dollars 30m under the US Bankruptcy Code or 'instructing, encouraging or permitting' the examiner appointed by the US court in the Chapter 11 proceedings to do so.

The examiner, presumably without such instruction, encouragement or permission, had applied to the US court for an extension of his powers to allow him to take proceedings under paragraph 547 on behalf of MCC, and there was no suggestion that the US court would not have jurisdiction to grant such powers.

The English courts, like those of the US, had jurisdiction in appropriate circumstances to grant an 'anti-suit injunction' to restrain persons subject to their jurisdiction from prosecuting proceedings before a foreign court. But this was a jurisdiction to be exercised with great circumspection.

An anti-suit injunction should be granted only where the foreign proceedings were 'unconscionable' or 'vexatious or oppressive' (see British Airways Board v Laker Airways Ltd (1985) 1 AC 58, 81, 95 and Societe Nationale Industrielle Aerospatiale v Lee Kui Jak (1987) 1 AC 871, 896).

The normal assumption was that an English court had no superiority over a foreign court in deciding what justice between the parties required and, in particular, that both comity and common sense suggested that the foreign judge was usually the best person to decide whether in his own court he should accept or decline jurisdiction, stay proceedings or allow them to continue.

Barclays relied on Midland Bank plc v Laker Airways Ltd (1986) 1 QB 689, where the Court of Appeal granted an injunction to stop Laker joining the bank as a defendant to an anti-trust suit in Washington DC.

Barclays said that although it had a presence in the US and was subject to the personal jurisdiction of the US Bankruptcy Court, the circumstances of the dollars 30m repayment had so little contact with the US that, according to English notions of international law, the US court lacked subject-matter jurisdiction. The fact that the repayment was in respect of an overdraft facility drawn in US dollars, and that it was routed through the bank's New York branch was, it said, irrelevant.

But the examiner had emphasised the significance of the fact that the whole of the dollars 30m was derived from the proceeds of sale of an American asset, so that it was appropriate that paragraph 547 should be invoked to recover it. In his Lordship's judgment, this case was quite different from Midland Bank v Laker. The situs of the assets from which the payment was derived was a connecting factor, which could legitimately be taken into account. MCC would have a good arguable case in the US court.

Moreover, for the US court to assert jurisdiction would not involve, according to English notions, so egregious a claim of extra-territoriality that justice required that it should be prevented by injunction.