Posts Tagged Comity
Arcelor Mittal v Essar. The High Court races ahead in its support for arbitration. On comity, fraud, and worldwide freezing orders.
 EWHC 724 (Comm) ArcelorMittal USA LLC v Essar Steel Limited and others is quite the highlight in worldwide regulatory competition for championing arbitration.
As 20 Essex Street note, Jacobs J refused to vary an earlier worldwide freezing order (WFO), despite the award being foreign, Claimant and Defendant companies being foreign, there being no significant assets within the jurisdiction, and the courts at Mauritius (defendant is Mauritius-incorporated, defendant to the Arbitration Claim, and the debtor under the ICC award) potentially feeling gazumped by their English colleagues.
Of note over and above Essex Street’s analysis is
- the defendants urging the Court on the grounds of comity (no need for the English courts to act at policeman for assets located abroad: at 72, referring to Popplewell J. in Conocophillips China Inc v Greka Energy (International) BV.  EWHC 2733) to resist the call for a WFO. This was rejected (at 81) with the argument ‘I consider that I am entitled to proceed on the basis of the evidence that the Mauritian courts would not regard the WFO as offensive in some way.’; and ‘The WFO does not presently conflict with any order of the Mauritian courts, and this is not a case where the Mauritian courts have refused equivalent relief or where there is evidence that those courts would be likely to do so.’ Jacobs J therefore does consider comity quite carefully.
- the Court’s sense of urgency in what it sees as a case of fraus: At 45:
‘There is no precise definition of what is meant by the phrase “international fraud” found in the case-law, but I do not consider that it is confined to cases where the underlying cause of action is a claim in deceit or a proprietary claim relating to the theft of assets. If there is a strong case of serious wrongdoing comprising conduct on a large or repeated scale whereby a company, or the group of which it is a member, is acting in a manner prejudicial to its creditors, and in bad faith, then I see no reason why the English court should not be willing to intervene rather than to stand by and allow the conduct to continue and, to put the matter colloquially, to let the wrongdoer get away with it. In the present case, I would regard the attempted dissipation of Essar Steel’s US$ 1.5 billion asset, in the face of the commencement of arbitration proceedings, as sufficient in itself potentially to warrant intervention under the “international fraud” exception, or as constituting “exceptional circumstances”.’
- and the rejection at 73 of a CJEU C-391/95 Van Uden type of restraint, requiring a real connecting link between the subject matter of the measures sought and the territorial jurisdiction of the English court.
Chapter 15 is the typical entry gate for a foreign insolvency practitioner to engage in US bankruptcy proceedings – it is also the general jurisdictional gateway for US courts viz international insolvencies, COMI and insolvency tourism discussions etc. By way of example see Norton Rose’s 2017 overview here.
In Ema Garp Fund v. Banro Corp., Case No. 18-01986 Law360 summarise the outcome as it stands (I understands motion to appeal has been filed) as follows: ‘Canada’s Banro Corp. won’t face a suit in New York federal court alleging the mining company lied to investors about its operations in the Democratic Republic of Congo after a judge ruled (..) that those claims were resolved last year in bankruptcy proceedings in Canada.’
Kelly Porcelli excellently reviews the issues here, with justified emphasis on comity considerations – I am happy to refer.
One for the comparative litigation ledger.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.5, Heading 5.6.
In  EWHC 466 (Fam) V v M, Williams J refused both an application for a stay on the basis of forum non conveniens of English proceedings in favour of proceedings in India, and an anti-suit injunction. Applicant mother is V and the respondent is the father M. They are engaged in litigation in England and in India in respect of their son. The English limb of the proceedings is the mother’s application for wardship which was issued on or about the 16 October 2018, and which includes within it application for the summary return of the child from India to England.
India is (obviously) neither a Brussels IIa party nor the 1996 Hague child Protection Convention. Brussels IIa contains a forum non-light regime (as Brussels Ia now does, too): see e.g. Child and Family Agency v J.D. Whether more general forum non is excluded following Owusu v Jackson per analogiam, has not reached the CJEU however as Williams J notes at 22 ‘the trend of authority in relation to the ‘Owusu-v-Jackson’ points towards the conclusion that the power to stay proceedings on forum non-conveniens grounds continues to exist in respect of countries which fall outside the scheme of BIIa or the 1996 Hague Child Protection Convention.’
Given that eventually he upholds jurisdiction of the English courts, the point is moot however may be at issue in further cases.
At 48 ff the various criteria for forum non were considered:
i) The burden is upon the applicant to establish that a stay of the English proceedings is appropriate.
ii) The applicant must show not only that England is not the natural or appropriate forum but also that the other country is clearly the more appropriate forum.
iii) In assessing the appropriateness of each forum, the court must discern the forum with which the case has the more real and substantial connection in terms of convenience, expense and availability of witnesses. In evaluating this limb the following will be relevant;
a) The desirability of deciding questions as to a child’s future upbringing in the state of his habitual residence and the child’s and parties’ connections with the competing forums in particular the jurisdictional foundation
b) The relative ability of each forum to determine the issues including the availability of investigating and reporting systems. In practice, judges will be reluctant to assume that facilities for a fair trial are not available in the court of another jurisdiction but this may have to give way to the evidence in any particular case.
c) The convenience and expense to the parties of attending and participating in the hearing and availability of witnesses.
d) The availability of legal representation.
e) Any earlier agreement as to where disputes should be litigated.
f) The stage any proceedings have reached in either jurisdiction and the likely date of the substantive hearing.
g) Principles of international comity, insofar as they are relevant to the particular situation in the case in question. However public interest or public policy considerations not related to the private interests of the parties and the ends of justice in the particular case have no bearing on the decision which the court has to make.
h) The prospects of success of the applications.
iv) If the court were to conclude that the other forum was clearly more appropriate, it should grant a stay unless other more potent factors were to drive the opposite result; and
v) In the exercise to be conducted above the welfare of the child is an important (possibly primary), but not a paramount, consideration.
Conclusion is that on clear balance England is the natural and appropriate forum and India is not clearly the more appropriate forum.
At 50, the anti-suit injunction was considered premature (Williams J suggests that had it been a commercial matter, it may not have been): ‘Assuming that a stay application can be made and that some form of judicial liaison can be commenced to enable this court and the Indian court to work cooperatively to solve the riddle of competing applications in our respective courts, it is in my view wholly premature to grant such an injunction. That situation might fall to be reconsidered if no progress can be made and in particular if the father embarked upon a rear-guard action to play the Indian courts to delay the resolution of matters. However we are far from that position as yet.’
Note the comity considerations here, reflecting on the potential judicial co-operation between India and England, advanced here given the interest of the child (less likely for purely commercial cases, one assumes).
Cuzco v Tera (Chapter 11). Respect for Korean exclusive jurisdictional rule (shareholder derivative claims) does not trump US subject-matter jurisdiction.
Thank you Dechert for flagging Case No. 16-00636 Cuzco v Tera (Chapter 11), in which Faris J with great clarity wades in on a motion to dismiss US Chapter 11 jurisdiction in favour of exclusive jurisdiction for the Seoul courts with respect to a Korean company shareholder derivative action.
The case is relevant to insolvency practitioners. More generally however it highlights the need for a court to keep a level heading when wading through to and fro litigation in various States.
A bit of factual detail is required to appreciate the ruling.
Cuzco USA filed a chapter 11 in Hawaii with its sole asset real property in Hawaii. Tera Resources Co., Ltd. (“Tera”), one of Cuzco Korea’s shareholders asserted that the Debtor and its insiders conspired to deprive Cuzco Korea of the value of the real property. Tera commenced an action for fraud, breach of fiduciary duties, piercing the corporate veil, unjust enrichment and imposition of constructive trust.
The defendants moved to dismiss, in favour of the Korean courts – and failed, both on arguments of forum non conveniens and on arguments of there being exclusive jurisdiction for the courts at Seoul. Defendant Mr Lee is purportedly the manager of Cuzco USA and the representative director of Cuzco Korea. Defendant Ms Yang is shareholder and creditor of Cuzco Korea and an ally of Mr. Lee.
Cuzco USA had proposed, and the court confirmed, a Third Amended Plan of Reorganization. Briefly summarized, the Third Amended Plan provided that Cuzco USA would transfer the Keeaumoku (Hawaii) Property to Newco, a Hawaii limited liability company of which Mr. Lee is the sole member, that Newco would attempt to raise enough money through a refinancing to repay all of Cuzco USA’s creditors in full, and that if the refinancing did not occur by a date certain, Newco would sell the Keeaumoku Property at auction and distribute the proceeds to Cuzco USA’s creditors.
Tera and others filed motions for reconsideration of the order confirming the Third Amended Plan. Tera is a shareholder of Cuzco Korea. It also holds a judgment, entered by a Korean court, against Ms. Yang, and orders from a Korean court that, according to Tera, resulted in the seizure of Ms. Yang’s interests in and claims against Cuzco Korea.
Cuzco USA then moved to modify the Third Amended Plan and replaced it with a Fourth Amended Plan. Briefly summarized, this Plan eliminates the transfer of the Keeaumoku Property to Newco; instead, Cuzco USA will retain the property and either refinance it or sell it at auction. Tera and others vigorously objected to plan confirmation on multiple grounds. The court confirmed the Fourth Amended Plan.
Tera argued (among other things) that the Third Amended Plan was the product of a fraudulent scheme by Mr. Lee, Ms. Yang, and others to divert the equity in Cuzco USA from Cuzco Korea to themselves and to render Tera’s interests in Cuzco Korea worthless.
That Korean law covers governs the right to bring derivative claims on behalf of a Korean corporation is not under dispute between the parties. (It is therefore considered part of the rules on internal organisation which are subject to lex societatis). However Faris J dismissed defendants’ suggestion that the US court should also respect Korea’s jurisdictional rules that such suits be brought in Seoul only.
At B, p.10: US statutes confer subject matter jurisdiction on US courts. Statutes of another nation, such as the South Korean statute on which the moving defendants rely, cannot change the subject matter jurisdiction of a United States bankruptcy court under a United States statute.
Forum non conveniens was dismissed for there is a strong policy that favors centralization of claims against the debtor in the bankruptcy court that outweighs any other interest (at C, p.12). One would have to have strong arguments to push that aside and clearly these were not present here.
In Platinum Partners, Chapman J held that foreign discovery laws should be considered for comity concerns, yet they are not determinative of whether discovery should be permitted under United States law.
Foreign Representatives sought access to documents from US audit firms concerning investment funds that were debtors in Cayman Islands liquidation proceedings recognized under Chapter 15 as foreign main proceedings. Jacob Frumkin has excellent insight and I am happy to refer.
Section 1521(a) of the Bankruptcy Code provides that, upon recognition of a foreign main proceeding, a bankruptcy court may, “at the request of a foreign representative, grant any appropriate relief” … “where necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors.” The first main argument of the auditors was that Cayman law does not permit the discovery of audit work papers or materials that are not a debtor’s property and, if the Court were to grant the motion, its interests and the interests of comity would not be protected.
The Court dismissed this argument, noting that
“it is well-established that comity does not require that the relief available in the United States be identical to the relief sought in the foreign bankruptcy proceeding; it is sufficient if the result is comparable and that the foreign laws are not repugnant to our laws and policies.” and that
“requiring this Court to ensure compliance with foreign law prior to granting relief sought pursuant to chapter 15 would require the Court to engage in a full-blown analysis of foreign law each and every time a foreign representative seeks additional relief in the United States, which may result in differing interpretations of U.S. law depending on where the foreign main proceeding was pending.”
Comity considerations surface in the most technical of corners.
Update 3 April 2018 Recently, the so-called “CLOUD Act” was passed by Congress and signed into law. This new law amends the Stored Communications Act to give it a potentially extraterritorial reach. Following this development, the U.S. Government has moved to have the Microsoft case dismissed as moot, and to have the Second Circuit’s decision vacated. [Technically, Congress has enacted, and the President has signed,
the Consolidated Appropriations Act, 2018, H.R. 1625, 115th Cong., 2d Sess. (2018). Division V of that Act is called the Clarifying Lawful Overseas Use of Data Act, or the CLOUD Act. TheCLOUD Act amends the Stored Communications Act, 18 U.S.C. 2701-2712, by adding 18 U.S.C. 2713, which now states:
A provider of electronic communication service or remote computing service shall
comply with the obligations of this chapter to preserve, backup, or disclose the contents
of a wire or electronic communication and any record or other information pertaining to a customer or subscriber within such provider’s possession, custody, or control, regardless of whether such communication, record, or other information is located within or outside of the United States.]
For background to the Microsoft Ireland case under the Stored Communications Act (SCA), see here. The issue is essentially whether the US Justice Department may force Microsoft to grant access to e-mails stored on Irish servers.
With a group of EU data protection and conflicts lawyers, we have filed an amicus curiae brief in the case at the United States Supreme Court last week, arguing that the Court should interpret the SCA to apply only to data stored within the United States, leaving to Congress the decision whether and under what circumstances to authorize the collection of data stored in other countries.
There is not much point in me rehashing the arguments here: happy reading.
Interestingly enough the issue of inclusion of foreign victims in class action suits came up in conversation around our dining room the other day. (Our youngest daughter, 15, is showing encouraging signs of an interest in a legal career). In 2017 ONCA 792 Airia Brands Inc v Air Canada is reviewed excellently by Dentons here and I am happy to refer. (See also here for Norton Rose reporting on related cases – prior to the CA’s decision in Airia Brands).
The jurisdiction and ‘real and substantial connection’ analysis referred to Van Breda (which recently also featured mutatis mutandis in the forum necessitatis analysis in Cook).
Certification of global classes was part of the classic analysis of developments in international class action suits, which hit us a few years back when many EU states started introducing it. Airia Brands shows that the concerns are far from settled.