The Inherent Power of Common Law Courts to Provide Assistance in Cross‐Border Insolvencies: From Comity to Complexity

• Date: 01 March 2017
• Author: Andrew Godwin,Ian Ramsay,Timothy Howse
• Published date: 01 March 2017
• DOI: http://doi.org/10.1002/iir.1267

The Inherent Power of Common Law Courts

to Provide Assistance in Cross-Border

Insolvencies: From Comity to Complexity

Andrew Godwin*, Timothy Howse and Ian Ramsay

Melbourne Law School, The University of Melbourne, Australia

Abstract

The weighty and difficult issues associated with cross-border insolvency have

generated considerable debate over the last two decades. Legislative reform

has typically proven slow and fragmented. This article analyses the inherent

power of common law courts to grant assistance in cross-border insolvency

proceedings and the basis on which the inherent power is exercised. In doing

so, it seeks to explore how the inherent power may continue to be of utility

to common law courts. In particular, it considers the position in jurisdictions

that are yet to adopt the United Nations Commission on International Trade

Law Model Law on Cross-Border Insolvency or enact a substantial statutory

regime for recognising and cooperating with foreign courts or representatives

in insolvency proceedings. The article considers the benefits and disadvantages

of continuing to recognise –and extend –the inherent power. It suggests that

although there are fundamental differences concerning the exercise of the inherent

power, it may be possible to agree on a number of principles that inform the

application of the inherent power and its future development. Copyright © 2017

INSOL International and John Wiley & Sons, Ltd.

1. Introduction

‘The extent of the extra-statutory powers of a common law court to assist foreign liquidators

is a very tricky topic on which the Board, the House of Lords and the Supreme Court have

not been conspicuously successful in giving clear or consistent guidance.’Lord Neuberger in

Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36 [154]

*E-mail: a.godwin@unimelb.edu.au

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 5–39 (2017)

Published online in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1267

The ‘weighty and difficult’

1

issues associated with cross-border insolvency (CBI)

have generated considerable debate over the last two decades. Legislative reform

has typically proven slow and fragmented. It is also an area where ‘the ordinary

principles of private international law, developed in the context of ordinary civil

proceedings taking place between individuals, are often inapt in the context of collec-

tive insolvency proceedings.’

2

While CBI would ideally be addressed according to a

universally accepted convention, the significant divergences in approach taken by

different jurisdictions make this a remote aspiration.

The assistance that may be provided by a local court to either a foreign insolvency

representative or a foreign court is a critical aspect of any CBI regime. The provision

of assistance to foreign courts or insolvency representatives is necessary to reduce the

cost and inconvenience associated with concurrent insolvency proceedings. Jurisdic-

tions often provide multiple gateways to facilitate assistance in CBI matters. Many

jurisdictions have adopted the United Nations Commission on International Trade

Law (UNCITRAL) Model Law on Cross Border Insolvency (the ‘Model Law’).

Alongside the various statutory mechanisms, the inherent power of common law

courts to provide assistance in insolvency matters is one of the gateways through which

assistance may be provided. The last two decades have seen significant differences of

opinion on the extent and proper application of the inherent power of common law

courts to provide assistance in insolvency proceedings. Following Lord Hoffmann’s

controversial statements concerning the ‘golden thread of insolvency law’–namely,

‘modified universalism’–in the watershed case of HIH Insurance,

3

the highest courts

of England have consistently differed on the limits of the inherent power. Recent English

cases have seen a refinement of the power but have also caused considerable confusion

and raised additional questions about the scope and continuing utility of the power.

This article analyses the inherent power of common law courts to grant assis-

tance in CBIs and the basis on which it is exercised. In doing so, it seeks to explore

how the inherent power may continue to be of utility to common law courts. In

particular, it considers the position in Singapore and Hong Kong, where the issues

are especially relevant given that neither jurisdiction has yet adopted the

UNCITRAL Model Law or enacted a substantial statutory regime for recognising

and cooperating with foreign courts or representatives in insolvency proceedings.

4

1. CCIC Finance Ltd v Guangdong International Trust & Investment

Corp & Guangdong International Trust and Investment Corp Hong

Kong (Holdings) Ltd (Garnishee) [2005] HKEC 1180 [93].

2. Tom Smith QC, ‘Recognition of Foreign Corporate

Insolvency Proceedings at Common Law’in Richard

Sheldon QC (ed), Cross‐Border Insolvency (4th edition,

Bloomsbury Professional, 2015) 6.1.

3. Re HIH Casualty and General Insurance Ltd [2008] 1

WLR 852.

4. At the time of writing, Singapore is on course to adopt

the UNCITRAL Model Law pursuant to a package of

reforms designed to strengthen the legal framework for

debtrestructuring in Singapore. See Singapore Ministry

of Law, ‘Public Consultation on Proposed Amendments

to the Companies Act to Strengthen Singapore as an

International Centre for Debt Restructuring’, available at:

<https://www.mlaw.gov.sg/content/minlaw/en/news/

public-consultations/public-consultation-on-proposed-

amendments-to-the-companies-act-.html>.Untilthe

proposed legislation comes into effect, as noted by the Re-

port of the Insolvency Law Review Committee in relation

to Singapore, ‘Section 151 of the Bankruptcy Act permits

theHighCourttoactinaidofandbeauxiliarytothe

courts of Malaysia as well as the courts of any other desig-

nated country with jurisdiction in bankruptcy and insol-

vency matters, provided these courts are required to act

in aid of and be auxiliary to the courts in Singapore. How-

ever, no other country other than Malaysia has thus far

been designated under this provision’:ReportoftheInsol-

vency Law Review Committee, ‘Final Report’(2013) 225.

International Insolvency Review6

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 5–39 (2017)

DOI: 10.1002/iir

The structure of this article is as follows: Section 2 defines the inherent

power of courts to grant assistance in CBIs and explores its origins by consid-

ering the early cases that have shaped the power’s development. Section 3 ex-

plores the question –what factors influence the existence and scope of the

power? Section 4 considers the principal circumstances in which courts have

exercised the power and the nature of the assistance that they have provided.

Section 5 outlines the circumstances in which the courts have declined to ex-

ercise the power. Section 6 analyses the continuing utility of the inherent

power. For this purpose, it considers where the current balance of authority

sits, the policy arguments in favour and against continuing to recognise the in-

herent power as an available gateway and, finally, suggests the relevant princi-

ples that should be applied in exercising the inherent power. Section 7

concludes.

2. What Is the Power and What Are Its Origins?

Most common law jurisdictions recognise an inherent power for courts to provide

assistance to other courts or relevant parties during the course of insolvency pro-

ceedings. This section considers the historical importance of ‘comity’to modern

CBI law, the leading early cases that recognised the power to provide ‘assistance’,

the relevance of the ‘ancillary liquidation doctrine’and, finally, the ongoing rele-

vance of the power in the 21st century.

2.1. Early bankruptcy cases and comity

The modern-day manifestation of the inherent power can, in part, be traced

to bankruptcy proceedings dating ‘as far back as the mid eighteenth cen-

tury.’

5

The 1764 case of Solomons v Ross

6

saw the English courts ‘prepared

to recognise the extra-territorial effects of a foreign bankruptcy in England, so

as to require creditors based in England to prove in the foreign bankruptcy.’

7

Crystal notes that this ‘was perhaps the earliest recognition of the principle of

universalism’.

8

Writing in 1947, Nadelmann described Solomons v Ross

9

as ‘the leading case on

the effect in England of bankruptcy declared abroad.’

10

The case saw ‘trustees in

bankruptcy appointed in Amsterdam…allowed to collect assets in England which

had been garnished by an English creditor shortly before the trustees were

5. Ian Fletcher, ‘Cross-border Cooperation in Cases of

International Insolvency: Some Recent Trends Com-

pared’(1991–2) 6–7Tulane Civil Law Forum 171, 182.

6. (1764) 1 HBI 131.

7. Michael Crystal, ‘The Golden Thread: Universalism

and Assistance in International Insolvency’(2011) [13],

available at: <http://www.jerseylaw.je/Publications/

JerseyLawReview/feb11/JLR1102_Crystal.aspx#_ftn6>.

8. Ibid [13]. Universalism is discussed in greater

detail in Section 3.

9. (1764) 1 HBI 131. The case was reported in a foot-

note in Blackstone’s Report in Folliott v Ogden (1789) 1

H Bl 123. The case received negative treatment in

Galbraith v Grimshaw [1910] AC 508, 511, where Lord

Loreburn stated: ‘I am not prepared to act upon the

case which is scantily reported in the volume of

Blackstone’s Reports.’

10. Kurt Nadelmann, ‘Solomons v Ross and International

Bankruptcy Law’(1947) 9 Mod LR 154, 154.

Cross-Border Insolvency Proceedings 7

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 5–39 (2017)

DOI: 10.1002/iir