Earlier this year the Irish High Court granted a declaration recognising a winding-up order made by a court in the British Virgin Islands (BVI). However, the Irish Court refused to grant the BVI company a declaration that orders of conservatory garnishment made by courts in the Netherlands were not entitled to recognition in Ireland under Council Regulation (EC) No 44/2001 (the Brussels Regulation). The Court further refused a declaration that funds held by a Dutch company in an Irish branch account were held to the order of the BVI company: Fairfield Sentry Limited (In Liquidation) & Anor v Citco Bank Nederland NV & Ors IEHC 81, (Unreported, High Court, Finlay Geoghegan J, 28 February 2012).
Facts
The proceedings came before the Irish High Court on the application of the BVI company, Fairfield Sentry Limited, an investment fund which had invested approximately 95% of its assets with Bernard L Madoff Investment Securities LLC (BLMIS). In July 2009, the High Court of Justice of the Eastern Caribbean Supreme Court ordered that Fairfield be wound up pursuant to the insolvency laws of the BVI. The liquidator of the company was the second plaintiff in the Irish proceedings.
Fairfield had maintained a US dollar denominated bank account at the Dublin branch of the Dutch bank, Citco Bank Nederland NV (the first defendant).
Stichting Shell Pensioenfonds (the second defendant), a Dutch pension fund foundation, had invested significant monies with Fairfield, which were ultimately invested by Fairfield with BLMIS. Following the Madoff scandal, Shell obtained conservatory garnishment orders from the Dutch courts in relation to the monies deposited by Fairfield with Citco’s Dublin branch. Atlanta Business Inc (the third defendant), a Panamanian company which had similarly invested in Fairfield’s fund, also obtained a conservatory garnishment order from the Dutch courts in respect of a portion of the monies in the Dublin account.
As at December 2011, the balance in the Dublin account was approximately $71m, making it the single largest asset in the winding-up of Fairfield.
High Court Decision
The central issue before the Irish High Court was whether Citco held the monies in its Dublin account to the order of Fairfield’s liquidator, subject to the orders of conservatory garnishment issued by the Dutch courts in favour of Shell and Atlanta. Farifield and its liquidator (the plaintiffs) disputed that the conservatory garnishment orders applied to the monies on deposit in the Dublin account, primarily on the basis that the Dutch orders were not entitled to recognition in this jurisdiction.
The plaintiffs sought the following declarations before the Irish High Court:
(i) that the order of the Eastern Caribbean Supreme Court winding-up Fairfield and appointing a liquidator be recognised and enforced in this jurisdiction
(ii) that the conservatory garnishment orders made by the Dutch Courts at the request of Shell and Atlanta were not entitled to recognition in this jurisdiction pursuant to the provisions of Part III of Council Regulation (EC) No 44/2001, or otherwise
(iii) that Citco held the monies in the Dublin branch account to the order of the liquidator of Fairfeld
In relation to (i), Finlay Geoghegan J decided that the plaintiffs were entitled to declarations of recognition of the winding-up orders of the Eastern Caribbean Supreme Court. In circumstances where no enforcement application was pursued by the plaintiffs, the Court did not make any declaration in this regard.
As regards (ii), the plaintiffs submitted that that the conservatory garnishments were not entitled to be recognised in this jurisdiction on the basis that:
(a) they were not “judgments” within the meaning of Article 32 of Council Regulation (EC) No 44/2001 which applies to “any judgment given by a court or tribunal of a Member State, whatever the judgment may be called including a decree, order, decision, or writ of execution..”
(b) recognition of the orders would be “manifestly contrary to public policy” in Ireland within the meaning of Article 34(1) of Council Regulation (EC) No 44/2001 which provides that a judgment shall not be recognised if such recognition is manifestly contrary to public policy in the member state in which recognition is sought.
The plaintiffs submitted that the Dutch orders of conservatory garnishment operated to effectively “pre-book” the monies in the Dublin account for the benefit of Shell and Atlanta and consequently constituted a manifest breach of the fundamental pari passu principle of distribution among unsecured creditors on the insolvency of a company in this jurisdiction.
The Court rejected the plaintiffs’ submissions and refused to grant the declaration sought that the orders of conservatory garnishment were not entitled to recognition in Ireland. In relation to the public policy argument, Finlay Geoghegan J held that Fairfield had failed to deduce any authority for the proposition that pari passu division among unsecured creditors in insolvency scenarios is a fundamental principal within the Irish legal order such that it forms part of Irish public policy for the purposes of Article 34(1) of the Regulation.
The Court further refused to grant a declaration that Citco held the monies in the Dublin account to the order of the liquidator of Fairfield having regard to Fairfield’s underlying dispute with Citco and its failure on the issue of non-recognition of the orders of conservatory garnishment.
This decision is under appeal to the Supreme Court.
Contributed by Delia McMahon
