Polly Peck International Plc v The Marangos Hotel Company Ltd & Ors

Leave to sue a company in administration should be refused where the proposed claim is not seriously arguable. English law did not then recognise a seriously arguable basis for imposing a remedial constructive trust retrospectively over assets beneficially owned by an insolvent company, particularly where the trust would give one claimant priority over unsecured creditors contrary to the statutory insolvency scheme.

The common-law rule in British South Africa Company v Companhia de Mocambique applies to claims substantially concerning title to, or possession of, foreign land. Section 30(1) of the Civil Jurisdiction and Judgments Act 1982 may extend jurisdiction where those questions are not the principal subject of the proceedings.

Four Cypriot applicants sought leave under section 11(3)(d) of the Insolvency Act 1986 to commence proceedings against Polly Peck International plc, then in administration, and its administrators. The proposed claims concerned alleged wrongful occupation of immovable property in Northern Cyprus, proceeds derived from subsidiaries’ exploitation of that property, and a proprietary claim to part of the consideration received when the subsidiaries were sold.

Rattee J granted leave. He held that the court had jurisdiction under section 30(1) of the Civil Jurisdiction and Judgments Act 1982 and that the remedial constructive-trust claim was seriously arguable. The administrators appealed.

1. Appeal allowed. The applicants were refused leave to commence the proposed proceedings. Costs were awarded below and on appeal, with a certificate for three counsel. Leave to appeal to the House of Lords was refused.
2. The court had to be satisfied that the proposed claim disclosed a seriously arguable case on the merits and jurisdiction before leave could be granted under section 11(3)(d) of the Insolvency Act 1986. The claim for an institutional constructive trust was not seriously arguable.
3. The proposed remedial constructive trust would retrospectively confer a proprietary interest in assets belonging beneficially to an insolvent company. It would remove those assets from pari passu distribution among unsecured creditors. The statutory insolvency scheme left no general power to transfer or declare company assets held for another person where those assets were beneficially owned by the company.
4. The English authorities recognised the distinction between an institutional constructive trust, arising by operation of law, and a remedial constructive trust, a discretionary judicial remedy. They did not establish that English law permitted the latter to defeat the statutory insolvency scheme. The proposed claim was therefore not seriously arguable.
5. The claim fell within the Mocambique rule as applied in Hesperides Hotels Ltd v Aegean Turkish Holidays Ltd. The proposed exceptions based on contract, equity and administration of an estate or trust did not apply because the claim was founded on alleged ownership and possession of land in Northern Cyprus.
6. It was seriously arguable that section 30(1) applied because the proceedings were not principally concerned with title to or possession of foreign land. Whether proceedings are principally so concerned is a fact-and-degree question. It was unnecessary to decide the issue finally before trial. Article 2 of the Brussels Convention did not provide a basis for jurisdiction against a non-contracting state.
7. Lord Justice Potter agreed. Lord Justice Nourse concurred in the result and added that a remedial constructive trust involved granting a proprietary right to a person who previously had none, thereby taking property rights from another. In his view, English courts lacked that power absent statutory authority, even outside insolvency.

• Court of Appeal (Civil Division): allowed the appeal from Rattee J’s order dated 6 December 1996 and refused leave to commence the proposed proceedings.
• High Court, Chancery Division, Companies Court: Rattee J granted leave under section 11(3)(d) of the Insolvency Act 1986.