Harms Offshore AHT "Taurus" GmbH & Co. KG

The Court of Appeal dismissed the appellants' challenge to a mandatory injunction obtained by the administrators of an English company in administration which required the appellants to procure the release of ex parte attachment and garnishment orders made by a United States District Court. The court held that, although statutory prohibitions on proceedings against an insolvent company are ordinarily territorial, the English court has an equitable in personam jurisdiction to protect the court-appointed officers' ability to perform their statutory functions and to prevent creditors from obtaining priority through foreign attachments in circumstances amounting to oppressive or unconscionable conduct.

Key legal principles: (i) the presumption against extraterritoriality must be considered, but does not prevent the English court exercising equitable jurisdiction in personam to restrain foreign proceedings where necessary to protect the administration; (ii) there is no material distinction in substance between protection afforded to assets in compulsory winding up and in administration for the purpose of preventing unfair advantage by foreign attachments; (iii) the exercise of the equitable jurisdiction is subject to comity and will only be used in exceptional cases, such as where a creditor obtained attachments by misleading the foreign court or by setting a "trap" for administrators.

Background and parties: The company, incorporated in England, entered administration on 7 January 2009. The appellants are German ship-owning companies and pre-administration creditors under time charterparties governed by English law and containing London arbitration clauses. The administrators applied to the English court for relief after the appellants obtained ex parte attachment and garnishment orders in the United States District Court for the Southern District of New York and caused funds to be attached in New York.

• Nature of the application: the administrators sought a mandatory injunction compelling the appellants to procure the release of the New York attachment and garnishment orders and to release attachments already effected; they also sought to restrain the appellants from pursuing substantive proceedings in the District Court.
• Procedural posture: a deputy judge (Englehart QC) granted the mandatory injunction on 15 May 2009; the appellants were given permission to appeal but no stay. The Court of Appeal heard an urgent application and appeal on 20 May 2009 and dismissed the appeal; fuller reasons were given in this judgment on 26 June 2009.

Issues framed: (i) whether paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 and related statutory provisions have extra-territorial effect so as to prohibit foreign process against the company or its property; (ii) whether the English court has jurisdiction to grant injunctive relief to protect the administrators and the administration from foreign attachments; (iii) the relevance of comity, Chapter 15 recognition proceedings in the United States, and the appellants' conduct (non-disclosure of the administration and arbitration agreements) in determining whether injunctive relief was appropriate.

Reasoning and conclusions: the court concluded it was unnecessary to decide definitively whether paragraph 43(6) has extraterritorial effect because established authority (eg Re Oriental Inland Steam Company and Mitchell v Carter) shows the English court has equitable power to protect the statutory scheme by preventing creditors from taking unfair advantage of foreign attachments. The administrators' functions under Schedule B1, including taking custody and control of all property to which the company is entitled (and with section 436 treating property as including that "wherever situated"), support protection of assets relevant to administration. Comity ordinarily weighs against intervention in foreign proceedings, but that principle yields in exceptional cases where a creditor's conduct is oppressive, unconscionable or misleading. The court found the appellants had not disclosed the administration or arbitration agreements to the District Court, had created a "trap" by obtaining attachments which would catch post-administration payments (including loan proceeds ordered by the Companies Court), and had thereby interfered with the administrators' ability to perform their duties. Those factors placed the case in the exceptional category justifying injunction. The Court of Appeal limited the relief to monies paid in respect of post-administration liabilities and where payments were made through New York before the administrators were on notice of the attachment orders.

Wider context: the court observed that administrators should be conscious that dollar payments cleared through New York may be vulnerable to attachment and that recognition under Chapter 15 of the U.S. Bankruptcy Code may be necessary to avoid such risks.

Appeal dismissed. The Court of Appeal held that the English court has an equitable in personam jurisdiction to protect the administrators' ability to perform their statutory functions and to prevent creditors from obtaining priority by foreign attachments in exceptional circumstances. Given the appellants' conduct (failure to disclose the administration and arbitration agreements, and setting a "trap" for post-administration payments) and the fact that attachments interfered with court-ordered post-administration payments, the injunction was justified. The relief was confined to release of attachments affecting monies paid for post-administration liabilities through New York before the administrators had notice of the attachment orders.

On appeal from the High Court (deputy judge Englehart QC sitting in the Chancery Division, Companies Court), which on 15 May 2009 granted a mandatory injunction requiring the appellants to procure the release of US attachment and garnishment orders and restraining them from pursuing substantive proceedings in the Southern District of New York. Permission to appeal was granted but no stay. The Court of Appeal heard an urgent application and appeal on 20 May 2009 and dismissed the appeal; fuller reasons were handed down on 26 June 2009 ([2009] EWCA Civ 632). The administration order had been made by Patten J on 7 January 2009 in the High Court.