Perpetual Trustee Company Ltd v BNY Corporate Trustee Services Ltd & Anor

In cross-border insolvency proceedings, judicial comity may justify communication between courts to reduce the risk of conflicting orders. Any request should be carefully limited and should respect the other court’s responsibility to determine issues within its own jurisdiction. A court should avoid sending a detailed or pre-emptive allocation of functions before the foreign court has ruled. Declaratory relief may nevertheless have practical effects equivalent to positive orders where its content would require or constrain conduct. The appropriate response may be a limited request for temporary restraint, leaving the foreign court free to determine its own law and inviting further communication before coercive or operative relief is made.

Perpetual Trustee applied for a letter of request to be sent by the English court to Judge Peck of the United States Bankruptcy Court for the Southern District of New York. Parallel proceedings concerned the priority applicable to collateral held by BNY. The English courts had determined that the collateral was to be realised and distributed according to Noteholder Priority under English law. LBSF’s United States proceedings sought declarations concerning the validity and effect of the contractual provisions under United States bankruptcy law, including declarations potentially affecting BNY’s conduct.

The application raised the question whether the English court should communicate further with the United States court before its forthcoming hearing, and, if so, what form that communication should take.

1. The detailed draft letter was refused. It was too schematic and elaborate at this stage. It risked appearing to establish primacy for present or future English orders concerning the collateral and could be perceived as judicial bad manners rather than comity.
2. The application was made by a party to the English proceedings, and there was no objection merely because that party was not a party to the United States proceedings. The decision whether to send a letter belonged to the English court.
3. The court considered that the second and third limbs of LBSF’s United States claim raised genuine concerns. Describing the relief as declaratory did not necessarily remove those concerns. Declarations could have potentially pre-emptive effects equivalent, in practical terms, to positive orders.
4. The existing judicial correspondence showed that both courts recognised the risk of conflicting decisions and favoured cooperation. Nevertheless, the balance favoured sending a limited letter before the United States hearing.
5. The letter should record LBSF’s stated intention to seek only declaratory relief at that stage and should explain that the English court had deliberately refrained from making further orders or declarations which might preclude an application in England by LBSF’s foreign representative or the United States court.
6. The letter should respectfully invite the United States court, if it found the provisions void or unenforceable under United States law, to confine its relief initially to a declaration. It should also invite the court not to make orders or declarations requiring BNY to deal with the collateral or its proceeds in a particular way until further communication between the courts.

The judgment describes earlier decisions in the same litigation, including a decision of the Chancellor and a unanimous Court of Appeal judgment upholding the English-law priority of Noteholders. No citation for those decisions is stated in the judgment.