Byers & Ors (Liquidators of Madoff Securities International Ltd) v Yacht Bull Corporation & Anor (Rev 1)

The insolvency exception in the Judgments Regulation applies only where the claim derives directly from insolvency or winding-up proceedings and is closely connected with them. A claim concerning beneficial ownership arising under the general law is outside the exception, even where it is brought by liquidators and accompanied by insolvency-based claims. Dependent or alternative insolvency claims do not alter the character of the principal ownership claim. The exception for investment undertakings is confined to undertakings providing services involving the holding of funds or securities for third parties. Where the evidence establishes that the undertaking provided no such services when insolvency proceedings opened, the Insolvency Regulation applies.

The liquidators of Madoff Securities International Ltd sought declarations concerning the beneficial ownership of a yacht and related relief against Yacht Bull Corporation and Financière Meeschaert S.A. FM challenged the jurisdiction of the English court, relying principally on the Judgments Regulation and the Insolvency Regulation. The liquidators added alternative claims under sections 238 and 423 of the Insolvency Act 1986. The central issues were whether the ownership claim fell within the insolvency exception to the Judgments Regulation, whether MSIL was excluded from the Insolvency Regulation as an investment undertaking holding third-party funds or securities, and what consequential orders should be made.

1. Ownership claim. The claim for a declaration that MSIL was beneficially entitled to the yacht arose under the general law and had accrued before the winding-up. Its connection with the Insolvency Act 1986 and the winding-up was neither direct nor close. Applying the principles in Gourdain v Nadler, Re Hayward, Ashurst v Pollard and German Graphics Graphische Maschinen GmbH v Alice van der Schee, the claim was outside article 1(2)(b) of the Judgments Regulation.
2. The application had to be analysed by reference to the principal ownership claim. The dependent claim under section 130(2), and the alternative claims under sections 238 and 423, could not change the nature of that claim.
3. Insolvency Regulation. The investment-undertaking exclusion in article 1(2) was limited to undertakings providing services involving the holding of funds or securities for third parties. The evidence established that MSIL dealt on its own account and did not provide services of that description when the insolvency proceedings opened. Disclosure sought by FM was therefore irrelevant and disproportionate.
4. The Insolvency Regulation applied to the proceedings opened by the appointment of provisional liquidators and the winding-up order. The claims concerning sections 130(2), 238 and 423 could therefore have been properly brought in England under articles 3 and 4(2). Further proceedings concerning those claims were stayed pending final determination, compromise or abandonment of the French ownership proceedings.
5. The court expressed no view on whether FM’s arrest gave rise to a right in rem under article 5. That issue was academic unless ownership was determined in favour of the liquidators. Issues under the Service Regulation were likewise left undecided.

The court declared that it had no jurisdiction over the claims in paragraphs 1 and 2 of the Ownership Application and stayed proceedings concerning paragraphs 3 to 5. Further argument on the form of the order and costs was reserved.