IP Briefing: Opinion of Lord Tyre at debate in the case of Hooley Ltd v The Victoria Jute Company Ltd & ors

The Background

This case relates to three Scottish companies, each of which held all of their assets in India. The companies were initially subject to Indian insolvency proceedings which were followed some years later by Scottish administrations. The administrator was intending to sell the company’s assets to a buyer, Hooley Ltd, however before purchasing, Hooley wanted to ensure that the administrator was entitled to sell the assets and that as such, they would receive good title. Before the action raised by Hooley could be determined, there were two preliminary issues to be considered. This case is particularly interesting because it is the first time a Scottish court has considered the principle of modified universalism.

The Facts & Arguments

The first preliminary issue to be dealt with was whether the court required to consider if the floating charges, by virtue of which the administrator was appointed out of court, were valid and effective in India (on the basis that all secured assets were located in India). Secondly and arguably more importantly, it was necessary to consider whether the powers of the administrator were constrained by those powers recognised as valid under Indian insolvency proceedings. It is the second issue which is of more relevance to IPs as it concerns the application of the principle of modified universalism.

As IPs will be aware, modified universalism is a common law power of courts to assist foreign winding up proceedings so far as they properly can. Lord Sumption stated in the case of ‘Singularis Holdings Ltd v PriceWaterhouseCoopers’, that modified universalism was founded on “the public interest in the ability of foreign courts exercising insolvency jurisdiction in the place of the company’s incorporation to conduct an orderly winding up of its affairs on a worldwide basis, notwithstanding the territorial limits of their jurisdiction” The creditors objecting to Hooley’s application argued that by virtue of modified universalism, the exercise of the administrator’s powers should only be recognised as legally valid to the extent allowed by the law of India. Hooley disputed this and argued that to apply the principle to a country other than the place of incorporation would hinder universalism. Although the Scottish court could assist ancillary winding up proceedings, it was argued that they could not defer to the Indian winding up proceedings, on the basis that the companies were all incorporated in Scotland.

The Decision

In relation to point (i), the court decided that paragraphs 14 and 16 of the Insolvency Act 1986 imposed no obligation to enquire into the validity or enforceability of the floating charge under the laws of India. This was because the focus should simply be on the instrument creating the charge and the fact that an event allowing appointment of an administrator has occurred. There is no requirement to look beyond that.

In relation to point (ii), the court interpreted modified universalism restrictively to mean that it can only be used to assist insolvency proceedings taking place in the country in which the company was incorporated. The Indian proceedings were viewed as ancillary despite the fact that they had commenced earlier and that all of the company’s assets were located in India. It was not accepted that the administrator’s powers could be fettered by Indian legal constraints.

Advice

This case is useful because it clarifies the scope of modified universalism and highlights the importance of the place of incorporation in determining which court has precedence. It is of course a decision of the Outer House of the Court of Session and will not carry the weight of an appeal decision, nor will it be directly binding on English courts. Notwithstanding that, however, it is interesting to see how the Scottish court has approached this issue for the first time. It should be borne in mind that were the country with non-UK jurisdiction within the EU, the decision of the court may have been different by virtue of the COMI provisions. As we know, however, those may also change as a result of Brexit, therefore it will be interesting to see how the case law in this area develops over the coming years.

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BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc [AT] bbmsolicitors [DOT] co [DOT] uk). This briefing note is current as at 9 November 2016 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).