Madoff Securities International Ltd (in liquidation) v Yacht Bull Corporation [2010] EWHC 133 (Ch)

Jurisidiction - Ownership - Insolvency

Vasanti Selvaratnam QC acted on behalf of the Applicant.

Here, Peter Stevenson looks at the decision.

The underlying dispute in MSIL v YBC [2010] EWHC 133 concerns the ownership of a yacht moored in Antibes ("the yacht") and registered to the Yacht Bull Corporation ("YBC"), a company owned by Mrs Ruth Madoff. The liquidators of Madoff Securities International Ltd (in liquidation) ("MSIL"), a company incorporated in England which had been owned and controlled by Mr Bernard Madoff, contended that MSIL had paid for the vessel and was therefore beneficially entitled to it. Financiere Meerschaert SA ("FM"), a French company which had invested substantial sums with Bernard Madoff Investment Securities LLC ("BMIS"), by contrast, contended that the yacht was owned by YBC.

In April 2009, in furtherance of its claim, FM procured an order from the Commercial Court in Antibes for the arrest of the yacht. This order was contested by MSIL which relied in the proceedings in France on its alleged beneficial ownership of the vessel. However, at the same time as fighting the action in France, MSIL commenced proceedings in London under ss.112 and 234 of the Insolvency Act 1986 for a declaration that MSIL was the sole beneficial owner of the yacht and for a declaration that FM was precluded by s.130(2) of the Insolvency Act 1986 from continuing its action in France in relation to the yacht. For jurisdiction to bring this claim in relation to assets and proceedings outside the jurisdiction, MSIL relied on Articles 4, 16 and 17 of the EC Regulation 1346/2000 ("the Insolvency Regulation").

FM applied to the High Court for a declaration that the English courts had no jurisdiction to hear the claim brought by the liquidators. In so doing it relied on two grounds:

1. That the English court did not have jurisdiction to hear the action under the Insolvency Regulation because MSIL was an ‘investment undertaking' and, therefore, its insolvency fell outside the scope of that regulation (by dint of Art.1(2)); and
2. That, in any event, proceedings dealing with the ownership of the yacht were proceedings within the scope of the Judgments Regulation and that, accordingly, the French court had jurisdiction under Art 2 of the regulation and was first seised, with the result that the English court was required to stay its proceedings.

The first of these submissions turned on the proper definition to be given to the term "investment undertakings which provided services involving the holding of funds or securities for third parties" in article 1(2)(b) of the Insolvency Regulation. Counsel for FM argued that the term ‘third parties' included, in relation to an undertaking, its directors and shareholders, and that, as there was evidence that MSIL had traded on behalf of Mr Madoff, members of his family, co-shareholders and his lawyer, it must be considered to fall within the definition.

The Chancellor rejected this argument. He held that the exception in Art. 1(2)(b) does not relate to investment undertakings which have, historically, provided services involving the holding of funds or securities for third parties, but rather to investment undertakings which were providing services involving the holding of funds or securities for third parties at the time of the opening of the insolvency proceedings. Accordingly, he held, as the liquidators had stated in their witness statements that they were sure that no such services were being provided at the time that MSIL was wound-up, and that evidence had not been challenged in the proceedings before him, it was not necessary to address the issues raised by FM in relation to the proper meaning of ‘third parties'. Accordingly he held that the Insolvency Regulation did apply to the liquidation of MSIL.

The second of FM's submissions turned on whether the proceedings brought by MSIL constituted ‘proceedings relating to the winding-up of insolvent companies' and were therefore outside the scope of the Judgments Regulation (see Art.1(2)).

Vasanti Selvaratnam QC for FM, relying on Re Hayward [1997] Ch 45, argued that when characterising proceedings it was necessary to consider what the principal claim being advanced was. In this case, she argued, the principal claim being made by MSIL was that it was the beneficial owner of the yacht and all the other claims made under the Insolvency Act 1986 were dependent on the success of that claim.

If this were so, she argued, the principal claim being advanced was one that was available under general law and was not unique to bankruptcy law. In light of, inter alia, the ECJ's decisions in German Graphics v Alice van de Schee Case C-292/08 10 September 2009, it could not, therefore, be treated as falling within the insolvency exemption to the Judgments Regulation.

After reviewing a large number of authorities on this point (including Gourdain v Nadler [1979] 3 CMLR 180; Seagon v Deko Marty Belgium NVRe Hayward [2009] 1 WLR 2168; [1997] Ch 45 and Pollard v Ashurst [2001] Ch 595), the Chancellor agreed with these submissions and held that MSIL's applications should be stayed pending determination of the ownership of the yacht in France.

Consistent with these findings, the Chancellor ordered that the court had no jurisdiction to hear or determine the beneficial ownership claim and that the claims under s.130(2), s.238 and s.423 of the Insolvency Act 1986 were to be stayed until that issue had been disposed of by compromise or abandonment.

Counsel:

For the applicant: Vasanti Selvaratnam QC, Catherine Newman QC

For the respondent: Gabriel Moss QC, Felicity Toube, Adam Al-Attar