FEDERAL COURT OF AUSTRALIA

Akers as a joint foreign representative of Saad Investments Company Limited (in Official Liquidation) v Deputy Commissioner of Taxation [2014] FCAFC 57

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ALLSOP CJ

1    This is an appeal by the joint foreign representatives of Saad Investments Company Limited (in official liquidation) (a company registered in the Cayman Islands) (“the company” or “Saad”) against orders made by a judge of the Court on 29 August 2013 (“the Modification Orders”) that modified orders previously made by him on 22 October 2010 (“the Recognition Orders”) concerning the company’s liquidation in the Cayman Islands. The appeal raises important questions about the proper construction and interpretation of the Model Law on Cross-Border Insolvency (the “Model Law”) of the United Nations Commission on International Trade Law (“UNCITRAL”) made part of Australian law by the Cross-Border Insolvency Act 2008 (Cth) (“the CBI Act”), s 6. The particular question at the centre of the appeal is the treatment of a claim by the Deputy Commissioner of Taxation (“DCT”) that Saad is liable to Australian tax and penalties. Saad is not a registered foreign company, does not carry on business in Australia, and, as was common ground before the primary judge and on appeal, cannot be wound up by an Australian court under the Corporations Act 2001 (Cth).

2    Saad is being wound up in the Cayman Islands. The appellants are the joint foreign representatives of the Cayman Islands liquidators.

3    The question at issue is whether the CBI Act and the Model Law permitted the primary judge to vary orders made by him in the recognition of the foreign representatives and the foreign main proceedings, in effect, by refusing to remit the remaining funds in Australia (in the order of $7 million) to the Cayman Islands, and by permitting the DCT to proceed against the funds within Australia for the claimed tax and penalties. The difficulty for the DCT in the liquidation of the company in the Cayman Islands is that under Cayman Islands law his or her proof would not be accepted, on the basis that to do so would be to enforce foreign revenue laws. There was no serious dispute about that fact.

Facts

4    The company was incorporated under the Companies Law of the Cayman Islands on 9 July 1990. The company was a private investment company involved in money market operations and investments in marketable securities and real estate in various locations around the world. Prior to August 2008, the company held shares in a number of publicly listed Australian companies, including shares in Sunshine Gas Limited, ACN 098 563 663 (“Sunshine”).

5    On 20 August 2008, Saad sold shares in Sunshine to Queensland Gas Company Limited (“QGC”) as part of a takeover in which QGC acquired all the shares in Sunshine. It is the profit on the sale of those shares made by Saad that forms the basis of the asserted tax liability.

6    On 30 July 2009, a petition was presented to the Grand Court of the Cayman Islands by creditors seeking a winding up of Saad.

7    On 5 August 2009, the first, second and third appellants were appointed ex parte by the Grand Court of the Cayman Islands as joint provisional liquidators of Saad.

8    On 18 September 2009, the Grand Court of the Cayman Islands made orders that Saad be wound up and appointed the first, second and third appellants as its joint official liquidators.

9    On 25 September 2009, the Cayman Islands liquidation was recognised by the High Court of Justice, Chancery Division and Companies Court as a foreign main proceeding under the Model Law.

10    On 9 November 2009, the DCT sent an email to the joint liquidators advising that the DCT is “a creditor of the administration” and requested a claim form, creditor notices, a list of creditors, and “any other information concerning the affairs of the company as the creditor may reasonably require”.

11    On 27 November 2009, the DCT issued a notice of assessment for the year ending 30 June 2009 pursuant to the default assessment provisions of the Income Tax Assessment Act 1936 (Cth), s 167 for $47.583 million together with a notice of assessment and liability to pay a penalty for failing to provide a document, in the amount of $35.687 million, totalling $83.271 million on an assessed capital gain of $158.612 million said to have arisen from the sale of shares in Sunshine to QGC.

12    On 3 December 2009, the DCT lodged a proof of debt with the joint liquidators, along with a covering letter stating that the “enclosed proof of debt sets out the amount claimed from you” and seeking, amongst other things, that the DCT be added to the creditor distribution list, minutes of creditor meetings, a statement as to affairs, and a creditors’ report.

13    In June and July 2010, the Cayman Islands liquidation of the company was recognised by the Supreme Court of Bermuda and the Royal Court of Jersey, respectively, as a foreign main proceeding under the Model Law.

14    On 7 September 2010, the joint liquidators filed an originating process in this Court seeking recognition pursuant to the Model Law of a foreign main proceeding and relief under Art 21 of the Model Law as well as interim relief pursuant to Art 19 of the Model Law. For the sake of coherence, I will deal with the provisions of the Model Law and the CBI Act in the next section of these reasons.

15    On the following day, 8 September 2010, orders were made by the primary judge granting interim relief pursuant to Art 19 of the Model Law, granting interim administration of the company’s assets in Australia to the joint liquidators, together with an Australian-based liquidator, a Mr Jahani of Grant Thornton Australia, and protecting the assets of the company.

16    On 9 September 2010, the DCT issued to Mr Jahani a notice under s 260-105(3) of Sch 1 to the Taxation Administration Act 1953 (Cth).

17    On 22 September 2010, the DCT filed an interlocutory application in the proceedings brought by the joint liquidators for recognition seeking to be added as a defendant and seeking declarations that the notices issued by the DCT pursuant to s 260-105(3) of Sch 1 to the Taxation Administration Act were valid.

18    The matter came before the primary judge in October 2010, and on 22 October 2010 the primary judge made the Recognition Orders. The Recognition Orders were made in the context of the DCT undertaking not to issue any additional notices pursuant to Div 260 of Sch 1 to the Taxation Administration Act without giving 14 days’ notice, and the undertaking of the joint liquidators and the company not to remit outside of Australia the proceeds of any realisation of assets. On those undertakings the following Recognition Orders were made:

…

2.    Pursuant to clause 1 of article 17 of the Model Law on Cross Border Insolvency in Schedule 1 to the Cross-Border Insolvency Act 2008 (Cth) (Model Law), the proceeding of the Grand Court of the Cayman Islands Cause No 361 of 2009 relating to the defendant (Cayman Islands Proceeding) in which the plaintiffs were appointed joint official liquidators of the defendant be and is hereby recognised as a foreign proceeding.

3.    Pursuant to clause 2 of article 17 of the Model Law, the Cayman Islands Proceeding be and is hereby recognised as a foreign main proceeding.

4.    Pursuant to clause (d) of Article 2 of the Model Law, the plaintiffs be and are hereby recognised as foreign representatives.

5.    Pursuant to article 21 of the Model Law, except with the leave of this court or the plaintiff’s written consent:

(a)    the commencement, continuation or enforcement of any individual action or legal proceeding (including without limitation any arbitration, mediation or any judicial, quasi judicial, administrative action, proceeding or process whatsoever) against the defendant or any of its assets, rights and obligations is stayed;

(b)    the enforcement or execution of any judgment, order, award against the defendant or its assets, rights and obligations is stayed;

(c)    the right to transfer, encumber or otherwise dispose of any of the defendant’s assets be suspended;

(d)    the plaintiffs, in their capacities as Joint Foreign Representatives of the defendant, may, as they deem appropriate, examine witnesses, take evidence and obtain delivery of information concerning the defendant’s assets, affairs, rights, obligations or liabilities;

(e)    the administration, realisation and distribution of all of the defendant’s assets located in Australia be entrusted to the plaintiffs, in their capacities as Joint Foreign Representatives of the defendant; and

6.    Pursuant to paragraph 1(g) of Article 21(1) of the Model Law, subject to the provisions of the Corporations Act 2001 (Cth) (Corporations Act), all powers normally available to Liquidators appointed under the provisions of the Corporations Act, be made available to the plaintiffs.

…

19    On 27 October 2010, the DCT withdrew the notices that had been issued pursuant to s 260-105 of Sch 1 to the Taxation Administration Act.

20    On 5 November 2010, the DCT’s interlocutory application filed on 22 September 2010 referred to above was dismissed by consent.

21    The matter came to a head two years later when, on 21 September 2012, the solicitors for the joint liquidators wrote to the DCT giving 14 days’ notice of an intention to remit the Australian assets of the company to the Cayman Islands.

22    On 11 October 2012, the DCT filed interlocutory process seeking, amongst other things, modification of the Recognition Orders and leave to issue statutory notices and take other enforcement steps. The terms of the application relevantly were as follows:

1.    An order under Article 22.3 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law being Schedule 1 to the Cross-Border Insolvency Act, 2008 (‘the Model Law’) modifying the orders made by Rares J on 22 October 2010 (‘the Orders’), a copy of which are annexed hereto and marked ‘A’ as follows:

a)    In order 5(e) of the Orders – Delete the words ‘administration, realisation and distribution’ and replace with the words ‘administration and realisation’;

b)    Insert a new Order 5(f) in the following terms ‘For the avoidance of doubt, these orders to not permit, authorise or otherwise allow the Plaintiffs to distribute, dissipate or remit outside of Australia any of the First Defendant’s assets located in Australia or net proceeds of sale of any of the First Defendant’s assets sold in Australia except without leave of the Court.’

…

5.    Further, or alternatively, pursuant to Order 5 of the Orders, leave be granted to the Second Defendant to:

a)    Commence any enforcement action or legal proceeding against the Plaintiffs or First Defendant or any of their assets in respect of the taxation debt allegedly owed by the First Defendant to the Second Defendant including but not limited to issuing any notices pursuant to Division 260 of Schedule 1 to the Taxation Administration Act, 1953.

b)    Enforce or execute any judgment, order, award or statutory right against the Plaintiffs or the First Defendant or their assets in respect of the said taxation debt.

6.    Further, or alternatively, and to the extent required, pursuant to Order 5 of the Orders, leave be granted to the Second Defendant to issue any notice or notices under s 264 of the Income Tax Assessment Act, 1936 (Cth) to any person or persons for the purposes of, inter alia, furnishing the Second Defendant with such information as the Second Defendant may require.

…

23    It is to be noted that order 5 of the Recognition Orders ([18] above) was made expressly pursuant to Art 21 of the Model Law. It is also to be noted that prayer 1 of the DCT’s interlocutory application ([22] above) was in terms of Art 22.3 of the Model Law, and that prayer 5 (also [22] above) did not have an identified statutory foundation.

24    The application was heard on 23 November 2012. The primary judge published reasons on 30 July 2013 in respect of the application. Argument took place over orders on 16 August 2013. On 29 August 2013, the Modification Orders were made and were relevantly in the following terms:

1.    Pursuant to Article 22.3 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law being Schedule 1 to the Cross-Border Insolvency Act 2008 (Cth) (the Model Law) the orders of the Court made on 22 October 2010 (the Orders) be modified as follows:

(a)    in order 5(e) of the orders - delete the words “administration, realisation and distribution” and replace with the words “administration and realisation”;

(b)    insert a new order 5(f) in the following terms: “For the avoidance of doubt, these orders do not permit, authorise or otherwise allow the Plaintiffs, without leave of the Court, to distribute, dissipate or remit outside of Australia any of the first defendant’s assets located in Australia or net proceeds of sale of any of the first defendant’s assets sold in Australia.”

2.    Leave be granted to the second defendant to exercise, within a reasonable time, and, subject to orders 4 and 5, such rights as he may have to recover from the first defendant’s assets in Australia in respect of any taxation debt owed by the first defendant to the second defendant, including but not limited to his issuing any statutory notices to any person.

3.    Leave be granted to the second defendant to issue any statutory notices for the production of documents and information to any persons in exercise of the rights referred to in order 2.

4.    For the avoidance of doubt the exercise of any rights by the second defendant pursuant to orders 2 and 3 is for the purposes of recovering an amount up to the pari passu amount that the second defendant would receive if he was entitled to prove for the taxation debt as an unsecured creditor in the foreign main proceedings (being the Cayman Islands Liquidation of the first defendant) (the pari passu entitlement).

5.    In the event that the second defendant recovers an amount in excess of the pari passu entitlement then the second defendant shall, subject to order 7, and within 28 days of any written request made by the plaintiffs to refund same, refund to the plaintiffs any amount exceeding the second defendant’s pari passu entitlement.

6.    The second defendant shall keep an account of all monies recovered by the second defendant in respect of the pari passu entitlement and where applicable all monies refunded to the plaintiffs, and upon request by the plaintiffs, or the Court, shall provide a written report setting out those matters within 7 days of receipt of such a request.

7.    The second defendant is not required to refund any amount under order 5 unless and until the plaintiffs have provided the second defendant with sufficient evidence to the reasonable satisfaction of the second defendant establishing the pari passu distribution amount payable to the first defendant’s unsecured creditors and notified the second defendant of the plaintiff’s intention to pay a dividend to unsecured creditors. In the event that a dispute arises in relation to same any such dispute shall be referred to the Court for adjudication.

…

25    The Modification Orders were stayed pending the resolution of the appeal. The Modification Orders had the effect of permitting the DCT to take such enforcement steps as local law permitted against Saad in Australia and in respect of Saad’s remaining assets in Australia.

26    I will turn to the primary judge’s reasons for making these orders in due course. Before turning to the Model Law and the CBI Act, it is to be noted that the terms of Modification Orders 4, 5 and 6, and the leave granted to the DCT to pursue recovery relief against the company within Australia were limited to recovery of an amount of money up to, but no more than, a sum that would be received by the DCT on a pari passu basis if he or she were entitled to prove the taxation debts as an unsecured creditor in the foreign main proceeding. At this point, it is not known whether there are any other foreign revenue debts of the company (other than to the Australian revenue) and whether those other foreign revenue debts would be notionally entitled to be admitted to proof for the calculation of the relevant pari passu entitlement pursuant to these orders.

The Model Law and the CBI Act

27    The Model Law developed and adopted by UNCITRAL reflects the increasing importance of cross-border insolvency in a global economic system. In 1997, the United Nations recommended to its member States that they adopt the Model Law into domestic legislation. Australia has adopted it and made it domestic law by the CBI Act. A number of other countries have adopted it, including the United States, the United Kingdom, Canada, New Zealand, Japan and Korea. The Model Law does not require reciprocity of adoption by any other State for its operation according to its terms.

28    The Model Law finds its place in the private international law framework that preceded it. That framework was often expressed in terms of universalism and territorialism: see MGR Gronow, McPherson’s Law of Company Liquidation (Thomson Reuters, 5th Ed) Vol 1 at 17-051 [17.50]. Even before the Model Law, most developed jurisdictions adopted what might be called modified universalism, extending a degree of co-operation to foreign insolvency proceedings whilst also protecting local interests: see the discussion of Lord Hoffmann in In re HIH Casualty and General Insurance Ltd [2008] UKHL 21; [2008] 1 WLR 852 at 856-857 [6]-[9]. The degree of, and legal basis for, any departure from local law in the effects of that co-operation was a matter of debate, a debate reflected in the different views of Lord Hoffmann and Lord Scott of Foscote in In re HIH at [6]-[9] and [59], respectively.

29    The Corporate Law Economic Reform Program Proposals for Reform: Paper No 8 of 2002 (“CLERP 8”) referred to the Model Law as reflecting a universalist approach, but one that was modest in its objective: not attempting to impose substantive laws or rules, but being essentially procedural in nature: CLERP 8 at 21.

30    The Model Law, with the modifications in Pt 2 of the CBI Act, has the force of law in Australia: the CBI Act, s 6. The CBI Act (and so the Model Law) binds the Crown: s 3.

31    The preamble to the Model Law states that the purpose of the Law is to provide effective mechanisms for cross-border insolvencies so as to promote five stated objectives that include:

“(c)    Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor.”

(Emphasis added).

32    Article 1.2 provides for local law to designate entities, such as banks or insurance companies, to have a special local insolvency regime and thus to be excluded from the Model Law. It is in the following terms:

This Law does not apply to a proceeding concerning [designate any types of entities, such as banks or insurance companies, that are subject to a special insolvency regime in this State and that this State wishes to exclude from this Law].

33    Section 9 of the CBI Act provides for regulations to be made to give effect to Art 1.2. Some argument took place on the appeal to the effect that the Commonwealth had it within its power to exempt the DCT from the operation of the Model Law through s 9 (and Art 1.2). That is not so. Article 1.2 is directed to the insolvency regime governing a debtor entity. The width of the words of s 9 must be read against that background.

34    Article 2 contains relevant definitions. The phrase “foreign proceeding” is defined in Art 2 (a) as follows:

“Foreign proceeding” means a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation;

35    It is to be noted that foreign proceedings are not limited to winding up. They “are pursuant to a law relating to insolvency”, but include judicial or administrative proceedings for the purpose of reorganisation. Thus, if the appellants’ arguments in this appeal are to be accepted, Australian domestic tax debts become unenforceable in Australia upon the recognition of the reorganisation for reasons of apparent insolvency in any centre of main interests in the world.

36    The phrase “foreign main proceeding” is defined in Art 2(b) as follows:

“Foreign main proceeding” means a foreign proceeding taking place in the State where the debtor has the centre of its main interests;

37    The word “Establishment” is defined in Art 2(f) as follows:

“Establishment” means any place of operations where the debtor carries out a non transitory economic activity with human means and goods or services.

38    The phrase “centre of main interests” is not defined, but is partly explained in Art 16, referred to below.

39    Article 6 contains a public policy exception, as follows:

Nothing in the present Law prevents the court from refusing to take an action governed by the present Law if the action would be manifestly contrary to the public policy of this State.

40    The Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 noted the use of the word “manifestly” in Art 6 and stated:

The purpose of the expression ‘manifestly’, used also in many other international legal texts as a qualifier of the expression ‘public policy’, is to emphasise that public policy exceptions should be interpreted restrictively and that article 6 is only intended to be invoked under exceptional circumstances concerning matters of fundamental importance for the enacting State.

41    The above remarks in the Explanatory Memorandum broadly reflect the comments on Art 6 in the Guide to Enactment and Interpretation of the UNCITRAL Model Law on Cross-Border Insolvency (the “Guide to Enactment”) and in another UNCITRAL publication UNCITRAL Model Law on Cross-Border Insolvency: the Judicial Perspective (the “Judicial Perspective”) drafted by judges after the passing of the Model Law and presented to the UNCITRAL Working Group V (Insolvency Law) in 2010, circulated to Governments in 2011 and presented to the Ninth UNCITRAL/INSOL International/World Bank Multinational Judicial Colloquium in Singapore in 2011.

42    Article 8 deals with interpretation, and states:

In the interpretation of the present Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.

43    It is unnecessary to express in any detail the principles governing the interpretation of international instruments. Reference must be made in the first instance to the Vienna Convention on the Laws of Treaties 1969 done at Vienna on 23 May 1969. As to authoritative guidance see Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189 at 202; and the authorities cited in El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202; 140 FCR 296 at [142]-[144] and in NBGM v Minister for Immigration and Multicultural Affairs [2006] FCAFC 60; 150 FCR 522 at 562-563 [156]-[160].

44    Article 9 permits foreign representatives direct access to courts. Under Art 11, a foreign representative is entitled to commence a proceeding under the laws of Australia relating to insolvency, which laws are defined by s 8 of the CBI Act as:

The Model Law has the force of law in Australia as if the Model Law referred to:

(a)    the Bankruptcy Act 1966; and

(b)    Chapter 5 (other than Parts 5.2 and 5.4A), and section 601CL, of the Corporations Act 2001;

wherever the Model Law provides that the laws of the enacting State relating to insolvency are to be identified.

45    Further, by Art 12, upon recognition of a foreign proceeding, the foreign representative is entitled to participate in a proceeding relating to the debtor under the statutes referred to as “the Australian laws relating to insolvency” in s 8.

46    Article 13 deals with access of foreign creditors to a proceeding under the Australian laws relating to insolvency in s 8. Article 13.1 gives foreign creditors (subject to Art 13.2) the same rights as local creditors regarding the commencement of, or participation in, a proceeding under Australian laws relating to insolvency in s 8. Article 13.2 concerns the ranking of creditors. Two alternative forms of Art 13.2 were given to Enacting States from which to choose. The first alternative gave general recognition to foreign claims without exception for revenue and social security claims. The second alternative, in footnote 2 to Art 13.2 (which Australia has adopted: s 12(1) of the CBI Act) recognised, but did not in its terms provide for, the exclusion of foreign revenue and social security claims. It was in the following terms:

Paragraph 1 of the present article does not affect the ranking of claims in a proceeding under [identify laws of the enacting State relating to insolvency] or the exclusion of foreign tax and social security claims from such a proceeding. Nevertheless, the claims of foreign creditors other than those concerning tax and social security obligations shall not be ranked lower than [identify the class of general non-preference claims, while providing that a foreign claim is to be ranked lower than the general non-preference claims if an equivalent local claim (e.g. claim for a penalty or deferred-payment claim) has a rank lower than the general non-preference claims].

47    Section 12 of the CBI Act is in the following terms:

(1)    For the purposes of Article 13 of the Model Law (as it has the force of law in Australia), the alternative wording set out in footnote 2 to the Model Law replaces paragraph 2 of that Article.

(2)    For the purposes of the replacement paragraph, the claims of foreign creditors, other than those concerning tax and social security obligations, must not be ranked lower than the unsecured claims of other creditors solely because the creditor concerned is a foreign creditor.

(Emphasis added).

48    The reports of the UNCITRAL Working Groups on Insolvency in the 19th, 20th and 21st sessions in April 1996, October 1996 and January 1997, respectively, are instructive about the access of foreign creditors and the treatment of revenue creditors by the proposed Model Law. There was discussion as to whether the Model Law should venture into the questions of recognition of foreign revenue claims. The resistance perceived was the likely reluctance of many States to accord foreign revenue authorities equal status to their own. There was no discussion of the Model Law operating in a manner by which, through recognition of a foreign proceedings, local revenue debts were to be destroyed or made locally unenforceable or irrecoverable.

49    Chapter III of the Model Law deals with the central issue of recognition of foreign proceedings and relief. Article 15 provides for the recognition of foreign proceedings. Article 15.2 provides for the material to be supplied with the application as follows:

An application for recognition shall be accompanied by:

    (a) A certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or

    (b) A certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or

    (c) In the absence of evidence referred to in subparagraphs (a) and (b), any other evidence acceptable to the court of the existence of the foreign proceeding and of the appointment of the foreign representative.

50    Article 16 deals with various presumptions; Art 16.3 and the definition of “foreign main proceeding” introduce the concept of the debtor’s “centre of main interests”.

51    Article 17 provides for the circumstances of the recognition of foreign proceedings. The criteria for recognition are largely formal. Article 17 is in the following form:

1.    Subject to article 6, a foreign proceeding shall be recognized if:

    (a) The foreign proceeding is a proceeding within the meaning of subparagraph (a) of article 2;

    (b) The foreign representative applying for recognition is a person or body within the meaning of subparagraph (d) of article 2;

    (c) The application meets the requirements of paragraph 2 of article 15;

    (d) The application has been submitted to the court referred to in article 4.

2.    The foreign proceeding shall be recognized:

    (a) As a foreign main proceeding if it is taking place in the State where the debtor has the centre of its main interests; or

    (b) As a foreign non main proceeding if the debtor has an establishment within the meaning of subparagraph (f) of article 2 in the foreign State.

3.    An application for recognition of a foreign proceeding shall be decided upon at the earliest possible time.

4.    The provisions of articles 15, 16, 17 and 18 do not prevent modification or termination of recognition if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist.

52    Article 18 deals with subsequent information.

53    Article 19 deals with the relief that may be granted upon application for recognition of a foreign proceeding. This includes interlocutory or interim relief until recognition is decided upon, staying execution, entrusting assets in the jurisdiction to the foreign representative.

54    Article 20 deals with the legal effect of the recognition of a foreign main proceeding, as follows:

1.    Upon recognition of a foreign proceeding that is a foreign main proceeding:

(a) Commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed;

    (b) Execution against the debtor’s assets is stayed;

    (c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

2.    The scope, and the modification or termination, of the stay and suspension referred to in paragraph 1 of the present article are subject to [refer to any provisions of law of the enacting State relating to insolvency that apply to exceptions, limitations, modifications or termination in respect of the stay and suspension referred to in paragraph 1 of the present article].

3.    Paragraph 1 (a) of the present article does not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor.

4.    Paragraph 1 of the present article does not affect the right to request the commencement of a proceeding under [identify laws of the enacting State relating to insolvency] or the right to file claims in such a proceeding.

(Original emphasis).

55    Two things are important to appreciate about Art 20. First, Art 20 (together with s 6 of the CBI Act) provides for an effect or state of affairs described in Art 20.1, by law, not by order of the Court. Secondly, the extent of such an effect or of such a state of affairs can be affected (“the scope, and the modification or termination, of the stay and suspension”) by the operation of the laws referred to in Art 20.2. Section 16 of the CBI Act identifies the Australian law relevant to Art 20.2, as follows:

For the purposes of paragraph 2 of Article 20 of the Model Law (as it has the force of law in Australia), the scope and the modification or termination of the stay or suspension referred to in paragraph 1 of that Article, are the same as would apply if the stay or suspension arose under:

    (a)    the Bankruptcy Act 1966; or

    (b)    Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001;

as the case requires.

56    The regime imposed by Art 20 does not therefore import foreign insolvency law into Australia. Article 20, as modified by the laws picked up by Art 20.2, governs the effect of recognition. It should also be noted that nothing in Art 20 prevents a local insolvency proceeding being commenced: Art 20.4.

57    Further relief may be sought beyond the legal effect of Art 20 by an application made under Art 21, which is in the following terms:

1.    Upon recognition of a foreign proceeding, whether main or non main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:

    (a) Staying the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1 (a) of article 20;

    (b) Staying execution against the debtor’s assets to the extent it has not been stayed under paragraph 1 (b) of article 20;

    (c) Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1 (c) of article 20;

    (d) Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities;

    (e) Entrusting the administration or realization of all or part of the debtor’s assets located in this State to the foreign representative or another person designated by the court;

    (f) Extending relief granted under paragraph 1 of article 19;

    (g) Granting any additional relief that may be available to [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] under the laws of this State.

2.    Upon recognition of a foreign proceeding, whether main or non main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected.

3.    In granting relief under the present article to a representative of a foreign non main proceeding, the court must be satisfied that the relief relates to assets that, under the law of this State, should be administered in the foreign non main proceeding or concerns information required in that proceeding.

58    Paragraph 2 of Art 21 is important. It contains an express recognition of the need adequately to protect the interests of local creditors. This provision, together with Art 22.1, must be recalled and taken account of when statements of universalist principles of the Model Law are being relied on. If this language of characterisation is to be employed, Art 21.2 reflects a degree of modified universalism in the Model Law. Article 21.2 is not directed, in terms, to Art 20 or applications under Art 20.2; but it concerns entrusting the distribution of local assets to the foreign representative, a subject closely related to the subjects of Art 20.1, especially Art 20.1(c).

59    Article 22 concerns the protection of creditors and other interested persons and is in the following terms:

1.    In granting or denying relief under article 19 or 21, or in modifying or terminating relief under paragraph 3 of the present article, the court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected.

2.    The court may subject relief granted under article 19 or 21 to conditions it considers appropriate.

3.    The court may, at the request of the foreign representative or a person affected by relief granted under article 19 or 21, or at its own motion, modify or terminate such relief.

60    It is important to note that Art 22 does not provide for the amelioration of the legal effect of recognition in Art 20. Such, if it is to occur, comes from the results of an application under the laws picked up by Art 20.2 and s 16 of the CBI Act.

61    Article 23 concerns the foreign representative’s standing to avoid acts detrimental to creditors. It is in the following terms:

1.    Upon recognition of a foreign proceeding, the foreign representative has standing to initiate [refer to the types of actions to avoid or otherwise render ineffective acts detrimental to creditors that are available in this State to a person or body administering a reorganization or liquidation].

2.    When the foreign proceeding is a foreign non main proceeding, the court must be satisfied that the action relates to assets that, under the law of this State, should be administered in the foreign non main proceeding.

(Original emphasis).

62    Section 17 of the CBI Act identifies the types of actions referred to in Art 23.1, and is in the following terms:

(1)    The actions referred to for the purposes of paragraph 1 of Article 23 of the Model Law (as it has the force of law in Australia) are actions arising under or because of:

    (a)    section 120, 121, 121A, 122, 128B or 128C or Division 4A of Part VI of the Bankruptcy Act 1966; or

    (b)    Division 2 of Part 5.7B of the Corporations Act 2001.

(2)    A provision referred to in paragraph (1)(a) or (b) applies, with appropriate changes, in relation to an action for the purposes of a foreign proceeding in the same way it would apply if the action were for the purposes of a proceeding in relation to:    (a)    a bankrupt (within the meaning of subsection 5(1) of the Bankruptcy Act 1966); or

    (b)    a company (within the meaning of section 9 of the Corporations Act 2001);

as the case requires.

63    Article 24 permits a foreign representative, upon recognition of a foreign proceeding, to intervene in proceedings in which the debtor is a party, subject to the requirements of the law of the State.

64    Chapter IV of the Model Law deals with cooperation among foreign courts and foreign representatives. Articles 25, 26 and 27 are in the following terms:

Article 25

Cooperation and direct communication between a court of this

State and foreign courts or foreign representatives

1.    In matters referred to in article 1, the court shall cooperate to the maximum extent possible with foreign courts or foreign representatives, either directly or through a [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State].

2.    The court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.

Article 26

Cooperation and direct communication between the [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] and foreign courts or foreign representatives

1.    In matters referred to in article 1, a [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] shall, in the exercise of its functions and subject to the supervision of the court, cooperate to the maximum extent possible with foreign courts or foreign representatives.

2.    The [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] is entitled, in the exercise of its functions and subject to the supervision of the court, to communicate directly with foreign courts or foreign representatives.

Article 27

Forms of cooperation

Cooperation referred to in articles 25 and 26 may be implemented by any appropriate means, including:

    (a) Appointment of a person or body to act at the direction of the court;

    (b) Communication of information by any means considered appropriate by the court;

    (c) Coordination of the administration and supervision of the debtor’s assets and affairs;

    (d) Approval or implementation by courts of agreements concerning the coordination of proceedings;

    (e) Coordination of concurrent proceedings regarding the same debtor;

    (f) [The enacting State may wish to list additional forms or examples of cooperation].

(Original emphasis).

65    Chapter V of the Model Law deals with concurrent proceedings. Article 28 deals with commencement of proceedings under the enacting State’s laws relating to insolvency. It provides as follows:

After recognition of a foreign main proceeding, a proceeding under [identify laws of the enacting State relating to insolvency] may be commenced only if the debtor has assets in this State; the effects of that proceeding shall be restricted to the assets of the debtor that are located in this State and, to the extent necessary to implement cooperation and coordination under articles 25, 26 and 27, to other assets of the debtor that, under the law of this State, should be administered in that proceeding.

(Original emphasis).

66    Article 29 deals with co-ordinating a proceeding under a local insolvency law and a foreign proceeding. Article 30 deals with co-ordinating more than one foreign proceeding. Article 31 deals with a presumption of insolvency based on the recognition of a foreign main proceeding. Article 32 deals with a rule of payment in concurrent proceedings, as follows:

Without prejudice to secured claims or rights in rem, a creditor who has received part payment in respect of its claim in a proceeding pursuant to a law relating to insolvency in a foreign State may not receive a payment for the same claim in a proceeding under [identify laws of the enacting State relating to insolvency] regarding the same debtor, so long as the payment to the other creditors of the same class is proportionately less than the payment the creditor has already received.

(Original emphasis).

67    Article 32 can be seen to enshrine the rule of equality or hotchpot to ensure that creditors are treated equally in circumstances of multiple funds against which access may be gained by different creditors: see PR Wood Principles of International Insolvency (Thomson; Sweet and Maxwell) 2nd Ed at 970 [31-062]; LC Ho (Ed) Cross-Border Insolvency; A Commentary on the UNCITRAL Model Law 3rd Ed at 244; R F Mason “Hotchpot and other Tasty Morsels in International Insolvency” (1995) 3 Insolvency Law Journal 149.

68    From the above brief introduction, one can discern the four key elements of the Model Law: (a) access to local courts for foreign representatives; (b) recognition of certain orders of foreign courts; (c) relief to assist foreign proceedings; and (d) co-operation amongst courts of the states where assets are held and co-ordination of concurrent proceedings: see the Guide to Enactment at [24] and the Judicial Perspective at [13]. See also the Preamble to the Model Law.

69    The place of the pre-existing law in the resolution of any dispute that now involves the operation of the CBI Act and the Model Law depends on the nature and content of that previous law. To the extent that any such pre-existing law is contrary to a provision of the CBI Act or the Model Law, it would be superseded. Further, operative principle would need to conform with the principles that underpin the Model Law. When the question of relief to be granted arises, foreign cases upon the Model Law will, of course, be relevant: see Art 8; but also will be local cases on pre-existing law to the extent that they are conformable with the operation of the Model Law and its aims and purposes.

70    I will refer to aspects of local law when dealing with some specific arguments of the appellants.

The reasons of the primary judge

71    For reasons that will become apparent in the next section, the Modification Orders must be understood, not only in the light of the published reasons of 30 July 2013, but also in the light of the argument on 16 August 2013 about the form of orders. The primary judge gave no supplementary reasons. No complaint was made of any lack of reasons.

72    After identifying the issue, the background, the Cayman Islands law as to the enforceability of proofs of debt of foreign tax debts and the legislative scheme of the Model Law and the CBI Act, the primary judge examined the DCT’s possible avenues for recovery in Australia. In that context, he said at [20]:

The Commissioner is also unable, because of the current operation of the 2010 orders, to avail himself of his statutory remedy of attachment under s 260-5 of Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA). That is because of the recognition of the foreign main proceeding, the consequence of the stay of proceedings under s 471B and the avoidance of any attachment under s 468(4) of the Corporations Act by force of Arts 20(1)(a) and (b) and (2) of the Model Law: cf Bruton Holdings Pty Ltd (In Liq) v FCT (2009) 239 CLR 346 at 353-354 [18]-[20] per French CJ, Gummow, Hayne, Heydon and Bell JJ. The scope, modification and termination of the stays imposed by Art 20(1)(a) and (b) are the same as would apply if the stay or suspension were under, relevantly, ss 468(4) and 471B of the Corporations Act, by force of s 16 of the Act.

73    On appeal, the DCT submitted that his Honour was wrong to conclude that s 468(4) was picked up by Art 20 and that the effect of Art 20.1 was to engage the avoidance of attachment contemplated by s 468(4). For the reasons given in the next section, that submission should be accepted.

74    The reasons of the primary judge at [24], [25] and [42] may lead one to the conclusion that the only basis for the Modification Orders was Art 22. As will be shown in the next section, the primary judge made the Modification Orders under Art 20.2, s 471B of the Corporations Act as picked up by s 16, and Art 22.3.

75    From [26]-[42] of his reasons, the primary judge dealt with the exercise of the discretion. At [26]-[28] of his reasons, his Honour discussed the speech of Lord Hoffmann in In re HIH. At [29] of his Honour’s reasons, the primary judge used some expression of the reasons of Lord Hoffmann to mould his approach. Lord Hoffmann had referred (In re HIH at [33]) to the likely expectations of creditors, that, in the event of insolvency, their rights would be determined by Australian law. The primary judge said at [29] that the creditors of Saad (if they had thought about it) would expect (perhaps better expressed as objectively be taken to expect) that this company would meet its local tax obligations:

Here, creditors of Saad Investments would be likely, if they thought about it, to expect that the company would meet its local tax obligations, in accordance with local law, in each jurisdiction in which it had earned income or made taxable gains or profits before its creditors were entitled to receive dividends in the Cayman Islands. It is highly unlikely that they would expect that a local sovereign could not, let alone should not, be able to collect the tax due, or any of it, before funds were remitted from its jurisdiction to the Cayman Islands where the tax would be irrecoverable. If a foreigner trades or makes profits or gains in a local jurisdiction, he, she or it must obey the laws of general application in that forum, including its taxation and criminal laws. The insolvency of the foreigner should not be a reason to exclude him, her or it from an accrued liability to pay tax or a penalty in circumstances where a local person who became insolvent would remain liable to pay the tax or penalty.

76    The primary judge then focused on the importance of equality and a fair distribution of assets and as to why there may need to be adjustment of prior concluded transactions, citing what Lord Collins of Mapesbury said in Rubin v Eurofinances SA [2013] 1 AC 236 at 269 [94]-[95]. The primary judge then referred to the equal position of Crown debts, the recognition of the non-enforceability of tax debts by Australia in Art 13.2, and the principles of construction of the Model Law. At [37] of his reasons, the primary judge concluded that there was nothing in the Model Law that would suggest that local law should be construed to deny or diminish the rights of the sovereign power to collect a debt locally. In coming to this conclusion, the primary judge emphasised objective (d) of the Preamble and Art 22.1 that gave it effect. At [38]-[41], the primary judge said:

38    The preamble to the Model Law stated that one of its objectives was “fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor” (objective (c)). This objective is given effect partly by Art 22(1). Importantly, there is nothing in the Model Law that seeks to discriminate against the operation of domestic laws imposing tax and penalties, as laws of general application, on the debtor’s estate before it is remitted to the debtor’s centre of main interests. It would not be fair to a domestic sovereign, its taxpayers or others doing business in its territory, or to the international body of the debtor’s creditors, for a debtor’s estate to be freed of any taxation obligation except in the debtor’s centre of main interests, merely because the debtor was subject to a cross-border insolvency governed in another jurisdiction wholly or principally by the Model Law where, conformably with the rule of public (or private) international law, foreign taxes and penalties could not be recovered or admitted to proof. Nor is there any reason in principle to exempt a debtor in a cross-border insolvency from all taxation liability in every jurisdiction other than that of its centre of main interests.

39    I am of opinion that the interests of the Commissioner, as an unsecured creditor of Saad Investments, are not adequately protected under the 2010 orders. That is because the 2010 orders would allow the whole amount of Saad Investments remaining Australian assets, of about USD 7 million, to be remitted to the Cayman Islands, as its centre of main interests, where the Commissioner could not prove for any distribution from its estate. Even if the Commissioner is entitled to be paid the whole of Saad Investments’ assets in Australia, he will receive far less than the estimated 20 to 24 cents in the dollar that all other unsecured creditors will receive in a pari passu distribution based on the total tax debt of AUD 83,271,545.70. If the Commissioner’s debt were ranked pari passu with other creditors and paid at 20 cents in the dollar, he would receive about AUD 16.6 million. Yet, the USD 7 million available here is less than half of the lower end of the foreign representatives’ estimated distribution to Saad Investments’ unsecured creditors of between 20 and 24 cents in the dollar.

40    Moreover, if the Australian assets of Saad Investments were remitted without the Commissioner being allowed to prove for his unsecured debt here or be paid here his pari passu entitlement, the other unsecured creditors will receive a windfall to the extent that his bona fide claim is irrecoverable outside Australia. That result would be contrary to the fair or efficient administration of Saad Investments’ insolvency. That is because, effectively, Saad Investments would benefit from its insolvency since it would cease to be subject to the incidents of Australian taxation and insolvency laws in respect of taxable capital gains and penalties imposed in respect of its profit making activities in this country.

41    The foreign representatives’ argument that Saad Investments cannot be wound up here reinforces why, for the purposes of Art 22(1), the Commissioner’s interests are not adequately protected. The Commissioner cannot, or may not be able to, avail himself of a number of statutory remedies if the 2010 orders are not modified. Those orders are the existing relief operating under Art 21 that currently confer a benefit on all other creditors of Saad Investments. That relief was available to the foreign representatives because Saad Investments, first, operated in Australia and not only had assets but made capital gains here that were taxable, before the Grand Court ordered it to be wound up in the Cayman Islands, and, secondly, it was insolvent both here (given the deficiency in its total assets of USD 7 million as against its liabilities of over AUD 83 million) and internationally. If the foreign representatives had not been granted relief under the Model Law, such as that in the 2010 orders, then the Commissioner could have used the remedies available to him under the taxation laws to obtain the equivalent of what would have been his pari passu entitlement to a distribution had he been entitled to prove in Saad Investments’ liquidation here or in its centre of main interests in the Cayman Islands.

77    These conclusions made it unnecessary for the primary judge to deal with the DCT’s argument that the Modification Orders could be justified under the public policy exception in Art 6. His Honour said at [45]:

It is fundamental to any society that its government be able to require its citizens and others who operate a business or reside within that society, to pay taxation so as to maintain the State. I would simply observe that, without deciding the issue, there is thus considerable force in the Commissioner’s reliance on Art 6.

78    Finally, at [46]-[52] of his reasons, the primary judge rejected the argument that by the steps the DCT had taken, he had elected to submit to the jurisdiction of the Grand Court of the Cayman Islands. The primary judge rejected the argument that by lodging a proof of debt, the DCT had “entered into a compact with the body of creditors”. The primary judge distinguished Ex parte Robertson; In re Morton (1875) LR 20 Eq 733 on the basis that in that case a distribution had been received. The primary judge also referred to Rubin at 283-284 [161]-[167] in expressing that matter as a question of fact whether there had been submission to a foreign court. At [49]-[52] of the reasons, the primary judge said:

49    Here, at the time of lodging his proofs of debt with the liquidators, the Commissioner was unaware whether Saad Investments still had any assets in Australia, as appeared in his enquiries on this issue made of them in his letters of 3 December 2009 and 2 February 2010. There is no evidence that the liquidators enlightened the Commissioner on that matter before either proof was filed. In each letter the Commissioner sought the liquidators’ assistance in providing him with information about the existence, location and extent of any assets of Saad Investments that were in Australia and whom, if anyone, the liquidators had appointed here to act for the company or them. The proof of debt form itself was not intituled in the proceedings in the Grand Court. The only “benefit” that the Commissioner appeared to have received from lodging the proofs of debt consisted of any reports the liquidators had issued and the circular letter dated 1 March 2010 from the liquidators addressed to all known creditors informing them of the meeting of creditors called for 24 March 2010.

50    The Commissioner was, in the circumstances, a creditor of Saad Investments. He received information that he would have been entitled to receive were he treated as a creditor here under the Corporations Act and in virtue of his rights under the various taxation statues. Critically in 2009 and 2010 in the period relied on by the foreign representatives, the Grand Court never exercised any jurisdiction over the Commissioner and he did not make, and was not a party to, any application to the Grand Court or that it determined. There is nothing in the evidence that suggested that the Commissioner ever submitted to the jurisdiction of the Grand Court at all. It does not appear that the liquidators had called for proofs of debt for the purpose of making any distribution to creditors. Moreover, the debts that the Commissioner sought to establish in the proofs of debt were not admissible to proof under the law of the Cayman Islands. He was not a creditor with any claim under that law. And, the Commissioner did not appear to have lodged the proofs so as to obtain any distribution from the funds, if any, in the Cayman Islands.

51    I am not satisfied that the Commissioner submitted to the jurisdiction of the Grand Court or entered into a compact with all the creditors of Saad Investments at any time. Nor did the Commissioner elect to be bound by the laws of the Cayman Islands simply because he lodged a proof of debt to obtain information or to attend a meeting of creditors. An election occurs where a person is confronted with the necessity of making a choice between two mutually inconsistent courses of action. In Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 41, Deane, Toohey, Gaudron and McHugh JJ said:

“The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner, The Law Relating to Estoppel by Representation [3rd ed (1977), p 313]:

It is of the essence of election that the party electing shall be ‘confronted’ with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.”

52    Here, at the times relied on by the foreign representatives in 2009 and 2010, the Commissioner was unaware of what, if any, courses of action he had in Australia in respect of Saad Investments. He sought information from the liquidators so that he could be informed of whether, metaphorically, the bird had flown: i.e. whether there were any assets of Saad Investments still left in Australia against which he could seek to recover the whole or part of the debt owed by that company. The foreign representatives did not suggest how, in fairness to them or the creditors generally, the Commissioner could be said to have elected to give up his rights in Australia to seek recovery of the debts owed to him by Saad Investments by the anodyne steps of submitting the proofs of debt (that the liquidators could not admit to proof in the Cayman Islands anyway) seeking information and participating in a creditors meeting. The Commissioner did not have the information necessary for him to be confronted with a choice of pursuing his rights either in the Cayman Islands or Australia.

Whether there was power under Art 22.3 to make the Modification Orders

79    The first contention of the appellants was that the Modification Orders, and in particular, order 2, were repugnant to, and in conflict with, the binding effect of Art 20 of the Model Law and the recognition of the foreign main proceeding. In effect, it was submitted that his Honour lacked power under Art 22.3 (as the sole source of authority) to make the orders. This was so because, it was submitted:

(a)    the primary judge erroneously considered that Art 22 could vary the statutory effect of Art 20 upon recognition;

(b)    the primary judge erroneously failed to appreciate the legal effect of Art 20 upon recognition, and in the absence of an application contemplated by Art 20.2, such legal effect stood unaffected by any orders made under Art 22.3; and

(c)    there was no application made under Art 20.2 and s 471B of the Corporations Act.

80    The first contention should be rejected. Whilst it can be accepted that an application of Art 22.3 is not apt to amend the legal effect of recognition of the foreign main proceeding brought about by Art 20, the primary judge did not purport to do so. There was before the primary judge an application brought by the DCT under Art 20.2 having s 471B of the Corporations Act as its source of power, picked up by Art 20.2 and s 16 of the CBI Act. It is unnecessary to set out all the detail of what occurred in the proceedings, including in particular the argument on 16 August 2013 on the form of orders to establish this last proposition, but the following is sufficient to demonstrate the point.

81    Order 5 of the Recognition Orders, and, in particular, the terms of orders 5(a), (b), (d) and (e) went beyond the legal effect of Art 20 upon recognition, and in that respect, they relied on Art 21 for their efficacy. Order 5 in part covered the same ground as Art 20: see orders 5(a), (b) and (c).

82    The conduct of the hearings leading up to the making of the Modification Orders involved the consideration of the application of s 471B of the Corporations Act. The Interlocutory Process brought by the DCT in prayer 1 expressly sought orders under Art 22.3. In contradistinction, prayer 5 was not so expressed, though it perhaps had a certain textual infelicity.

83    The first hearing before the primary judge took place on 23 November 2012. In his opening on this day, senior counsel for the DCT (Mr F Gleeson SC, as his Honour then was) made it tolerably clear that the question before the Court was the extent to which conditions could be attached to so-called “turn-over relief” and the extent to which the DCT could enforce its rights against assets in Australia. After a regime was discussed and agreed concerning post-liquidation tax liabilities, the debate about what the DCT was seeking to achieve took place. In that debate, senior counsel for the joint liquidators (Mr J Sheahan SC) discussed what Art 20.2 and s 16 picked up. He submitted that both ss 471B and 468(4) of the Corporations Act were picked up. Mr Gleeson addressed the operation of s 471B as picked up by Art 20.2 and s 16, which he distinguished from s 468(4). He put the submission that s 468(4) was not picked up by Art 20.2 and s 16, not being concerned with a stay or suspension (being the subject of Art 20.2 and s 16), but rather with the avoidance of attachment (not being a subject of Art 20.2 and s 16). Mr Gleeson put the submission that the rights of the DCT were protected by Art 20.2, s 16 and s 471B. He did say, however, on the afternoon of 23 November 2012, that the proceedings had not reached the stage of getting leave to proceed under s 471B. The context in which this was said was that the DCT was considering the various mechanisms of suit and enforcement that could be taken. Those references to ss 468(4) and 471B explain the primary judge’s references to these provisions in [18] and [20] of his reasons.

84    After the primary judge published his reasons on 30 July 2013, argument took place, on 16 August 2013, as to the form of orders. Thereafter, the primary judge published the addendum to the judgment which embodied the Modification Orders.

85    On 16 August 2013, Mr S Aspinall and Mr F Assaf argued the matter for the joint liquidators and the DCT, respectively. Shortly after the commencement of argument on 16 August, the judge recognised that he could bring the matter to finality by granting leave to proceed. At this point, Mr Aspinall put the submission that the DCT had sought relief only under Art 22.3 (and not under Art 20.2, s 16 and s 471B). The primary judge said that s 471B could be employed; but he initially expressed the view that such an application (under s 471B) may not have fallen within the terms of the DCT’s Interlocutory Process. Discussion took place about amendment; but then Mr Assaf pointed out that the words of prayer 5 of the Interlocutory Process appeared to be wide enough to encompass an application under s 471B (as well as under Art 22.3). His Honour appeared to accept this submission that an application under s 471B came within the wide words of the chapeau to prayer 5. There was no submission to the contrary.

86    No complaint was made in August 2013, and no complaint was made on appeal, that the primary judge denied the joint liquidators procedural fairness by proceeding to deal with the Modification Orders on a basis that included s 471B, picked up by Art 20.2 and s 16, if that is what he did.

87    The above makes clear that the primary judge did in fact found the Modification Orders on s 471B picked up by Art 20.2 and s 16, as well as on Art 22.3. No departure from that course should now be permitted.

The form of order 2 and its asserted lack of relationship to s 471B

88    The appellants also argued that the form of Modification Orders 2 to 4, especially order 2, went beyond an order that would, or could properly, be made under s 471B. The asserted vice of the form of the order included the difficulties that there was no identification of the court, or the proceeding, and that the order lacked any form of particularity.

89    It can be accepted in the ordinary case a court will descend in the terms of an order under s 471B to some degree of particularity; but that will generally be for reasons of judicial technique, prudence and precision influenced by all the circumstances. The section itself does not demand the precision of terminology contended for by the appellants. One would certainly not imply such a limitation into the provision of that kind as a condition of the lawful exercise of power: The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc [1994] HCA 54; 181 CLR 404 at 421. Section 471B provides for leave to begin or proceed with proceedings in court or to begin or proceed with execution against property of the company or any other enforcement process in relation to the property of the company that involves a court or a sheriff. See the definitions of “enforce” and “enforcement process” in s 9 of the Corporations Act. These are the matters covered by Art 20.1(a) and (b). Modification Order 2 was not expressed in those terms; prayer 5 of the DCT’s Interlocutory Process more readily reflected the terms of s 471B. Nevertheless, the words of Modification Order 2 are apt to encompass the leave contemplated by s 471B. Of course, the terms of Modification Order 2 and 3 went beyond proceedings in court or enforcement processes that involved a court. That reflected the terms of the Recognition Orders that themselves went beyond court processes (whether of litigation or enforcement): see especially Recognition Order 5(a) and the words in parentheses.

90    The enforcement of statutory rights given to the DCT by the various provisions of the Taxation Administration Act may not always be stayed by the legal effect of Art 20 upon recognition. The staying of such procedures in aid of asserted rights of the DCT can, however, occur (as it did in the Recognition Orders) by the invocation of Art 21.

91    Modification Orders 2 and 3 can be seen to be founded on both s 471B (via Art 20.2 and s 16) and Art 22.3. The apparent breadth of the language of the orders must be understood against the background of the well-known body of statutory processes and remedies available to the DCT and of the factual circumstances of the fund of money in Australia belonging to Saad and the apparent absence of commercial activity and of other creditors in Australia of Saad.

92    The form of order did not take the matter outside an application of s 471B and Art 22.3.

The asserted destruction of the rights of the DCT and in particular enforcement under the Taxation Administration Act

93    The appellants also argued that the terms of s 468(4) of the Corporations Act destroyed the right of the DCT to employ provisions and remedies under the Taxation Administration Act. By that provision, “any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court is void”. (For the equivalent provision in a creditors’ voluntary winding up, see s 500.) The words “any attachment” in s 500, and so in s 468(4), extend to curial and non-curial attachments, including notices issued pursuant to s 260-5 in Sch 1 to the Taxation Administration Act: see Bruton Holdings Pty Ltd (In liq) v Commissioner of Taxation [2009] HCA 32; 239 CLR 346.

94    It is first to be noticed that the literal words of s 468(4) (and, indeed, s 471B) could not apply to a company wound up in the Cayman Islands, but not in Australia. These sections apply in their terms to windings up in Australia. The sections apply, however, if they are made applicable by other Australian law. That law is Art 20.2, made to have the force of law by ss 6 and 16 of the CBI Act. The provisions thus picked up must be read and construed in the context in which they then operate: as working in a complementary fashion with the CBI Act and the Model Law, and subject to considerations relevant to those laws. Thus, one would not read the qualifying requirement in those provisions of a local winding up as relevant.

95    The question is whether s 468(4) is (to paraphrase what is in brackets in Art 20.2, and in s 16) a provision of an Australian law relating to insolvency that applies to exceptions, limitations, modification or termination in respect of the stay or suspension in Art 20.1. The Australian provisions that are picked up are in Ch 5 of the Corporations Act and are provisions that provide for exceptions, limitations, modification or termination of the stay or suspension of the kind referred to in Art 20.1. Section 471B falls into that category; s 468(4) does not. The latter provision avoids attachment, sequestration, distress or execution; it does not stay or suspend proceedings (Art 20.1(a)) or execution (Art 20.1(b)); nor does it modify or terminate any such stay or suspension.

96    Subject to the operation of Art 20.1(a) and (b) and any leave under s 471B, and orders under Art 21 (such as aspects of Recognition Order 5(a) that go beyond the effect of Art 20.1) and any modification or termination of such by Art 22.3, the DCT has rights in Australia not affected by the winding up in the Cayman Islands and the recognition of those proceedings as foreign main proceedings.

97    The affectation of such rights of the DCT to pursue Saad in Australia (subject to questions of service and the like) in furtherance of rights and obligations created under the laws of Australia must flow from a relevant law (written or unwritten) of Australia. Relevantly, the Model Law (in provisions such as Arts 19, 20, 21, 22, 23 and 24) and the provisions of the CBI Act provide for such affectation.

98    Nowhere in the Model Law or the CBI Act are the rights of the DCT destroyed. Article 20.1 provides for the stay and suspension of legal proceedings upon recognition; but that is qualified by Art 20.2 (and s 16) and the availability of the law picked up by s 16 to provide the basis for modifying or terminating such stay or suspension. Article 21 provides for further relief beyond Art 20; but that is qualified by Art 22.3.

99    Turning to the general law absent the CBI Act, the following should be noted. A foreign winding up in the place of incorporation will be recognised: Re Alfred Shaw and Co Ltd; Ex parte Mackenzie (1897) 8 QLJ 93 at 94-95; In re Matheson Brothers Ltd (1884) 27 Ch D 225 at 230, 231; and In re HIH at 857 [9]. The degree of extra-territorial effect of a foreign liquidation was, however, not clear. Lord Davey in New Zealand Loan & Mercantile Agency Co v Morrison [1898] AC 349 at 358 refused to accept that rights of local creditors were affected by a foreign winding up, rejecting an assimilation of the positions of a foreign trustee in bankruptcy and a foreign liquidator (a proposition that had attracted Griffith CJ in Re Alfred Shaw). Harvey CJ in Eq in Primary Producers Bank of Australia v Hughes (1931) 32 SR (NSW) 14 at 25 refused to stay an action in New South Wales against a Queensland company in voluntary liquidation, relying on New Zealand Loan & Mercantile Agency. See also Hart Holdings Pty Ltd v Westcorp Pty Ltd (1983) 1 ACLC 1,366 at 1,368; Fiske v Sterling Investment Co Ltd (1977) 3 ACLR 158; In re Oriental Bank Corporation (1884) 10 VLR (E) 154; Sack v Lord Aldenham (1911) 7 Tas LR 84; and In re Vocalion (Foreign) Ltd [1932] 2 Ch 196 at 209-210. But if a creditor levied execution on assets of a company in a jurisdiction outside that of its domicile where it was in the course of liquidation, it would be required to bring the proceedings into hotchpot if the creditor wished to prove in the liquidation: Re Oriental Inland Steam Co (1874) 30 LT 317, and on appeal (1874) 9 Ch App 557; and In re Vocalion (Foreign) Ltd at 210.

100    It can be accepted that recognition will be given to a winding up in the place of incorporation in the manner described by Millett J (as he then was) in In re International Tin Council [1987] 1 Ch 419 at 446-447. See also Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; 116 CLR 177 at 180 (per Kitto J). It is also to be recognised that DCT is not a priority creditor: see the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth). That, however, does not lead to the conclusion that local creditors have their rights destroyed such that they could not seek leave to proceed under a provision such as s 471B of the Corporations Act, or, if the creditor had rights under the Taxation Administration Act properly construed, to proceed thereunder.

101    If there were a local winding up, and also a foreign winding up in the place of incorporation, the former would generally be treated as ancillary to the latter. For a discussion of the nature of the ancillary winding up and the operation of the general law on local insolvency statutes, see Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213 at 238-248 (“Re BCCI”); Re English Scottish & Australian Chartered Bank [1893] 3 Ch 385 at 394; and In re HIH at 856-862, [8]-[30] and 870-872, [59]-[62]. The practical and legal consequences of an ancillary winding up are of significance to the resolution of this matter, and are questions to which I will return.

102    If there were an ancillary winding up of a foreign company in Australia, it may take place under the Corporations Act, s 601CL(14) or Pt 5.7, in particular, s 583. The nature of the winding up and the responsibilities of the liquidator would be assessed, in the first instance, by reference to the provisions of the Corporations Act. Under s 601(15)(c), the assets the subject of realisation are limited to those within the jurisdiction, but that is subject to an order of the Court otherwise. Also, under s 601(15)(b) a local liquidator must not pay out a creditor of a foreign company to the exclusion of another creditor; but, again, that is subject to an order of the Court. Under s 583(d), a winding up under Pt 5.7 deals only with the affairs of the body outside its place of origin.

103    The funds collected in the local (ancillary) winding up would generally be remitted to the winding up in the place of incorporation where local creditors may prove: In re Oriental Bank Corporation at 176; In re The Australian Midas Gold Estates Ltd (in liq) [1916] VLR 526 at 529; In re Alfred Shaw at 95-96; In re The Australian Federal Life and General Assurance Co Ltd in liq) [1931] VLR 317 at 322. But as Lowe J said in In re The Australian Federal Life at 322 on the authority of In re Matheson Brothers Ltd, the court, in the ancillary winding up, will not release the assets until it is clear that they will be made available to the local creditors pari passu with other creditors.

104    Circumstances may arise where the position of local creditors may not be as good in the foreign domiciliary winding up as would be the case if the assets were retained in the local winding up and dealt with according to local law. That was the case in In re HIH where, under Australian law, Australian insurance creditors were provided for more advantageously than other creditors, because of protective insurance legislation in the domiciliary winding up jurisdiction (Australia). It can be accepted that the approach of Lord Hoffmann (with whom Lord Walker agreed) in In re HIH – see especially at 859 [20] – was to dilute the effect of local law in an ancillary winding up, in a way not reflected in Sir Richard Scott’s judgment in In re BCCI and in his Lordship’s speech in In re HIH (with which Lord Neuberger was in agreement). It is unnecessary to attempt to resolve the fundamental difference between the views of Lord Hoffmann and Lord Walker, on the one hand, and Lord Scott and Lord Neuberger, on the other, in In re HIH about the authority of an English court, at general law, to remit assets to a foreign liquidation with a different insolvency regime to that of England. Their Lordships were in agreement in deciding the case because the relevant statute, the Insolvency Act, s 426 (4) and (5), provided adequate foundation for that course of action. Nevertheless, the House of Lords was dealing with a circumstance not of the inability (as here) of a local creditor to prove at all in the foreign administration, but of disadvantage in some relevant degree of the local creditors if the local assets were sent to, and distributed in, the foreign administration. In such a circumstance, a judgement was to be made about remittal of assets. Lord Hoffmann was guided by the principle of (modified) universalism (861 [303]), the lack of offence of the foreign law to principles of justice (862 [32]), the expectations of creditors (862 [33]) and public policy (862 [34]). See also Lord Scott’s speech at 870-872 [59]-[62] and Lord Neuberger’s speech at 876-877 [79]-[83], basing their agreement in the result on s 426.

105    The position of personal bankruptcy where a foreign sequestration order divests title in property from the bankrupt is generally that a local court will not permit steps to be taken that would interfere with the process of universal distribution: Galbraith v Grimshaw [1910] AC 508 at 512-513. That principle was applied by the Hong Kong High Court in its recognition of a company’s status under Ch XI of the Federal Bankruptcy Act in the United States: Modern Terminals (Berth 5) Ltd v States Steamship Company [1979] HKLR 512 at 521. Part of the basis for this approach was the recognition by the local court (Hong Kong) that the foreign procedure was for the benefit of all creditors.

106    From the above, it can be concluded that no part of relevant Australian statute law, relevantly, the CBI Act, the Model Law and the Corporations Act, and no part of the general law, to the extent still applicable, destroyed the rights of the DCT and in particular any right to seek leave to proceed and to proceed against the company, or to employ the enforcement provisions of the Taxation Administration Act against it. Thus, there were rights of a local creditor and power was available under the Model Law (Arts 20.2 and 22.3) to protect its position.

Whether the discretion to make the Modification Orders was rightly exercised

107    Once one reaches the point of acceptance that the primary judge had power to protect the position of the DCT through some form of modification to the Recognition Orders, one must assess whether he erred in the exercise of the discretion or power in making the Modification Orders, and, if he did, whether this Court should act differently in re-exercising the discretion or power. For the reasons that follow, the exercise of the discretion of the primary judge should not be interfered with.

108    The primary submission of the appellants was that any exercise of discretion which would protect the DCT was inconsistent, as a matter of principle, with the universalism of the Model Law and CBI Act.

109    The framework of the discretion or power is to be appreciated: the leave to proceed, to execute and otherwise to exercise statutory and administrative remedies against Saad and its property in Australia. If the DCT could prove in the Cayman Islands winding up, there would be no basis to justify the placing of any impediment to the remittal of funds to the joint liquidators. That, of course, is not the position. The claim of the DCT is a revenue debt and will not be admitted to proof in the Cayman Islands. That position is not an unusual one. Foreign revenue debts are not enforceable in Australia; and Australia, by s 12(1) of the CBI Act, adopted the alternative wording set out in footnote 2 to Art 13 of the Model Law that excluded foreign tax and social security claims from an insolvency proceeding in Australia.

110    Further, there are no particular surrounding circumstances to take into account. Saad acquired and sold shares on an Australian stock exchange. It is said to have made a sizeable capital gain from entering into commercial transactions in Australia. It is thus said to have come under a liability to pay Australian tax. No particular conduct of Saad and the DCT needs be pointed to. In these circumstances, the argument of the appellants reduced to the proposition that in the circumstances of a foreign main proceeding of a company whose assets were not (and could not be) under the control of a liquidator in Australia, it would be contrary to the principle of internationalism expressed and embodied in the Model Law (having the force of Australian law) ever to permit the Australian revenue to proceed in Australia against the company or its assets here.

111    That the Model Law reflects a universalist approach (reflected in the pre-existing common law framework discussed in In re HIH) can be accepted: see the 2002 discussion paper entitled CLERP 8 at pp 17 and 21. CLERP 8 explained the universal approach as:

“[O]ne insolvency proceeding will be universally recognised by the jurisdictions in which the entity has assets or carries on business. All the assets of the insolvent company will be administered by the court or the administrator in, and possibly also according to, the law of the place of incorporation. All creditors seeking to claim in the winding up submit claims to that court or administrator. When assets of the insolvent company are located in foreign countries, the court has the power to apply for assistance from the courts of those countries.”

112    A similar statement of general approach and underlying informing concept is to be found in Re ABC Learning Ctrs Ltd 3rd Circuit 27 August 2013 at p 9:

“The Model Law reflects a universalism approach to transnational insolvency. It treats the multinational bankruptcy as a single process in the foreign main proceeding, with other courts assisting in that single proceeding. In contrast, under a territorialism approach a debtor must initiate insolvency actions in each country where its property is found. This approach is the so-called “grab rule” where each country seizes assets and distributes them according to each country’s insolvency proceedings”.

113    This, the Court said, at p 10, involved a rejection of:

“the territorialism approach…in favour of aiding one main proceeding. ‘The purpose is to maximise assistance to the foreign court conducting the main proceeding.’ Thus, a Chapter 15 court in the United States acts as an adjunct or arm of a foreign bankruptcy court where the main proceedings are conducted.”

114    These statements can be accepted; but they do not direct attention to the particular case of how a local (recognising) court should approach the question of the position of a creditor who has enforceable rights in the local (recognising) jurisdiction, but who will be stripped of all the benefit of those rights if assets are sent to the foreign main proceeding, because the law of that jurisdiction will not permit the enforcement of such a debt. Nor do the statements adequately incorporate the aim of the protection of local creditors seen in Art 21.2 or the fact that the Model Law was not intended to bring about a change to the substantive law of the recognising State and was procedural in character.

115    The present particular circumstance involves a claimed revenue debt. Other examples of debts unenforceable in the centre of main interests, but enforceable in the forum of recognition, are not difficult to hypothesise. The debt may be an unenforceable penalty in the centre of main interests, but not locally. The jurisdiction of the centre of main interests may have a law discriminating against or refusing to recognise the commercial interests or rights of citizens or companies of a particular state, whether because of a state of affairs such as belligerency, or because of some other reason. The local (recognising) state may have no such attitude. Thus, whilst we are dealing here with a revenue debt, the problem need not necessarily be so framed.

116    Universalism can be recognised in the preamble to the Model Law; but it is universalism that promotes the objectives of all creditors, and which protects local creditors. In In re Dr JÜrgen Toft 22 July 2011, United States Bankruptcy Court for the Southern District of New York, United States Bankruptcy Judge Gropper discussed the Model Law as adopted by Ch 15 of the Bankruptcy Code. That chapter contained a provision (s 1507) that provided for additional assistance provided that such assistance was consistent with the principles of comity and satisfied certain fairness considerations set out in s 1507(b):

“[W]hether such additional assistance, consistent with the principles of comity, will reasonably assure – (1) just treatment of all holders of claims against or interests in the debtor’s property; (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; (3) prevention of preferential or fraudulent dispositions of property of the debtor; (4) distribution of proceeds of the debtor’s property substantially in accordance with the order prescribed by this title; and (5) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns.”

117    Judge Gropper then discussed the notion of comity and said, citing Circuit Court of Appeals authority:

“The principle of comity has never meant categorical deference to foreign proceedings. It is implicit in the concept that deference should be withheld where appropriate to avoid the violation of the laws, public policies, or rights of the citizens of the United States.”

118    The DCT emphasised this passage in submissions on public policy (to which topic I will come). The passage is, however, powerful support for the proposition that the sacrifice of the rights (or the value in the rights) of local creditors upon an altar of universalism may be to take the general informing notion of universalism too far. The force of this proposition is to be recognised when one appreciates that the universality of the Model Law is qualified by the capacity to modify and terminate the effect of Arts 19 and 20 by Arts 20.2 and 22.3, and where the interests of local creditors are expressly protected by Art 21.2.

119    The appellants submitted that the respondent should be willing to suffer the same inability to enforce tax debts as foreign revenue authorities would in Australia in the light of the adopted Art 13.2 in this new environment of unqualified universalism. That submission assumes that it was the intention of the Model Law, and of the Parliament in the CBI Act, to affect the domestic enforceability of Australian tax debts through the process of recognition of a foreign main proceeding. No such intention can be inferred. The Working Group memoranda make clear that what was being opposed by some negotiating States was the placing of foreign revenue authorities on an equal footing with local revenue authorities. There was no evident purpose of destroying the effective local enforcement of local revenue debts.

120    Whilst the Model Law reflects universalism, there is nothing in the Model Law or the UNCITRAL Working Papers prior to its formulation, or in the CBI Act, which would justify the stripping of rights of a local creditor by reason of recognition. The universalism that underpins the Model Law and CBI Act is one for the benefit of all creditors, and the protection of local creditors is expressly recognised. It is not inappropriate to call it “modified universalism” for what such an appellation is worth.

121    Thus, I would reject the proposition that no protection can be given to the DCT by making orders of the kind made in the Modification Orders. To accept this primary submission of the appellants on the exercise of discretion would be to see the Model Law and the CBI Act transform a local revenue creditor into someone who has the status of a foreign revenue creditor.

122    This takes one to the second essential argument that the method used by the primary judge to protect the DCT was legally inappropriate, and in effect elevated the DCT to the status of a preferred creditor. The appellants submitted that the primary judge failed to have proper regard to the interests of (all) creditors, for the purposes of Art 22.1, and concerned himself only with the interests of the DCT.

123    It is to be recalled that in Modification Order 4, the DCT was prevented from benefitting from the exercise of rights beyond a pari passu amount that the DCT would receive if he were entitled to prove for the taxation debt as an unsecured creditor in the Cayman Islands proceedings. The appellants submitted that this protection, in effect, created a mock local winding up of Saad in Australia in which the only creditor entitled to prove was the DCT. The appellants submitted that if some winding up in Australia was to be hypothesised, it should be an ancillary winding up. In such a winding up, if, on the authority of such cases as In Re Australian Federal Life and In Re Matheson Brothers Limited, the liquidator thought it inappropriate to remit funds to the main liquidation because the DCT would not be treated equally in the main winding up, the funds in Australia would have to be divided among all creditors of the company, not just any creditor (such as the DCT) whose debt was sited in Australia. If one were to use such an hypothesised local ancillary winding up as the proper analogue for protection, this would leave the DCT to share in the Australian assets with all creditors of Saad equally. This, it was submitted by the appellants, would reflect the DCT’s non-priority status. It was submitted that to permit the DCT to enforce his or her rights up to an amount which he or she would receive if he or she were able to participate in the Cayman Islands winding up as a creditor, effectively created a preference to the DCT in relation to Australian assets over the equal position of other creditors.

124    In response, the DCT submitted that the focus was upon the DCT’s position because it was the creditor whose domestic rights were to be destroyed by the repatriation of the moneys to the Cayman Islands. The DCT submitted that the limitation on recovery fashioned by the primary judge in Modification Order 4 put him in a position of parity with other creditors (assuming equal enforcement). Adequate protection of all creditors, it was submitted, involved the notion of relativity. The posited lack of any enforcement by the DCT in Australia would create a relative injustice amongst all the creditors. A windfall would be created for foreign creditors by the remittance to the Cayman Islands of untaxed profits and the transformation by the Model Law and the CBI Act of a domestic revenue creditor into someone with the status and position of a foreign revenue creditor. The protection of the local creditor under Art 21.2 could be ameliorated by a cap conforming with equality of treatment as an incident of the adequate protection of all creditors in accordance with Art 22.1.

125    The DCT submitted that the question of adequate protection was an evaluative consideration within a discretion. In exercising that discretion, and in making that evaluation, the Court was, it was submitted, entitled to have regard to the Guide to Enactment, in which there is a discussion of the turning over of assets to foreign representatives and its discretionary character. In the Guide to Enactment at [157], the following appears:

The “turnover” of assets to the foreign representative (or another person), as envisaged in paragraph 2 [of Article 21], is discretionary. It should be noted that the Model Law contains several safeguards designed to ensure the protection of local interests before assets are turned over to the foreign representatives. Those safeguards include…the general statement of the principle of protection of local interests in Article 22, paragraph 1; the provision in Article 21, paragraph 2, that the Court should not authorise the turnover of assets until it is assured that the local creditors’ interests are protected; and Article 22, paragraph 2, according to which the Court may subject the relief that it grants to conditions it considers appropriate.

Thus, the appropriate protection, it was submitted, is a matter of evaluation and discretion.

126    In Debis Financial Services (Aust) Pty Limited v Allied Bellambi Collieries Pty Limited [1999] NSWSC 935; 17 ACLC 1636, Hamilton J considered what was meant by the term “adequate protection” for the interests of secured creditors in s 441D of the Corporations Act. At [14] his Honour said:

“Adequate” is a word which imports notions of relativity. It is relevantly defined in the Macquarie Dictionary as: “equal to the requirement or occasion; fully sufficient, suitable, or fit…”. In other words, the protection as to which the Court is required to be satisfied is not protection which is absolute or perfect in all circumstances, but protection which is adequate or suitable considering the circumstances which actually prevail.

127    In In Re Atlas Shipping A/S, a Danish Corporation (2009) 404 B.R. 726, the United States Bankruptcy Court was dealing with a similarly worded provision to s 441D in s 1521(b) of the United States Bankruptcy Code. In that case, the Court stated:

One Court has described “sufficient protection” …as embodying three basic principles: “the just treatment of all holders of claims against the bankruptcy estate, the protection of US claimants against prejudice and inconvenience in the processing of claims in the [foreign] proceedings, and the distribution of proceeds of the [foreign] estate substantially in accordance with the order prescribed by US law”.

128    Irrespective of whether or not all aspects of In Re Atlas Shipping should be adopted, what is plain from it is that the notion of sufficient or adequate protection involves an evaluation (as in Debis Financial Services) of the protection afforded to relevant creditors.

129    Here, there is no local winding up. The rights of the local revenue authority have not been destroyed. The question is: what is the proper framework of analysis for the protection of the local revenue authority in circumstances where, to remit the funds to the Cayman Islands, would see the destruction of the value of the rights of the local authority? The conclusion that the local revenue authority should not be stripped of its rights does not answer the question as to what level of protection should be granted to it. Here, the company is not amenable to an order for winding up. It has, however, been wound up in its centre of main interests. Given the operation of the Model Law and the CBI Act, the DCT needs an order of the Court to enable him or her to enforce all his or her rights, once recognition has been given to the foreign main proceeding. The relevant environment in which those orders are to be made is dictated by the Model Law, the CBI Act and the principles contained within them. The DCT is not a priority creditor. He or she should not, however, have his or her status as a creditor destroyed. There are assets in Australia which should be available to meet his or her claims. If one also recognises the legitimate entitlement of foreign creditors to participate in those assets, one might be led to the view that the proper protection, involving the adequate protection of all creditors, would be to recognise that the Australian assets were available to all creditors, including the DCT. Such an approach would see the DCT extract value in the order of only $154,000 out of the $7 million remaining in Australia. The DCT would be left to his or her rights in foreign proceedings. Those rights, however, would see the DCT’s claim being unenforceable according to Cayman Islands law, which is in broad accordance with international principle, including Australian law, that foreign revenue debts are not enforceable. This approach was said by the appellants to balance the various competing considerations of protection of the local revenue authority under local law, protection of the rights of other creditors to participate in all assets of the company, including Australian assets, the non-priority status of the DCT and the recognition of the general principle of private international law widely held and recognised by Australia in Art 13.2, that foreign revenue debts are not enforceable.

130    This argument on behalf of the appellants was barely put to the primary judge (to put the matter at its highest). The appellants’ substantive contention below was an all or nothing approach (as it was on appeal) that the DCT was entitled to receive nothing. This was so, in particular, because of the extra-territorial effect of the Cayman Islands’ winding up and the lack of an ability to wind up Saad in Australia. The joint liquidators’ counsel did put a submission below as to the consequences of a hypothetical local winding up. There was, however, no focus upon what is now put by the appellants by way of a fall-back position. In those circumstances, it is difficult to criticise the primary judge’s approach to the exercise of the discretion once one concludes that he had the power to fashion some protection to the DCT as the local creditor. That said, the question is an important one, and has been fully argued. Further, given my views, there is no ultimate prejudice to the DCT in allowing this approach to be argued.

131    The above argument of the appellants has a degree of superficial attraction, in particular if one appreciates the degree of focus on local assets in any winding up under s 601CL(14) or s 583 of the Corporations Act. That attraction lessens, however, if one considers the general nature of an ancillary winding up, the relative restriction of the company’s assets available to satisfy the claim of the DCT, and the importance of equality in an insolvent administration.

132    It can be accepted that foreign creditors can come in to an ancillary winding up: Re Bank of Queensland Ltd (1867) 1 QSCR 159 and Re Melbourn; ex parte Melbourn (1871) 6 Ch App 64 at 70. This is a necessary incident of the nature of the ancillary winding up of the company, and the entitlement of all creditors to equal treatment: Phillips v Hunter (1795) 2 Hy Bl 402 at 405; 126 ER 618 at 620; Re Commonwealth Agricultural Service Engineers Ltd [1928] SASR 342 at 351; Re Union Theatres Ltd (1933) 35 WALR 89 at 91; Re Vocalion (Foreign) Ltd at 207; Sedgwick Collins & Co v Rossia Insurance Co [1926] 1 KB 1 at 13; and Re Standard Insurance Co Ltd [1968] Qd R 118 at 125. In coming in to an ancillary winding up, foreign creditors come in to a winding up of the kind described by Sir Richard Scott V-C in In re BCCI at 238-248, especially at 241-242. The local (ancillary) insolvency administration, subject to statutory provisions such as s 601(15)(c) and s 583(d) of the Corporations Act, is not merely territorial, that is concerned with its local area; it is a winding up of the company. If the company is incorporated abroad and a winding up is taking place in that jurisdiction, that winding up will be recognised, and recognised to be the main or primary administration. The local liquidator’s role will then be to deal with the local assets and prepare the list of local contributories. That limited role in point of usual practice, however, is a product of statutory provisions, the recognition under the rules of private international law of the foreign main winding up, and of the judicial practice discussed by Lord Hoffmann in In re HIH at [9]:

But the judicial practice which developed in such a case was to limit the powers and duties of the liquidator to collecting the English assets and settling a list of creditors who sent in proofs. The Court, so to speak, “disapplied” the statutory trusts and duties in relation to the foreign assets of foreign companies. This practice was based partly upon the pragmatic consideration that any foreign country which applied our own rules of private international law would not recognise the title of an English ancillary liquidator to the company’s assets. But it was also based on the principle of universalism.

133    Nevertheless, the local (ancillary) winding up is carried on under local law, not foreign law. Nothing in the Model Law or the CBI Act changes this. Here, the DCT in the posited local (ancillary) winding up is entitled to rank as an equal (not preferential) creditor with all other creditors in respect of the assets of the company, although, through judicial practice, and by statutory provisions (unless the Court varies their effect) the local liquidator will limit his or her efforts largely to collection of local assets.

134    The DCT is not entitled to prove in the Cayman Islands winding up. All other creditors are entitled to prove in the posited local (ancillary) winding up, but are also entitled to prove in the Cayman Islands winding up (assuming they not to be other foreign revenue creditors). The DCT has, therefore, one fund of the company (the hypothesised local administration) in which to prove; all other creditors have two funds of the company (the hypothesised local administration and the Cayman Islands administration) in which to prove. A creditor who seeks to share in the assets of a debtor in an administration must bring to account the benefits of recovery from other assets of the debtor, whether by execution, self-help or through participating in a second administration: Selkrig v Davies (1814) 2 Dow 230; 3 ER 848 (Lord Eldon); Banco de Portugal v Waddell (1880) 5 App Cas 161 at 167-168, 170 and 175-176 (Earl Cairns LC, Lord Selborne and Lord Blackburn, respectively); Ex parte Wilson (1872) 7 Ch App 490 at 492-493 and 493-494 (James LJ and Mellish LJ); Re Harris, Goodwin & Co (1887) 7 QLJ (NC) 94; Re Standard Insurance at 127-128 (Lucas J); Re National Employers’ Mutual General Insurance Association Ltd (1995) 15 ACSR 624 at 626 (McLelland CJ in Eq); Cleaver v Delta American Reinsurance Co (in liq) [2001] UKPC 6; [2001] 2 AC 328 at 337-341 [16]-[29]; and Re HIH Casualty and General Insurance Co [2005] NSWSC 240; 53 ACSR 12 at [96]. In these circumstances, the local liquidator would be entitled to require the foreign creditors to bring to account in the nature of hotchpot the value of their participation in the Cayman Islands winding up (or indeed any other foreign winding up) in the equal distribution of the assets of the company, and in the overall equal distribution of the local assets. An illustration of the approach is Re Oriental Inland Steam Company. There, the execution creditor in India was required to bring to account in England the value of the execution in India based on the fairness of bringing to account in the English winding up the access to the company’s property that the creditor had achieved in India.

135    The analogue to the above cases here is close. If one hypothesises a local winding up the foreign creditors have access to more than one administration; the DCT to one only. Both administrations concern the assets of the company, although the nature of the task of the liquidator in the local (ancillary) winding up is limited in the way I have discussed. Even if the local ancillary winding up is limited to local assets or assets outside the place of incorporation, both administrations are dealing with the assets of the company that are to be available to unsecured creditors. Hotchpot (like marshalling) is an illustration of the maxim that equity is equality. The nature of the ancillary winding up, as a winding up of the company for the benefit of all its creditors, under local (here, Australian) law would permit (quaere require) an Australian liquidator to require foreign creditors to bring to account the value of their participation (or expected participation) in the other assets of the company (including through participation in another administration of the company’s assets) before they obtained any benefit from the Australian assets. This would vindicate the equality of the local creditor and also vindicate the ancillary winding up as being one for all creditors. This would also reflect the operation of Art 32 of the Model Law.

136    It is not necessary to decide between the views of Lord Hoffmann and Lord Walker, and Lord Scott and Lord Neuberger in In re HIH to accept that the above approach would have been one that was available to a local liquidator in the hypothesised local liquidation. Lord Hoffmann’s speech does not stand as authority for a proposition that a local liquidator in an ancillary winding up (or a court administering the CBI Act) must not apply the principle of hotchpot to protect the interests of a local creditor, who by local law was entitled to participate fully in the winding up of the company, but who was prevented from participating in the main winding up and thus gaining access to assets of the company administered there. Put another way, whatever may be the difference of view among their Lordships in In re HIH about the power under general law to remit assets to a foreign liquidator without fully vindicating the rights of creditors under local law, nothing in Lord Hoffmann’s reasons would require a local liquidator (and a local court) to limit the local creditor’s rights, and to limit the evaluation of the local creditor’s position to part only of the company’s assets, being those assets held in Australia.

137    It is important, however, not to lose sight of the task that was before the primary judge and this Court: the proper construction of the relevant provisions of the Model Law as enacted as Australian law. In particular, in this respect, the notion of adequate protection in the Model Law under Arts 21.2 and 22.1 in the light of the preamble is the fundamental consideration.

138    Any hypothesised liquidation is just that: an hypothesis – a posited framework to assist in the organisation of informing principle. The most potent informing principle is the notion of fair and equal treatment of all creditors, and the pari passu distribution of the assets of the debtor company. The principle of pari passu distribution adopted by the primary judge is informed by fairness and equality: Re Harris, Goodwin & Co; The case of the bankrupts (1592) 2 Co Rep 25, 76 ER 441; British Eagle International Airlines v CIE Nationale Air France [1975] 2 All ER 390; Hardy v Fothergill (1888) 13 App Cas 351 at 363; and see generally S.W. Symons, Pomeroy’s Equity Jurisprudence (5th Ed) Vol 2 at 144-148 [405]-[407]. Though there is no local winding up, the DCT has access only to one fund of the company’s assets and other creditors have access to more than one fund.

139    The fairness and equality in the approach of the primary judge is reinforced when one recognises the available principle of hotchpot that is based on the same notions of fairness and equality. The balancing of the protection of the local creditor under Art 21.2 and the protection of all creditors under Art 22.1 is thus achieved by recognising the equality of all creditors, when considering the dealing with, and access to, the funds of the company. The approach is consistent with the views of the reporters in the report to the American Law Institute (ALI) on Transnational Insolvency: Global Principles for Co-operation in International Insolvency Cases presented to the 2012 Annual Meeting of the ALI, at pp 127-128 on Global Principles 34 and 35.

140    Once one recognises the potential operation of the law of hotchpot in any hypothesised local (ancillary) liquidation, the fairness and appropriateness of the approach of the primary judge becomes evident. The approach of the primary judge was open as a proper evaluative conclusion directed to the question of the adequate protection of the local creditor and of all creditors of the company, considering all the available assets of the company. I would make the same evaluative conclusion.

141    The appellants also submitted that the primary judge’s exercise of discretion miscarried by his reformulation of Lord Hoffmann’s comments in In re HIH contained in [29] of the primary judge’s reasons: see [74] above. I disagree. Whilst the matter could have been expressed differently, his Honour was making a point as to the justice of other creditors not being enriched by the denial of enforcement rights of the local taxation authority. It is the same point that was made by the Court in the Alberta Queens Bench Division in Re Sefel Geophysical Ltd (7 October 1988) 3542 (AB QB); 70 CBR 9, per Forsyth J. Speaking of foreign (United States) revenue creditors, Forsyth J applied the ruling in Ex parte James; In re Condon (1874) 9 Ch App 609 at 614 and 616; and see generally M Hunter and D Graham Williams and Muir Hunter on Bankruptcy (19th ed) at 249ff, on the basis that the estate of the bankrupt, as a whole, had been enriched at the expense of the foreign revenue authorities and equity demanded that they be treated fairly and not in a manner that unjustly enriched the general creditors otherwise. One needs to be careful with this reasoning. The DCT is not a preferred creditor. Many creditors, by their extension of credit to the business of a company may have helped enrich its assets. That is the foundation for the general rule of equality of treatment. Nevertheless, I see no operative error in how his Honour expressed himself.

142    Further, whilst creditors would expect, as the appellants submitted, that the winding up should be dealt with in accordance with Cayman Islands law, that does not deny the proper formulation of any qualification to the operation of the Model Law to bring about equality of treatment of creditors.

143    For the above reasons, I do not consider that his Honour’s discretion miscarried. For the same reasons I would exercise the power in the same way.

Public policy

144    At [43]-[45] of the primary judge’s reasons, his Honour made some comments upon the DCT’s alternative argument that it would be manifestly contrary to Australian public policy to permit the Recognition Orders to operate without amendment. The primary judge observed that there was considerable force in the argument. At [45], his Honour said:

It is fundamental to any society that its government be able to require its citizens and others who operate a business or reside within that society, to pay taxation so as to maintain the State.

145    The same ideas were expressed by Holmes J in Compania General De Tabacos De Filipinas v Collection of Internal Revenue 275 US 87 at 100:

Taxes are what we pay for civilized society.

146    These entirely acceptable (and one would think in the 21st century, unremarkable) civic notions must, however, be seen in the context of Australian domestic law and the meaning of public policy in Art 6, as part of an international instrument. No priority is given to taxation debts under Australian law. Infractions of laws concerning taxation may be attended by civil (including civil penalty) and criminal consequences. The refusal to recognise or enforce foreign revenue debts is a commonly accepted principle – one which Australia itself adopts.

147    In this context, if the operation of the Model Law and the CBI Act (as laws of the Parliament) otherwise would see the funds remitted to the Cayman Islands, I see no basis to conclude that such would be contrary to a matter of fundamental importance to Australia.

148    The DCT referred to what was said by Judge Trust in In Re Gold & Honey Ltd 410 B.R. 357 (E.D.N.Y 2009) that an action would be contrary to United States public policy if it would place at risk fundamental policies of the United States. That is one way of expressing the matter. It does not advance the argument. If the terms of the Model Law and the CBI Act require remitter of the funds to the Cayman Islands, there are no additional circumstances here to engage Art 6.

Did the DCT elect to submit to the jurisdiction of the Grand Court of the Cayman Islands such that it was disentitled to the Modification Orders?

149    The argument of the appellants was that the lodgement of the proof of debt on 3 December 2009 (see [12]) above) constituted a submission to the jurisdiction of the Main Court, and, by that fact alone, the primary judge should have declined the DCT’s application to modify the orders that would have seen the funds transferred to the Cayman Islands.

150    The primary judge approached the matter at [46]-[52] in the following way:

46    The foreign representatives argued that by lodging a proof of debt to them on 3 December 2009, and again on 10 March 2010, the Commissioner submitted or elected to submit to the jurisdiction of the Grand Court. That argument was based on a decision of Bacon CJ in Ex parte Robertson; In re Morton (1875) LR 20 Eq 733 and Lord Collins’ use of that decision in Rubin [2013] 1 AC at 283-284 [165]. They argued that by lodging a proof of debt, the Commissioner had “entered into a compact with the body of creditors subject to the foreign main proceeding in the Cayman Islands”. They asserted that the Court should not permit the Commissioner to abandon that “compact” by granting a modification of the 2010 orders. The foreign representatives also contended that by submitting the proofs of debt, receiving information from the liquidators and attending the meeting of 24 March 2010, the Commissioner elected to be party to the liquidation in the Cayman Islands.

47    I reject the foreign representatives’ argument. The principle explained by Bacon CJ in Ex parte Robertson LR 20 Eq 733 involved a situation in which a Scottish creditor not only proved in the English liquidation (or in a personal bankruptcy administration, as it was then called) but also had received a distribution based on his proof of debt. The creditor had given credit in his proof of debt to the trustees of the debtors’ property for a payment by the debtors of ₤120. Bacon CJ rejected the Scottish creditor’s argument that the English Court had no jurisdiction to make that order. He said that when creditors “came in under the liquidation they made what is as much a compact as if each of them had signed and sealed and sworn to the terms of it – that the bankrupt’s estate shall be duly administered among the creditors.” The Chief Judge found that the English legislation cast the administration of the estate on the court which had jurisdiction to decide all questions of fact and law necessary to effect complete distribution of that estate. He held that the Scottish creditor had become an active party and had taken a benefit, and so was subject to the jurisdiction of the English Court.

48    Lord Collins identified the relevant principle as depending on the proposition that by proving in a liquidation or bankruptcy in the forum, the foreign creditor submits to the jurisdiction of the forum’s courts. He found that, in one of the two appeals before the Supreme Court, the creditor had participated in an Australian liquidation “by way of proof and receipt of dividends”: Rubin [2013] 1 AC at 283-284 [165]-[167]. However, what each of Ex parte Robertson LR 20 Eq 733 and, on this issue, Rubin [2013] 1 AC 236 concerned was “whether there has been a submission for the purposes of enforcement of foreign judgments in England”. As Lord Collins held, that question depended on English law ([2013] 1 AC at 283 [161], [164]) and he explained at [161]:

“The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court will so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of a judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts.” (emphasis added)

49    Here, at the time of lodging his proofs of debt with the liquidators, the Commissioner was unaware whether Saad Investments still had any assets in Australia, as appeared in his enquiries on this issue made of them in his letters of 3 December 2009 and 2 February 2010. There is no evidence that the liquidators enlightened the Commissioner on that matter before either proof was filed. In each letter the Commissioner sought the liquidators’ assistance in providing him with information about the existence, location and extent of any assets of Saad Investments that were in Australia and whom, if anyone, the liquidators had appointed here to act for the company or them. The proof of debt form itself was not intituled in the proceedings in the Grand Court. The only “benefit” that the Commissioner appeared to have received from lodging the proofs of debt consisted of any reports the liquidators had issued and the circular letter dated 1 March 2010 from the liquidators addressed to all known creditors informing them of the meeting of creditors called for 24 March 2010.

50    The Commissioner was, in the circumstances, a creditor of Saad Investments. He received information that he would have been entitled to receive were he treated as a creditor here under the Corporations Act and in virtue of his rights under the various taxation statues. Critically in 2009 and 2010 in the period relied on by the foreign representatives, the Grand Court never exercised any jurisdiction over the Commissioner and he did not make, and was not a party to, any application to the Grand Court or that it determined. There is nothing in the evidence that suggested that the Commissioner ever submitted to the jurisdiction of the Grand Court at all. It does not appear that the liquidators had called for proofs of debt for the purpose of making any distribution to creditors. Moreover, the debts that the Commissioner sought to establish in the proofs of debt were not admissible to proof under the law of the Cayman Islands. He was not a creditor with any claim under that law. And, the Commissioner did not appear to have lodged the proofs so as to obtain any distribution from the funds, if any, in the Cayman Islands.

51    I am not satisfied that the Commissioner submitted to the jurisdiction of the Grand Court or entered into a compact with all the creditors of Saad Investments at any time. Nor did the Commissioner elect to be bound by the laws of the Cayman Islands simply because he lodged a proof of debt to obtain information or to attend a meeting of creditors. An election occurs where a person is confronted with the necessity of making a choice between two mutually inconsistent courses of action. In Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 41, Deane, Toohey, Gaudron and McHugh JJ said:

“The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner, The Law Relating to Estoppel by Representation [3rd ed (1977), p 313]:

It is of the essence of election that the party electing shall be ‘confronted’ with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.”

52    Here, at the times relied on by the foreign representatives in 2009 and 2010, the Commissioner was unaware of what, if any, courses of action he had in Australia in respect of Saad Investments. He sought information from the liquidators so that he could be informed of whether, metaphorically, the bird had flown: i.e. whether there were any assets of Saad Investments still left in Australia against which he could seek to recover the whole or part of the debt owed by that company. The foreign representatives did not suggest how, in fairness to them or the creditors generally, the Commissioner could be said to have elected to give up his rights in Australia to seek recovery of the debts owed to him by Saad Investments by the anodyne steps of submitting the proofs of debt (that the liquidators could not admit to proof in the Cayman Islands anyway) seeking information and participating in a creditors meeting. The Commissioner did not have the information necessary for him to be confronted with a choice of pursuing his rights either in the Cayman Islands or Australia.

151    The appellants criticised the primary judge for approaching the submission “on the basis that it was an estoppel claim based on an election”. That criticism is unfair. The primary judge first dealt with the matter on the basis of submission. He also (at [51] and [52] of his reasons) dealt with the matter by reference to election, and to a degree employing notions relevant to estoppel.

152    One can forgive the primary judge for adverting to the argument in terms that raise the question of election, given the way the argument is still put. In written submissions before this Court, the first proposition put was as follows:

The appellants do not seek to rely upon estoppel. Rather their position is that because this Court is not the court of the foreign main proceeding and is required to co-operate to the maximum extent possible with the Main Court [Art 25], it should (apart from any other considerations) have declined to entertain the DCT’s application where the DCT had already submitted to the Main Court’s jurisdiction.

153    Expressed thus, the argument is based on the content of Art 25 and a premiss or assertion that co-operation under that Article required refusal of any modification to the Recognition Orders. I would reject that limb of the argument for the reasons that appear below.

154    After that initial proposition, the submission focused upon the fact of lodgement of the proof of debt. The following was put:

The lodgement of proofs of debt by the DCT in the foreign main proceeding was a submission to the jurisdiction of the Main Court and is inconsistent with his subsequent attempt to obtain direct access to Saad’s Australian assets. The first proof lodged by the DCT was accompanied by a letter stating “the enclosed Proof of Debt sets out the amount claimed from you as joint and several liquidator” and “we would like to be added to [the] creditor distribution list”. The second lodgement of the proof was accompanied by a letter stating that the DCT “will participate at the meeting of creditors”.

155    The asserted inconsistency of one course of action with a subsequent course of action is the discourse of election – one based on choice between mutually inconsistent alternatives.

156    The primary judge was then criticised for his conclusion that to submit to a foreign jurisdiction, more than lodgement of a proof is required; that it was necessary to receive a dividend. This criticism was heavily based on Art 25. As to Art 25, the co-operation envisaged there is principally administrative. This is evident from the terms of Arts 25, 26 and 27, the Explanatory Memorandum and CLERP 8. That said, the potential for the obligation of the courts to co-operate to alter substantive law can be seen in the basis for the agreement of all their Lordships (including Lord Phillips of Worth Matravers) in In re HIH concerning the operation of the Insolvency Act, s 426, when there was stark disagreement among four of their Lordships (Lords Hoffmann and Walker, and Lords Scott and Neuberger – Lord Phillips not expressing a view) as to the operation of the general law. This is no basis, however, to support the assertion that “co-operation” in Ch IV of the Model Law somehow prevents a court considering matters relevant to the protection of the local creditor in making orders under Arts 20.2 or 22.3.

157    It was submitted that once the DCT submitted to the jurisdiction of the Main Court as a matter of discretion, this Court should have declined to entertain the application for the Modification Orders.

158    Assuming for the sake of argument that the lodgement of a proof, and no more, was a submission to the Cayman Islands Court, to the extent that the matter at issue (the making of the Modification Orders) is a question of discretion, the kinds of considerations referred to by the primary judge at [49] and [50] of his reasons explaining the DCT’s action are powerful factors in favour of the making of the Modification Orders, if that course was otherwise open and appropriate.

159    In oral argument, the proposition was put that submission to the Cayman Islands Main Court’s jurisdiction was completed by lodgement of a proof of debt, and that such was fatal to any entitlement to seek the Modification Orders in this Court. This way of putting the matter placed no emphasis on any discretion. The argument had a suppressed and unexamined premiss: that acts sufficient to support a conclusion that there had been submission by a party to a foreign court to entitle that court to make orders against the party, or that acts sufficient to support a conclusion that there had been submission by a party to a foreign court to entitle a local court to recognise a foreign judgment against that party, were sufficient to disentitle a local creditor from thereafter seeking orders from a local court under the Model Law or the CBI Act of the character of the Modification Orders. This argument involved a false dichotomy.

160    The appellants (and the primary judge) referred to Ex parte Robertson and Rubin. Ex parte Robertson concerned the steps taken by a foreign (Scottish) creditor, Robertson, in relation to an English winding up. At about the time of the liquidation, the English debtors paid Robertson £120 out of a debt of about £367. Robertson proved for the balance in the insolvency and was paid a dividend of 4s 6d in the pound. The trustees then sought to recover the £120 and served process on Robertson in Scotland. Bacon CJ posed the question at 737: “What is the consequence of creditors coming in under a liquidation or bankruptcy?” Earlier in his judgment, Bacon CJ had referred to how Robertson “came in” – by making an affidavit which stated the debt due to him and that it was due and owing. Bacon CJ described the consequence of that submission of the proof as a compact, as if each had signed, sealed and sworn to its terms, that the bankrupt’s estate shall be duly administered among the creditors. The administration of the estate is then cast on the Court, and the Court has jurisdiction to decide all questions with respect to the estate. Thus, by entering the compact, the creditors submitted to the jurisdiction. I agree with the appellants that the reasoning of Bacon CJ did not depend upon the receipt of the dividend, but upon the submission of the proof.

161    Rubin concerned the recognition of foreign judgments, of the United States and New South Wales. The fact of submission to a foreign court was relevant to the enforceability at common law of a judgment of that foreign court by reference to the well-known general principles referred to in Rubin at 250 [7] as “Dicey’s rule 36”, as follows:

“a court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition as against the person against whom it was given in the following cases:

First Case – If the person against whom the judgment was given was, at the time the proceedings were instituted, present in the foreign country.

Second Case – If the person against whom the judgment was given was claimant, or counterclaimed, in the proceedings in the foreign court.

Third Case – If the person against whom the judgment was given submitted to the jurisdiction of that court by voluntarily appearing in the proceedings.

Fourth Case – If the person against whom the judgment was given had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country.”

162    Rubin was concerned with the insolvency context of submission in respect of default judgments. In that context, Lord Collins of Mapesbury (with whom Lord Walker of Gestingthorpe and Lord Sumption agreed) found that insolvency proceedings were no exception to the usual common law requirement for at least submission to the jurisdiction of the foreign court for enforcement to be permitted under the common law. In the two appeals before the Court, it was concluded that there had been no submission to the New York Bankruptcy Court, but there had been submission by the defendants’ participation in the Australian insolvency proceeding.

163    Here, the relevant question is whether the acts done in relation to the foreign winding up are sufficient to prevent relief in Australia under the CBI Act concerning assets in Australia. It is not at all clear why this question, as a matter of principle, is determined by the question of formal submission that may be adequate for the (different) common law rules pertaining to the enforcement of a judgment at common law or to the founding of the authority of a court to make an order against a foreign party.

164    In Rubin at 282-284 Lord Collins of Mapesbury examined the question of what is sufficient to justify a conclusion of submission to a foreign court’s jurisdiction. His Lordship first set out at [159]-[163] what steps in proceedings are sufficient. He then dealt with the question of what steps in a liquidation or bankruptcy are sufficient to submit to the court supervising the liquidation or bankruptcy (again for the purposes of enforcement of a judgment). At [161], [165]-[167] his Lordship said the following:

161    The characterisation of whether there has been a submission for the purposes of the enforcement of foreign judgments in England depends on English law. The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court will so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of a judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts.

…

165.    In English law there is no doubt that orders may be made against a foreign creditor who proves in an English liquidation or bankruptcy on the footing that by proving the foreign creditor submits to the jurisdiction of the English court. In Ex p Robertson, In re Morton (1875) LR 20 Eq 733 trustees were appointed over the property of bankrupt potato merchants in a liquidation by arrangement. A Scots merchant received payment of £120 after the liquidation petition was presented, and proved for a balance of £247 and received a dividend of what is now 20p in the pound. The trustees served a notice of motion, seeking repayment of the £120 paid out of the insolvent estate, out of the jurisdiction. The respondent objected to the jurisdiction of the English court on the ground that he was a domiciled Scotsman. On appeal from the county court, Sir James Bacon CJ held that the court had jurisdiction. He said, at pp 737-738:

"… what is the consequence of creditors coming in under a liquidation or bankruptcy? They come in under what is as much a compact as if each of them had signed and sealed and sworn to the terms of it - that the bankrupt's estate shall be duly administered among the creditors. That being so, the administration of the estate is cast upon the court, and the court has jurisdiction to decide all questions of whatever kind, whether of law, fact, or whatever else the court may think necessary in order to effect complete distribution of the bankrupt's estate. … [C]an there be any doubt that the Appellant in this case has agreed that, as far as he is concerned, the law of bankruptcy shall take effect as to him, and under this jurisdiction, to which he is not only subjected, but under which he has become an active party, and of which he has taken the benefit .. [The Appellant] is as much bound to perform the conditions of the compact, and to submit to the jurisdiction of the court, as if he had never been out of the limits of England."

166.    The Syndicate objected to the jurisdiction of the Australian court. Barrett J in his judgment of 14 July 2009 accepted that it had made it clear that it was not submitting to its jurisdiction, and he also accepted that as a result the judgment of the Australian court would not be enforceable in England. His judgment is concerned exclusively with the preference claims, and he did not deal with the question of submission by reference to the Syndicate's participation in the liquidation by way of proof and receipt of dividends. He decided that the court had jurisdiction because the New South Wales rules justified service out of the jurisdiction on the basis that the cause of action arose in New South Wales.

167.    I would therefore accept the liquidators' submission that, having chosen to submit to New Cap's Australian insolvency proceeding, the Syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding. It should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.

165    Neither Ex parte Robertson nor Rubin is determinative of the question before the Court here – whether the DCT had disentitled himself or herself from seeking the Modification Orders. The “compact” referred to by Bacon CJ in Ex parte Robertson is one that authorises the liquidator and the supervising court to act. I am prepared to accept that formal submission of a proof of debt to the insolvency administration will generally be adequate to support a conclusion that the court supervising the administration thereafter has jurisdiction to make orders in matters connected with the administration against the creditor who has proved. Such a conclusion does not, however, answer the question whether, as a matter of law and discretion, a court should not make orders under Art 20.3 and 22.3 to protect local creditors in circumstances where the local creditor has lodged a proof of debt in the foreign main proceeding. There is no evident principle that, by the minimum act of submission to the foreign court supervising the foreign main proceeding, such as by the submission of a proof of debt, exclusive jurisdiction is placed in the hands of that court in respect of all possible issues concerning the insolvency, or that the local creditor becomes disentitled to make an application of the kind with which the Court is concerned. The Model Law assumes complementary authority of the local court and the court supervising the foreign main proceeding. No provision of the Model Law denies that complementary authority by reason only of lodgement of a proof in the Cayman Islands.

166    Thus, for somewhat different reasons from those of the primary judge, I would reject the submission that by lodgement of proof in the Cayman Islands, the DCT became disentitled to the Modification Orders.

Conclusion

167    For the above reasons, the appeal should be dismissed with costs.

Associate:

Dated:    14 May 2014

REASONS FOR JUDGMENT

Robertson J

168    I agree with the judgment and orders of the Chief Justice.

Associate:

Dated:    14 May 2014

REASONS FOR JUDGMENT

GRIFFITHS J

169    I have had the benefit of reading the draft reasons of the Chief Justice. I respectfully agree with those reasons and the proposed orders.

Associate:

Dated:    14 May 2014