Eldwick recently acted for the Respondent in opposing an application for recognition of a Hong Kong bankruptcy proceeding before the High Court of Justice (Insolvency Court).
Facts of the case
The Respondent, Mr Kei Kin Hung (“Mr Kei”) was a high-net-worth individual from China, based in Hong Kong. He has been involved in several multi-jurisdictional proceedings before the High Court, including, most relevantly, bankruptcy proceedings initiated by an order made on 12 December 2023 by the High Court of the Hong Kong Special Administrative Region.
The Joint Trustees of Mr Kei’s bankrupt estate in Hong Kong, Bruno Arboit and Li Kin Long Kenny of Kroll (HK) Limited (the “Joint Trustees”), made an application pursuant to the UNICTRAL Model Law on Cross-Border Insolvency (the “Model Law”) as set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the “CBIR”) on 24 June 2024.
The relief sought by the Joint Trustees was two-fold. First, the Joint Trustees sought an order recognising the Hong Kong bankruptcy proceedings as foreign main proceedings pursuant to Articles 15 and 17 of the Model Law (the “Recognition Application”). Second, the Joint Trustees sought an order pursuant to Articles 21(1) and (2) of the Model Law, entrusting the Joint Trustees with the administration, realisation and distribution of all of Mr Kei’s assets in Great Britain (the “Article 21 Application”) (together the “CBIR Application”)
The CBIR Application was resisted by Mr Kei on the basis that the application was premised on information that was provided to the Joint Trustees in breach of undertakings and restrictions contained within the freezing injunction of Mr Justice Foxton dated 7 July 2023 (the “Foxton Order”). The Foxton Order was granted in separate commercial court proceedings following an application brought by one of Mr Kei’s creditors in bankruptcy. It was provided subject to an undertaking that the creditor would not, without the permission of the court, use any information obtained as a result of the order, for any civil or criminal proceedings, either in England and Wales or in any other jurisdiction. Whilst Mr Justice Foxton had granted permission to use information disclosed pursuant to the Foxton Order in enforcement proceedings, permission was not granted for use in the Hong Kong bankruptcy proceedings.
The matter came before Chief ICC Judge Briggs, first for a standard directions hearing (which is typical in these kinds of cases) on 30 October 2024 and then for a substantive hearing on 18 November 2024.
The Law on Cross-Border Recognition & Enforcement
The CBIR were introduced to give effect to the Model Law in Great Britain. The CBIR, by adopting the Model Law, provide a uniform framework under which the British courts would be willing to assist foreign representatives in cross-border insolvency proceedings. There are a variety of reasons why a foreign representative may seek the assistance of British courts, however, the most common is in circumstances where the debtor is said to have valuable assets in this jurisdiction.
In order for insolvency proceedings initiated in another jurisdiction (in this case Hong Kong), to be recognised as foreign main proceedings in Great Britain four conditions generally need to be met under Article 17 of the Model Law. These conditions include (inter alia) demonstrating that the proceedings meet the definition of a “foreign proceeding” i.e. that they are collective judicial or administrative proceedings in a foreign State to administer the reorganisation of a debtor’s assets; and that they are made by an individual meeting the definition of a “foreign representative” i.e. a person or individual appointed on an interim basis and authorised to administer the reorganisation of a debtor’s affairs. Upon recognition of a foreign proceeding, the court may, at the request of the foreign representative, grant any appropriate relief necessary to protect the assets of the debtor or the interests of the creditors. This may include entrusting the administration and realisation of all or part of the debtor’s assets located in Great Britain to the foreign representative.
Whilst the burden is on the foreign representative seeking recognition to satisfy the English courts that the conditions are met, the conditions can generally be easily established by documentary evidence in circumstances where the foreign insolvency proceedings are similar to those adopted by the English courts. In the circumstances, many Respondents to a cross-border recognition application may feel they have limited options in what could appear to be a ‘tick-boxing’ exercise.
Whilst the Court may readily give recognition of foreign insolvency proceedings, it is trite law that the Court is not to be considered a ‘rubber stamp’ and the Court should be fully appraised of all relevant matters when considering applications of this nature. This approach is reflected in the public policy exception contained within Article 6 of the Model Law, which provides that the Court may refuse to take an action governed by the Model Law “if the action would be manifestly contrary to the public policy of Great Britain or any part of it”.
In the present case, it was argued that the public policy exception was engaged where there was a genuine basis for considering that the Joint Trustees may have acted in contempt of court.
The Law on Contempt
Contempt is a quasi-criminal jurisdiction operating in civil courts and generally refers to behaviour that takes place during, or in connection with, legal proceedings that prejudice or impede the administration of justice. Although there are many different forms that contempt of court can take, that which is of primary relevance to the facts of this case, is contempt for breach of a court order or undertaking.
The general principle underlying this type of contempt is that if a person (i) is required by a judgment or order to do an act does not do it within the time fixed by the judgment or order; or (ii) disobeys a judgment or order not to do an act, then the judgment or order may be enforced by an order for committal.
In the context of freezing injunctions, many may associate contempt proceedings with a breach of the terms of the freezing injunction by the defendant, through by way of example, dissipating assets. However, the importance of complying with the undertakings provided in consideration for the freezing injunction should not be overlooked. It is established law that an undertaking given by a litigant to and accepted by a court has the same legal significance as an injunction or order in like terms. It follows that a breach of an undertaking given to the court by or on behalf of a party to civil proceedings, is tantamount to a breach of an injunction.
Further, it is not only parties to the proceedings that need to be cautious of contempt proceedings. Although an order directed at, or an undertaking provided by, a named person is generally only binding on that person, a non-party may nonetheless be guilty of contempt if the non-party knowingly aids and abets a breach of the order, or intentionally frustrates the achievement or the purpose of the order. Importantly, the courts have held that a non-party can be guilty of contempt even when there is no conduct on the part of the named person which could amount to a breach of the order or contempt of court. Intentional frustration of, or interference with, the achievement of the purpose of the order would be sufficient.
In the present case, whilst the Court was not asked to make any findings of contempt, it was still required to consider the underlying principles of contempt for breach of a court undertaking by a non-party, in order to determine whether there was a genuine concern that the Joint Trustees may have acted in contempt of court by using information in a manner that was contrary to the undertakings and restrictions contained within the Foxton Order.
The Judgment
The primary question the Court was required to consider was whether it should decline to act on the basis of the public policy exception contained within Article 6 of the Model Law, in circumstances where the CBIR Application was premised on information that appeared to be deployed in contempt of court.
In his judgment addressing this question, Chief ICC Judge Briggs had regard to the decision of Mr Justice Snowden (as he then was) in Nordic Trustee A.S.A v OGX Petróleo e Gás S.A. which provided guidance on the obligations of full and frank disclosure in applications for recognition of a foreign insolvency proceeding. In his decision, Snowden J found that “notwithstanding the clear intention that the public policy exception in Article 6 should be interpreted restrictively… it is strongly arguable that the court must have a residual discretion to refuse recognition if satisfied that the applicant is abusing the process for an illegitimate purpose”. Whilst Chief ICC Judge Briggs found that the information used by the Joint Trustees was being used for a legitimate purpose, he found that the information obtained and deployed to persuade the court that a recognition order should be made, should not have been made available and should not have been deployed.
In considering whether to exercise his residual discretion within Article 6, Chief ICC Judge Briggs considered the factors which favoured the granting of a recognition order. In this regard, Chief ICC Judge Briggs considered the aims of the CBIR, namely the cooperation between courts and competent authorities to achieve a fair and efficient administration of cross-border insolvencies that (i) protects the interests of all creditors and other interested persons, including the debtor; and (ii) protects and maximises the value of the debtor’s assets. Because a recognition order may have been granted without the Joint Trustees relying on the embargoed information and the fact that the recognition would grant a stay of certain proceedings in this jurisdiction thereby preserving assets, Chief ICC Judge Briggs granted the Recognition Application.
However, in so far as the Article 21 Application was concerned, in light of the concerns regarding the use of information in breach of a court undertaking, Chief ICC Judge Briggs ordered that the relief sought in the Article 21 Application should not be granted until such time as the Joint Trustees made an application in the commercial court, for permission to use the information relied upon and where necessary, to purge the contempt.
Conclusion
The judgment handed down is interesting given that Chief ICC Judge Briggs reached an almost hybrid conclusion by granting the Recognition Application but refusing to grant the Article 21 Application.
The judgment demonstrates the importance of parties ensuring that the Court is fully appraised of all matters when considering applications for recognition of a foreign insolvency proceeding. Whilst recognition orders are frequently granted where there are similarities between the insolvency proceedings of the foreign jurisdiction and those in England and Wales, a recognition application should not be treated as a rubber stamp exercise. In the present case, whilst English courts had previously granted recognition orders concerning Hong Kong bankruptcy proceedings, the Court still exercised its residual discretion under Article 6 of the Model Law and refused to grant the relief sought in the Article 21 Application.
Finally, the judgment emphasises the importance of both parties and non-parties complying with court orders and undertakings. For more, please read a recent case that Eldwick acted on where we prosecuted a contempt action sending the contemnor to prison for 15 months.
A copy of the full judgment in Arboit v Hung [2024] EWHC 3399 (Ch) can be found here and a copy of the WestLaw Case Digest can be found here.
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