ACE Bermuda Insurance Ltd v Pedersen and Others (as Plan Trustee for Estates of Boston Chicken Inc.)

• Jurisdiction: Bermuda
• Judgment Date: 12 September 2005
• Date: 12 September 2005
• Docket Number: Civil Jurisdiction 2005 No. 89
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Civil Jurisdiction 2005 No. 89

BETWEEN:

ACE Bermuda Insurance Ltd

Respondent/Plaintiff

and

Peer Pedersen and others as plan Trustee for and on behalf of the Estates of Boston Chicken Inc and others

Applicants/Defendants

Mr. D Duncan for the Applicants/1st, 2nd and 4th Defendants

Mr. N Hargun for the Respondent/Plaintiff

The following cases were referred to in the judgment:

Finnish Marine Insurance Co Ltd v Protective National Insurance CoUNK [1989] 2 Lloyds Rep 99

NV Kwik Hoo Ton Handel Maatschappij v James Finlay & Co LtdELR [1927] AC 604

De Havilland Aircraft of Canada v Metroflight Inc (1978) 29 CPC 225

DVA v Voest AlpineUNK [1997] 2 Lloyds Rep 279

Toepfer International v Societe Cargill FranceUNK [1997] 2 Lloyds Rep 98

Turner v GrovitWLR [2002] 1 WLR 107

X Ltd v Morgan-Grampian (Publishers) LtdELR [1991] 1 AC 1

New York Convention on the Reciprocal Enforcement of Arbitration Awards 1958

Arbitration Act 1986

Application for order setting aside leave for service out of the jurisdiction — Material non-disclosure — Insurance coverage — Arbitration agreement — Foreign bankruptcy proceedings — Judicial cooperation — Cross-border insolvency — Comity — Barton doctrine — Forum — Strict jurisdiction

JUDGMENT of Kawaley, J

Introduction and Summary

On August 22 2005, I refused the Applicants' application by Summons dated May 5, 2005 for an order setting aside the leave granted ex parte by Greaves, J. on March 22, 2005 to the Plaintiff to serve the Writ herein out of the jurisdiction on the grounds of material nondisclosure. On the same date, Justice Greaves granted an interim injunction restraining the Defendants from seeking to resolve the insurance coverage issues the Plaintiff has referred to arbitration in breach of the relevant arbitration agreement. The background to the present application is helpfully set out in the Plaintiff's written submissions as follows:

‘1.By an Order dated 22 March 2005, made upon the application of ACE Bermuda Insurance Ltd., formerly A.C.E. Insurance Company, Ltd., (‘ACE Bermuda’), Greaves J. ordered:-

‘1. The Defendants whether by themselves, their servants or agents or assigns or otherwise howsoever be restrained until further Order from commencing or proceeding with any litigation against the Plaintiff in any jurisdiction or Court and/or from commencing or proceeding with any arbitration against the Plaintiff before any Tribunal or arbitrator in connection with, arising under or relating to the Directors and Officers Excess Liability Insurance Policy No BOST-7925D issued by the Plaintiff to Boston Chicken Inc., or the alleged breach thereof, including without limitation any such claims alleging so-called ‘bad faith’ or other alleged wrongdoing, other than by means of an arbitration in Hamilton, Bermuda under Clause IV.I. (Arbitration of the said policy.

2. The Plaintiff has leave to issue a Writ herein for service out of the jurisdiction on the Defendants in the United States of America.’

2. The First, Second and Fourth Defendants (‘the Defendants’) have been duly served pursuant to the Order of 22 March 2005. Conditional Appearance has been filed on behalf of the Defendants for the purposes of challenging jurisdiction of this Court. By Summons dated 5 May 2005, the Defendants seek an Order that the ‘The Order granting permission to serve the Notice of the Writ of Summons upon the First, Second and Fourth Plaintiffs (sic) and each of the be set aside’.

3. The Summons dated 5 May 2005 does not set out any express grounds for setting aside the Order of 22 May 2005. The Affidavit evidence filed on behalf of the Defendants indicates that the grounds are:-

• i. The existence of what has been referred to as the Barton doctrine under which a court appointed receiver, the Defendants claim, is ‘not liable to a suit unless leave is first obtained of the court by which he was appointed.

• ii. The failure by ACE Bermuda to disclose the existence of the Barton doctrine at the ex parte hearing before Greaves J. on 22 March 2005.’

The Plaintiff's claim, as amended, is limited to a permanent injunction restraining the Applicants from breaching an arbitration agreement contained in a policy of insurance issued by the Plaintiff for the benefit of Defendants 1–3, which provides for arbitration in Bermuda in accordance with the Arbitration Act 1986 (‘the Policy’). The Policy was issued in respect of the acts and omissions of those Defendants in their capacity as directors and officers of Boston Chicken Inc (‘BCI’). BCI is the insured under the Policy and is also one of the now insolvent companies of which Defendant 4 is currently Plan Trustee. Litigation brought by the Plan Trustee against Defendants 1–3 was partially settled by Defendants 1–2 assigning their rights of recover under the policy against the Plaintiff to the Plan Trustee, who is the controlling Applicant in the present proceedings.

In breach of the interim injunction granted by this Court on March 22, 2005, the Applicants subsequently commenced proceedings in the Arizona Bankruptcy Court which supervises the bankruptcy of the companies currently under the charge of the Plan Trustee. While disregarding an order of this Court, the Applicants simultaneously have sought to contend that the proceedings issued by the Plaintiff in Bermuda should be set aside because the Plaintiff ought to have disclosed to this Court in seeking leave to serve out a doctrine of United States bankruptcy law which has extra-territorial effect, and which confers exclusive jurisdiction over the policy proceeds to the Arizona Court.

In their written submissions, the Applicants sought to set aside leave to serve them abroad on the grounds of (a) material non-disclosure and (b) the assertion that as a matter of comity the Arizona court was the most appropriate forum. Apart from invoking the most general of principles supportive of judicial cooperation between international courts in insolvency matters, the Applicants were, unsurprisingly, unable to point to any judicial precedent which suggested that this Court could ignore relevant provisions of Bermuda law in deference to a foreign law which purported to have extra-territorial effect. It seemed to me to be fundamentally untenable to contend that a Bermuda insurer cannot validly commence proceedings in Bermuda to enforce a Bermuda law governed arbitration agreement, merely because the parties to that agreement included an entity subject to foreign bankruptcy proceedings. And, in the present case, none of the Applicants is himself subject to bankruptcy proceedings abroad; Applicant/Defendant 3 is merely a Plan Trustee whose contractual rights have been assigned to him by Applicants/Defendants 1–2.

In my view, the circumstances in which judicial cooperation takes place in cross-border insolvency situations are fairly well delineated in international insolvency practice. This Court cooperates extensively with United States bankruptcy courts, in connection with chapter 11 proceedings involving reorganization plans and generally, and has done so for many years. Absent any statutory framework permitting foreign representatives to obtain assistance under Bermuda law, this Court has adapted the traditionally domestic and inflexible legal regime of provisional liquidation into a flexible internationally oriented legal framework in order to facilitate cooperation with insolvency proceedings abroad. The Bermuda Court, in such cases, has applied Bermudian law in a manner designed to assist a foreign proceeding. It has never, except when construing a contract governed by a foreign proper law, treated a foreign procedural law as having direct force in Bermuda law, let alone allowed a foreign procedural law to displace clearly applicable Bermuda law on the issue before the Court1.

It is difficult to imagine any jurisdiction in the world which, statutory incorporation apart, would apply a foreign procedural law instead of its own domestic law to an action properly commenced under local law within the jurisdiction. When Bermudian estate representatives seek the cooperation of the United States bankruptcy courts, they invariably do so under the umbrella of the provisions of section 304 of the US Bankruptcy Code, if not chapter 11. They do not apply to set aside actions commenced in the US against Bermudian companies in liquidation on the grounds that leave of the Bermuda Court should have been obtained by virtue of Bermuda domestic law. Unfortunately, Bermuda statute law presently has no counterpart provision to section 304, which may well explain the quandary faced by the Plan Trustee in seeking to determine how to obtain Bermuda law recognition for the primacy the Arizona Court arguably enjoys under US bankruptcy law in relation to all litigation involving estate assets.

But even if this Court had the power to stay proceedings brought in Bermuda in deference to a foreign bankruptcy proceeding, it seems improbable that such jurisdiction would enable this Court to grant the relief the Applicants presently seek. Because the only application presently before the Court is based on the premise that an extra-territorial doctrine of US bankruptcy law arguably supersedes Bermuda statute law, namely order 11 rule 1(1) (f) of the 1985 Supreme Court Rules, and that this US law deprives this Court of the jurisdiction expressly conferred upon it to grant leave to serve abroad proceedings brought here to enforce a contract governed by Bermuda law.

It is also settled that this Court cannot properly stay proceedings on forum non conveniens grounds where the parties have agreed to arbitrate here, which is no doubt why this doctrine (in its traditional sense) has not, in any coherent way at least, been invoked by the Applicants. Yet the doctrine is relied upon in support of the proposition that the Arizona court is the more appropriate...