English High Court Assists Australian Court To Effect Clawback From Lloyd's Syndicate

Originally published March 30, 2011

Article by Devi Shah , Kristy Zander , Ian McDonald and Ashely Katz

Keywords: New Cap Re, Lloyd's Syndicate, English Court

On 15 March 2011, the High Court of Justice (the "English Court") used its statutory powers under s.426 of the Insolvency Act 1986 (the "Act") to order a Lloyd's syndicate to pay the amount due under a judgment of the Supreme Court of New South Wales in Australia (the "Australian Court") relating to unfair preference payments. It did so pursuant to a letter of request issued by the Australian Court requesting the English Court's assistance. The English Court also ruled that it had the power to and would assist under common law in the same manner1.

The Facts

The respondents, members of a Lloyd's syndicate for two years of account (the "Syndicate") had entered into certain reinsurance contracts with New Cap Reinsurance Corporation Limited ("New Cap Re"), an Australian reinsurance company. The Syndicate and New Cap Re subsequently entered into a commutation agreement, pursuant to which New Cap Re made lump sum payments to the Syndicate just over three months before New Cap Re went into administration (and subsequently liquidation) in Australia. New Cap Re's liquidator commenced proceedings against the Syndicate in Australia alleging that the payments constituted "unfair preferences" and were thus "voidable transactions" under relevant Australian insolvency legislation. The Syndicate did not formally file an appearance before the Australian Court, although their solicitors' correspondence on various matters was placed before the Australian Court and considered in its judgment. The Australian Court held that the payments were preferential under Australian insolvency law and ordered the Syndicate to pay corresponding sums plus interest. The Australian Court also issued a letter of request seeking the English Courts' assistance in giving effect to the judgment through making orders for payment of the sums due from the Syndicate.

The Decision

The English Court exercised its discretionary powers under s.426 of the Act in favour of assisting the Australian Court and ordered the Syndicate to pay amounts corresponding to the Australian judgment. The Syndicate had argued that proceedings could not be brought under s.426 of the Act or at common law since s.6 of the Foreign Judgments (Reciprocal Enforcement) Act 1933 (the "1933 Act") prohibits proceedings for the recovery of a sum of money payable...

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