The Privy Council Decision: Shell v Krys

On 26 November 2014 the Judicial Committee of the Privy Council (the "Privy Council") handed down its judgment in the appeal brought by Stichting Shell Pensioenfonds ("Shell") against the joint liquidators of Fairfield Sentry Ltd ("Fairfield Sentry") (the "Liquidators"), the largest feeder fund to Bernard L. Madoff Investment Securities LLC ("BLMIS").1

The judgment raises and settles important issues as to the proper treatment of foreign proceedings brought in the context of an underlying BVI liquidation. It also provides guidance as to what amounts to a submission to jurisdiction in the context of a BVI liquidation and court proceedings generally.

Background

Shell was an investor in BLMIS via a shareholding in Fairfield Sentry. The day after Mr Madoff's arrest in December 2008, Shell successfully applied to the Amsterdam District Court for permission to obtain pre-judgment garnishment or conservatory attachment orders over Fairfield Sentry's assets (the "Attachments"). These assets included a large cash balance held in the Dublin branch of Citco Bank Nederland.

As a matter of Dutch law, the Attachments did not create any kind of proprietary interest in the balances in the Dublin account but rather acted to conserve funds for the satisfaction of any subsequent judgment. Substantive proceedings were issued in March 2010 seeking damages for alleged breaches of representations and warranties (the "Dutch Proceedings"). The Dutch Proceedings have been dormant pending the resolution of the issues ultimately before the Privy Council.

In July 2009, Fairfield Sentry was ordered to be wound up by the High Court of the British Virgin Islands (the "BVI Court") and the Liquidators appointed. Subsequently in November 2009, Shell submitted a proof of debt in the liquidation. This proof was later rejected by the Liquidators in August 2014 for reasons that need not be set out here.

In March 2011, the Liquidators applied to the BVI Court for an anti-suit injunction restraining Shell from prosecuting the Dutch Proceedings and requiring them to take all necessary steps to procure the release of the Attachments (the "Injunctive Proceedings"). The Liquidators were unsuccessful at first instance; Bannister J holding that the BVI Court would not prevent a foreign creditor from resorting to its own courts, even if that creditor were amenable to the BVI Court's jurisdiction. The Liquidators were successful on appeal, and a further appeal by Shell brought the...