Vol 12 (2015) - Issue 1

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Stichting Shell Pensioenfonds v Krys [2014] UKPC 41

The Privy Council’s decision in Stichting Shell Pensioenfonds v Krys [2014] UKPC 41 provides important guidance on the exercise of a valuable weapon in a liquidator’s armoury, the anti-suit injunction. Judgment was handed down on 26 November 2014, with the Board’s reasons given by Lord Sumption and Lord Toulson. The Board upheld a decision of the Eastern Caribbean Court of Appeal ('Court of Appeal') to restrain a foreign creditor who had lodged a proof of debt in a British Virgin Islands ('BVI') liquidation from pursuing proceedings against the company in liquidation (and by extension against certain of its assets outside the BVI) in the courts of the creditor’s own country. Had those proceedings been successful, they would (in conjunction with associated attachment orders) have potentially given the foreign creditor access to the assets of the insolvent estate in priority to other creditors.

Factual background
The company in liquidation was Fairfield Sentry Limited ('Fairfield Sentry'), a mutual fund incorporated in the BVI. Fairfield Sentry was largest of the 'feeder funds' that placed investments with Bernard L. Madoff Investment Securities LLC ('BLMIS'). It invested (or at least, on the face of the BLMIS statements, believed it had invested) about USD 7.2 billion, or 95% of its assets, with BLMIS. The foreign creditor was Stichting Shell Pensioenfonds ('Shell'), a Dutch pension fund incorporated in the Netherlands. Between 2003 and 2006, Shell subscribed USD 45 million for shares in Fairfield Sentry.
Bernard Madoff was arrested on 11 December 2008. The following day, Shell applied to redeem its shares in Fairfield Sentry. Under the contractual documentation that governed the relationship between Fairfield Sentry and its members, Shell could request the redemption of its shares at a price based on the net asset value ('NAV') of each share as calculated and published by Fairfield Sentry’s directors. However, owing to the revelation that BLMIS was a Ponzi scheme, the required calculations were not performed and Shell received no redemption payments. On 18 December 2008, the directors suspended the calculation of the NAV of Fairfield Sentry’s shares.
Fairfield Sentry’s assets included substantial sums held in an account in its name maintained at the Dublin branch of a Dutch bank, Citco Bank Nederland BV ('Citco'). On 22 December 2008, Shell applied to the Amsterdam District Court for permission to obtain an attachment over the assets of Fairfield Sentry held by Citco. Permission was granted the following day and, over the following months, sums of about USD 71 million in the Dublin account became subject to the Dutch attachments. Attempts by Fairfield Sentry in The Netherlands to have the attachments lifted were unsuccessful.
The effect of the attachments was twofold. First, it preserved the attached assets to make them available to satisfy any judgment that Shell might obtain against Fairfield Sentry in the Dutch courts. Second, it created a head of jurisdiction pursuant to which Shell became entitled to pursue its substantive claim for damages against Fairfield Sentry in the Dutch courts. By that substantive claim, commenced in the Amsterdam District Court on 19 March 2010, Shell alleged that Fairfield Sentry had breached certain representations and warranties that had induced Shell to subscribe for shares in Fairfield Sentry.
On 21 July 2009, Fairfield Sentry was placed into liquidation by the BVI High Court. On 5 November 2009, Shell lodged a proof of debt in the liquidation for about USD 63 million, which represented the redemption price of its shares calculated by reference to the final NAV per share published by Fairfield Sentry’s directors prior to the discovery of Mr Madoff ’s fraud. Shell’s act of lodging the proof had significant consequences for the dispute that followed.