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Industry Updates

The Privy Council Decision: Shell v Krys

02 Dec 2014

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. 


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 matter before the Privy Council. 

The Issues before the Privy Council

As set out in the judgments of Lord Sumption and Lord Toulson, the key issue before the Board was whether, when a Company is being wound up in the jurisdiction where it is incorporated, an anti-suit injunction should issue to prevent a creditor or member from pursuing proceedings in another jurisdiction which might give him a priority over other creditors. 

By means of the Attachments and the Dutch Proceedings, Shell was seeking to gain priority access to the attached funds (although in theory any other creditor could have applied for such an attachment).  The Board was asked whether: 

(a)  in principle this was permissible; and if not 

(b)  whether an injunction should issue to stop them.

The Privy Council's Analysis


The Board found it did have the necessary jurisdiction to make an order granting the injunctive relief sought by the Liquidators.  The basis of this jurisdiction was found from two sources: 

(a)  A rejection of territorial ring fencing in international insolvency; and 

(b)  An equitable jurisdiction to enforce the statutory scheme of distribution in an insolvency. 

In respect of the first point, it was found that as a matter of BVI law, upon the liquidation, Fairfield Sentry's assets were subjected to a statutory trust for distribution.  This trust encompassed not just the assets within the jurisdiction of the BVI Court but all assets worldwide. Any foreign insolvency proceedings over Fairfield Sentry's local assets would be necessarily ancillary and supportive of the main proceedings. 

With regard to the second point, the Board relied heavily upon Carron Iron Company Proprietors v Maclaren 3 to frame its analysis that there exists an equitable jurisdiction to restrain the acts of persons amenable to the court's jurisdiction which are calculated to violate the statutory scheme of distribution.  Not to do so, it said, would "disturb the general principle of equal distribution which the court is always anxious to enforce".

Exercising the Jurisdiction

Having established to its satisfaction that a jurisdiction to grant the relief sought existed, the Board turned to consider whether that jurisdiction should be exercised.  Here also there were two issues to be considered, namely whether: 

(a)  Shell as a foreign entity was amenable to the court's jurisdiction; and 

(b)  the court should exercise its discretion in the circumstances. 


The Board turned to the judgment in Rubin v Eurofinance SA 5 per Lord Collins, to establish the principle that the lodging of a proof in a liquidation amounts to a submission to jurisdiction irrespective of whether the proof is accepted, rejected, or a dividend paid.  Despite Shell's submissions on the point, the Board was not persuaded that Lord Collins was wrong in this respect.  Nor was the Board persuaded that by means of its proof Shell had submitted merely to claims under the Insolvency Act and Rules and not for the purpose of claims governed by general law.  It found that by merely proving in the liquidation (despite the fact that its proof had not been adjudicated for a number of years and had ultimately been rejected) Shell had submitted to the court's jurisdiction in the Injunctive Proceedings. 

Finally, the Board also rejected the argument that there exists a principle in BVI law that an anti-suit injunction will not issue so as to prevent a foreign litigant from resorting to the courts of his own country, or some foreign court.  It explicitly found no basis for a distinction between domestic and foreign claimants.  In coming to this conclusion the Board held that Maugham J's judgment in In Re Vocalion (Foreign) Ltd 6 (which supports a more territorial approach to international insolvency proceedings in this respect) no longer corresponds to the Privy Council's approach either to domestic insolvency proceedings (which it said had always been universal) or in relation to the corresponding proceedings of foreign courts dealing with the insolvency of their own companies. 


Two general points informed the Board's analysis of whether to exercise its discretion in the circumstances.  The first (which is uncontroversial) is that the jurisdiction to grant anti-suit injunctions is to be exercised with caution; the second is that it is not the case that in deference to the principle of comity a decision of the issues before the Privy Council should have been left to the Dutch Courts. 

In respect of this second point, the Board found that whilst comity will normally require that a foreign judge should decide whether an action before his or her court should continue, in these circumstances, only the BVI Court was able to determine general questions of priority between claimants.  Further, that it was clear on the evidence before the Privy Council that Dutch law would prevent the Dutch Courts from deciding upon the proper forum to determine these issues.  Finally, the Dutch Court's adoption of jurisdiction over the payment of an Irish sited debt owed to a BVI company in liquidation in the BVI was sufficiently exorbitant to be in violation of customary international law. 


The judgment can be seen as a further endorsement of the restrained brand of the modified universalism developed in the Privy Council's recent decision in Singularis Holdings Ltd v PricewaterhouseCoopers.

It also clearly signals the BVI Court's willingness to intervene to protect the statutory scheme of distribution by means of anti-suit injunctions whilst providing useful guidance as to how the courts will exercise their equitable jurisdiction. 

Finally, the guidance provided in respect of submission to jurisdiction by means of merely lodging a proof in a liquidation will leave foreign creditors with a starker choice as to whether to opt for proceedings in their home court or to submit to the liquidation and the jurisdiction of the liquidating court.

1 Maples and Calder acted for the appellant, Stichting Shell Pensioenfonds.

2 See ss. 175(1) & 2(1) of the Insolvency Act 2003. 

3 (1855) 5 HLC 415.

4 Ibid. per Lord Cranworth LC, at p 440.

5 [2013] 1 AC 236 at paras 165 & 167.

6 [1932] 2 Ch 196.

7 [2014] UKPC 36. See our December 2014 update entitled Hanging by a Thread- the Re-modelling of Modified Universalism for further information on this case.

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