Waterfront LC Ltd v Cine-UK Ltd
| Jurisdiction | Jersey |
| Court | Royal Court |
| Judge | Deputy Bailiff |
| Judgment Date | 28 November 2022 |
| Neutral Citation | [2022] JRC 260 |
[2022] JRC 260
R. J. MacRae, Esq., Deputy Bailiff
ROYAL COURT
(Samedi)
Lease — unless order
Waterfront LC Limited v Cine UK Limited [2022] JRC 212.
Leeds v Admatch [2011] JRC 016A.
Crociani v BNP Paribas Jersey Corporation Limited [2017] JCA 028.
Jakobsson v Offshore Nautical Sales Limited [2003] JLR 71.
Sheyko v Consolidated Minerals Limited [2021] JRC 267.
Advocate J. D. Kelleher for the Plaintiff.
Advocate J. Harvey-Hills for the Defendant.
THE
The Defendant leases from the Plaintiff premises used as a cinema pursuant to a 35 year lease commencing on 5 December 2002. The Plaintiff issued proceedings in respect of non-payment of rent and related charges in respect of periods when the cinema was either closed or its operation restricted owing to the public health crisis caused by Covid 19.
The Plaintiff made an application for summary judgment claiming a sum in excess of £1 million. The Plaintiff's application for summary judgment was heard by the Master on 21 July 2022. On 11 October, for reasons set out in a judgment delivered on that date, the Master granted the Plaintiff's application for summary judgment ( Waterfront LC Limited v Cine UK Limited [2022] JRC 212). Further, the Master ordered that the Defendant should pay the costs of and incidental to its application for summary judgment on the indemnity basis and ordered that the Defendant make a payment on account of such costs in the sum of £100,000 within 28 days.
The Defendant appealed against the judgment of the Master and the certain decisions that he made on 11 October 2022 by Notice dated 20 October 2022. The appeal is to be heard on 9 December 2022. The Notice of Appeal specifically challenged, inter alia, the decision of the Master that the Defendant make a payment on account of costs in the sum of £100,000 within 28 days, asking that it be set aside.
There was and is no application for a stay pending appeal made by the Defendant of its obligation to pay £100,000 within 28 days. The 28 day period expired on 8 November 2022.
The Defendant having failed to pay the sum of £100,000, the Plaintiff issued a summons with time abridged on 15 November 2022 requiring the Defendant to attend before the Court on 21 November 2022 to show cause why the Defendant should not be permitted to pursue its appeal against the decision of the Master unless it pays the Plaintiff the sum of £100,000 within a period to be fixed by the Court — suggested in the course of argument to be 7 days.
The Plaintiff's position is a simple one. The Defendant has not paid the £100,000 within 28 days or at all and has not made an application for a stay. Therefore the Defendant is in direct breach of a Court order. As the Royal Court said in Leeds v Admatch [2011] JRC 016A:
“The starting point is that orders of the Court are to be obeyed and if a party refuses to pay an award of costs made against it, it is at risk of having its claim or defence, as the case may be, struck out.”
The Defendant is a company incorporated outside the jurisdiction with no substantial assets within it. Further, the Plaintiff said that when considering whether to make the order requested – in effect, an unless order – that the Defendant should be debarred from pursuing its appeal to the Royal Court unless the sum is paid. In the context of this case (the effect of preventing a party from appealing an order will depend on the circumstances), this would be tantamount to striking out the Defendant's defence to the Plaintiff's claim as this was a successful application for summary judgment.
The Plaintiff said that when considering whether to make the order sought (I will consider the appropriate test before making such an order below), then the Court would not need to be concerned about the Defendant, if successful on appeal, being repaid the monies that were subject of the costs order as the Plaintiff is ultimately owned by the Government of Jersey and accordingly there can be no argument that any monies paid to the Plaintiff would not be repaid to the Defendant if the Court so ordered.
The Defendant's arguments are more complex and arise out of the fact that subsequent to the hearing before the Master but before the handing down of the judgment in this case, the Defendant and associated companies filed a petition in the Bankruptcy Court for the Southern District of Texas under Title 11 of the United States Bankruptcy Code. Such proceedings are commonly known as ‘ Chapter 11 Proceedings’.
It is said that the filing of this petition gave rise to an order which was made on 8 September 2022 which was described by the Defendant as a ‘ worldwide automatic stay order’ which has extra-territorial effect. In particular, the effect of those orders are that the pursuit of these proceedings by the Plaintiff and any attempt to enforce any consequential judgment or costs orders are prohibited and in any event the Defendant is prohibited from making any payments to the Plaintiff in connection with these proceedings without the express permission of the US Court.
It is appropriate to now consider the evidence which has been filed by the Defendant in support of this contention. That evidence has not been challenged by the Plaintiff and is contained in an affidavit made by Ciara Foster of Kirkland and Ellis LLP, New York. She notes that the Chapter 11 Proceedings were applied for by the Defendant and 104 affiliated entities collectively described as the ‘Debtors’. She says, as supported by the evidence she exhibits, that pursuant to Section 362 of the US Bankruptcy Code, the petition sought by the Debtors automatically operates as a stay of creditors' debt collection efforts outside the umbrella of the Chapter 11 Proceedings. This automatic stay gives debtors a ‘breathing spell’ from their creditors that is essential for the purpose of a corporate reorganisation.
In particular, the automatic stay prohibits:
“The commencement or continuation…of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case…., or to recover a claim against the debtor that arose before the commencement of the case…”
Ms Foster goes on to say that the automatic stay protections apply regardless of where the property of the debtors' estate is situated and extends to the debtors' leasehold interests. Further, in the US proceedings on 8 September 2022, the judge of the Bankruptcy Court indicated that in his view, owing to reasons of comity, it was inappropriate for the UK Courts to proceed with hearing a winding up petition made against certain entities affected by the Chapter 11 Proceedings. Ms Foster says that in light of the orders made on 8 September 2022, ‘the Debtors are prohibited from making any payments to the Jersey landlord in connection with [these proceedings] without the express authority of the US Bankruptcy Court’. She says that the appropriate means of recovery is to file a proof of claim with the US Bankruptcy Court by a date in early 2023.
The order made on 8 September 2022 was exhibited to Ms Foster's affidavit and provides, inter alia, that:
“Subject to the exceptions to the automatic stay in Section 362(b) of the Bankruptcy Code, all persons….whether of the United States…or any non-US jurisdiction… are hereby stayed, restrained and enjoined from:
(a) commencing or continuing…any judicial…proceeding against the Debtors that was or could have been commenced before the commencement of the [Chapter 11 Proceedings];
(b) enforcing against the Debtors or against property of their estates, a judgment or order obtained before the commencement of the [Chapter 11 Proceedings].”
Clause 7 of the order provides that the automatic stay ‘is modified solely to the extent that the debtors deem appropriate to admit the debtors to pursue claims of their estates in litigation or contested matters (including any appellate proceeding) commenced before the petition date….’. Advocate Harvey-Hills said that this provision at first blush entitled the Defendant, if it so wished, to pursue the appeal to the Royal Court against the orders made on 11 October 2022.
Notwithstanding the purported extra-territorial effect of the order made in the US Court on 8 September 2022, the fact remains that such an order has no direct effect in Jersey. Advocate Harvey-Hills accepted that it would have been appropriate for the US Court to have either issued a letter of request to the Jersey Court seeking recognition of the Chapter 11 Proceedings or for some equivalent application to have been made, or for an application to be made to stay these proceedings. No such approach or application has been made and Advocate Harvey-Hills, who had only become involved in the matter at short notice, was not aware why that was the case. Although no summons had been issued seeking a stay of these proceedings or equivalent it was suggested in the Defendant's skeleton argument that I should, as an exercise of my case management powers, nonetheless stay the proceedings in Jersey pending the conclusion of the Chapter 11 Proceedings. I declined to do this as this is a matter which should, if it is to be proceeded with at all, be made by way of letter of request, summons or separate Representation. Furthermore, it is accepted that in any event it is appropriate and necessary for the proceedings between the Plaintiff and the Defendant to be resolved. The Defendant says that as soon as it and associated companies exit the Chapter 11 Proceedings, they will be able to pay their debts. Counsel for the Defendant says:
“If, as expected, [the Defendant] successfully exits the Chapter 11...
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