In CSL Australia Pty. Ltd. v. Britannia Bulkers PLC, et al., 2009 U.S. Dist. LEXIS 81173 (S.D.N.Y. Sept. 8, 2009), the defendant Britannia Bulkers PLC (Britannia), a Denmark corporation with its only place of business in Svendborg, Denmark, filed a motion against the plaintiff CSL, an Australian corporation with its place of business in St. Leonard’s, New South Wales, Australia, to vacate a maritime attachment issued in favor of CSL. The underlying dispute was initially brought by CSL against Britannia, seeking security for a potential breach of contract arbitration judgment. On the same day that the dispute was initiated, an ex parte order was entered directing the clerk to issue a process of maritime attachment and garnishment against Britannia in accordance with Admiralty Rule B in an amount up to $2,443,870. Approximately one week later, electronic fund transfers totaling $2,443,870 belonging to Britannia A/S, a related entity, were seized. CSL contended that the seized funds were intended for the benefit of Britannia, and therefore, were subject to the current attachment order. Thereafter, CSL filed an amended complaint naming Britannia Bulk Plc. (Bulk) and Britannia A/S as alter egos and obtained an amended ex parte order that included the newly named defendants.
The underlying dispute proceeded to arbitration, and on Jan. 10, 2009, CSL obtained an arbitration award of just over $1 million against Britannia. The parties agreed to reduce the attached amount to equal the amount of the arbitration award.
Prior to the issuance of the arbitration award, Bulk commenced insolvency proceedings in London, and Britannia A/S was declared bankrupt in Denmark. On Jan. 30, 2009, the U.S. Bankruptcy Court for the Southern District of New York issued an order recognizing Britannia A/S’s bankruptcy proceeding in Denmark as a foreign main proceeding under chapter 15 of the Bankruptcy Code. The bankruptcy court also recognized Bulk’s insolvency proceeding in the United Kingdom as a foreign main proceeding under chapter 15.
In the current case, Britannia A/S requested that the court vacate the Rule B attachment and require the turnover of the attached funds to the trustee of Britannia A/S’s bankruptcy case so that the funds could be used to administer the bankruptcy case. CSL opposed the motion and instead requested that the bankruptcy court lift the automatic stay to, among other things, allow it to pursue its alter ego claims against the defendants in the district court.
Britannia asserted, among other things, that the court should exercise its discretion and grant comity to the Britannia A/S bankruptcy proceeding in Denmark, under which all prebankruptcy attachments dissolve as of the date of the bankruptcy. The court agreed with Brittania, explaining that comity, which is “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws[,]” applies with equal importance to foreign bankruptcy proceedings. 2009 U.S. Dist. LEXIS, at p. 9 (citations omitted). The court explained that “[c]ourts grant comity to foreign bankruptcies if those proceedings do not violate the laws or public policy of the United States and if the foreign proceedings are procedurally fair. Id. at p. *10-11 (internal citations omitted). The court also found support to apply comity to bankruptcy proceedings in chapter 15, explaining that chapter 15 “specifically contemplates that the court should be guided by principles of comity and cooperation with foreign courts in deciding whether to grant the foreign representative additional post-recognition relief.” And “[o]nce a case is recognized as a foreign main proceeding, chapter 15 specifically contemplates that the court will exercise its discretion consistent with principles of comity.” Id. at p. 11 (citations omitted).
The court easily found that the principles of comity supported vacatur of the amended order. First, there was nothing in the record to suggest that the Danish court would violate or infringe upon U.S. laws or public policy, or that the Danish proceedings were procedurally unfair. In fact, the court explained that Danish bankruptcy law is not dissimilar from U.S. bankruptcy laws since the “guiding premise of both U.S. and Danish bankruptcy law is equality of distribution among creditors.” Id. at p. 12. Since the evidence showed that under Danish law attachments made prior to the commencement of a Danish bankruptcy case automatically and unconditionally lapsed, “permitting the Rule B attachment to stand would run afoul of principles of international comity, by enabling CLS to make an end-run around the Danish Court’s explicit proscription against disposition of a debtor’s property outside the bankruptcy proceeding, and the unconditional dissolution under the Danish Bankruptcy Code of all attachments made prior to the bankruptcy.” Id. at p. 14 (citations omitted).
In the opposition to vacatur, CSL claimed that the Koreag exception to the comity principle applied. Under Koreag, Controle et Revision SA v. Refco F/X Assocs. Inc. (In re Koreag), 961 F.2d 341, 348 (2d Cir. 1992), if there is a bona fide dispute as to the ownership of property a debtor claims as part of its estate in the foreign bankruptcy proceeding, the court must make a threshold ownership determination before the property can be turned over to the foreign representative. Thus, “U.S. courts may resolve bona fide questions of property ownership arising under local law while a foreign bankruptcy proceeding is ongoing without deferring to the parallel foreign proceeding on grounds of international comity.” Id. at p. 20 (citations omitted).
Here, the court explained that the Koreag exception to the international comity rule was inapplicable because CSL did not raise a bona fide dispute as to the ownership of the EFT’s in the name of Britannia A/S. The court explained that the Koreag exception only applies to bona fide property ownership questions and “not where the alleged ownership claim is simply a creditor’s thinly veiled attempt to extract partial payment from the debtor on the debt owed outside a foreign bankruptcy proceeding.” Id. (internal quotations omitted).
Since international comity principles supported vacatur of the Rule B attachment and the Koreag exception did not apply, the court vacated the Rule B attachment and ordered the funds to be turned over to the trustee for administration in the Danish bankruptcy proceeding.