Apperley Investments Ltd & Ors v Monsoon Accessorize Ltd (Approved)

Factual and Procedural Background

This judgment concerns two sets of related proceedings between landlords and a tenant company, hereafter referred to as the Defendant. The landlords, referred to as the Dublin Landlords and the Cork Landlords, hold leases over commercial premises in Dublin and Cork respectively. The Defendant is a company incorporated in England & Wales which underwent a Company Voluntary Arrangement (CVA) under the UK Insolvency Act 1986 in 2019. The CVA purported to modify the terms of the Dublin and Cork leases, including significant reductions in rent.

The landlords challenged the effect of the CVA on their leases, seeking declarations that the leases remain in full force and unaffected by the CVA modifications. Alternatively, they sought declarations under Article 33 of the EU Insolvency Regulation (Recast) that the CVA modifications should not be recognised or enforced in Ireland as they are manifestly contrary to public policy. The Defendant defended the proceedings, asserting that the CVA must be recognised and enforced under the Insolvency Regulation and that the landlords' claims are barred by doctrines including res judicata and estoppel.

The proceedings were heard together by the High Court by remote hearing in May 2020. Subsequent to the hearing, the Defendant entered administration in the UK and one of the Cork landlords entered liquidation in Ireland. The judgment was delivered in October 2020.

Legal Issues Presented

1. Whether the CVA, approved under English law, modifies the terms of the leases governed by Irish law and whether such modifications are enforceable in Ireland.
2. The interpretation and application of Articles 7, 11, 19, 20, 32, and 33 of the Recast Insolvency Regulation concerning recognition and enforcement of insolvency proceedings and contracts relating to immovable property.
3. Whether the CVA process complied with procedural fairness requirements, particularly the landlords' right to be heard before modifications affecting their property rights were approved.
4. The applicability of doctrines of estoppel, res judicata, issue estoppel, and the Henderson v. Henderson rule to bar the landlords' proceedings.
5. The effect of the CVA on guarantees provided by a third party (MAIL) under Irish law.

Arguments of the Parties

Plaintiffs' (Landlords') Arguments

• The CVA modifications to the leases are not effective in Ireland as Irish law governs contracts relating to immovable property, pursuant to Article 11 of the Insolvency Regulation.
• The CVA process violated fundamental constitutional property rights protected under Irish law, as it purported to modify leases without judicial intervention or opportunity for the landlords to be heard.
• The procedural fairness of the CVA process was deficient because the landlords were not given a realistic opportunity to make representations before the creditor vote approving the CVA.
• The CVA modifications cannot bind the landlords' guarantor, MAIL, whose obligations are primary and unaffected by the CVA under Irish law and the terms of the guarantee.
• Estoppel does not apply as the landlords did not rely detrimentally on any representation made by the Defendant's solicitors.

Defendant's (Monsoon) Arguments

• The CVA is an insolvency proceeding under English law and must be recognised and enforced in Ireland under Articles 19, 20, and 32 of the Insolvency Regulation.
• Article 11(2) confers jurisdiction on the court opening main insolvency proceedings (the English court) to approve modifications to contracts relating to immovable property, and such jurisdiction includes application of English law.
• The landlords had notice of the CVA creditors' meeting and could have attended and made representations; the use of proxies is a normal feature of such meetings.
• The landlords' challenge to the CVA should have been brought in the English courts under section 6 of the UK Insolvency Act; the doctrines of res judicata, issue estoppel, and Henderson v. Henderson bar the Irish proceedings.
• The guarantee obligations of MAIL are co-extensive with the Defendant's obligations and are affected by the CVA modifications.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the interplay between the UK CVA and the Irish leases governed by Irish law in the context of the EU Insolvency Regulation (Recast). It determined that Article 11 of the Regulation, which governs contracts relating to immovable property, applies such that the effects of insolvency proceedings on the leases are governed solely by Irish law.

The Defendant’s argument that Article 11(2) empowers the English court to apply English law to modify the leases was rejected. The court held that Article 11(2) confers jurisdiction on the court opening main insolvency proceedings to approve modifications only where the law of the Member State applicable to the contract requires court approval and no insolvency proceedings are opened in that Member State. However, this jurisdiction does not permit the application of the law of the opening court but requires adherence to the law of the Member State where the property is located.

The court found that the CVA approval constituted a judgment under Articles 19, 20, and 32 of the Regulation, mandating automatic recognition by other Member States, including Ireland, subject to the public policy exception under Article 33.

Turning to the public policy exception, the court emphasised the constitutional protection of property rights in Ireland, including the fundamental right to be heard before property rights are interfered with. The court found that the CVA approval process failed to provide the Irish landlords with a meaningful opportunity to be heard before the creditor vote, as the meeting was dominated by pre-cast proxy votes and lacked any mechanism for representations from the landlords to be made or considered by all creditors.

The court rejected the Defendant’s submission that the availability of a challenge in the English courts cured the procedural defect, noting significant uncertainty in English law as to whether such a challenge was available or effective. The court concluded that this uncertainty compounded the procedural unfairness and rendered the recognition of the CVA modifications contrary to Irish public policy under Article 33.

Regarding estoppel and res judicata, the court found no sufficient evidence or argument to apply these doctrines to bar the landlords' claims.

On the guarantee claims against MAIL, the court held that MAIL’s obligations are primary and not co-extensive with the Defendant’s obligations. The guarantee provisions expressly preserve MAIL’s liability notwithstanding any variation of the leases under the CVA. Therefore, even if the CVA were enforceable, MAIL’s obligations remain unaffected.

Holding and Implications

The court declared that the CVA, insofar as it purports to vary or modify the terms of the Cork and Dublin leases, is not entitled to recognition or enforcement in Ireland on the grounds that such recognition would be manifestly contrary to Irish public policy under Article 33 of the Recast Insolvency Regulation.

Furthermore, the court declared that the guarantee obligations of MAIL under the relevant lease licences remain in full force and are not released or affected by the CVA or any purported variations made pursuant to it.

The court directed the parties to agree or submit draft orders reflecting these declarations and to address costs accordingly.

This decision directly affects the parties by denying recognition and enforcement in Ireland of the CVA’s modifications to the Irish leases but does not establish new precedent beyond the application of public policy and procedural fairness principles in cross-border insolvency contexts.