|
CHANCERY
DIVISION COURT OF
APPEAL, CIVIL DIVISION Re Bank
of Credit and Commerce International SA (No 9); Re Bank of Credit and Commerce
International (Overseas) Ltd See
annotated version at [1994] 3 All ER 764 COUNSEL: Michael
Crystal QC, Richard Sheldon and Susan Prevezer for the liquidators. William Blackburne QC, Matthew Collings and Richard
Morgan for Sheikh Mahfouz. Philip Heslop QC, A G Bompas and Robert Miles for the
National Commercial Bank. W F Stubbs QC, J Stephen Smith and Ian Peacock for Mr
Kahlon. SOLICITORS: Lovell
White Durrant for the liquidators Nabarro Nathanson for Sheikh Mahfouz. D J Freeman) for the National Commercial Bank. Gouldens) for Mr Kahlon JUDGES: Rattee J Dillon, Nolan and Roch LJJ DATES: 22, 25,
28–30 JUNE, 1, 2, 5–7, 30 JULY 1993 9, 10, 19 NOVEMBER 1993 Cur adv vult 30 July 1993. The following judgment was delivered. RATTEE J. These proceedings represent the latest instalment of
litigation arising out of the collapse of the Bank of Credit and Commerce
International (BCCI). Bank of Credit and Commerce SA (to which I shall refer
in this judgment simply as “SA”) was incorporated in
Luxembourg on 21 September 1972. It was at all material times registered in
England under Pt XXIII of the Companies Act 1985 or its predecessors. It was
ordered to be wound up by this court on 14 January 1992 pursuant to a petition
presented on 5 July 1991 by the Bank of [*769]
England. It is also the subject of winding up proceedings before the court of
Luxembourg. Bank of Credit and Commerce International (Overseas)
Ltd (to which I shall refer in this judgment as “Overseas”)
was incorporated in the Cayman Islands on 25 November 1975. It has never been
registered in this country. It was ordered to be wound up by the Grand Court of
the Cayman Islands on 14 January 1992. SA and Overseas were the principal operating
subsidiaries of Bank of Credit and Commerce Holdings (Luxembourg) SA (to which
latter company I shall refer in this judgment as “Holdings”).
When carrying on business SA had 47 offices or branches in 13 different
countries, 24 of which were in the United Kingdom. Overseas had 63 branches in
28 different countries, the largest number in any country being in Oman. As is
now all too well known, the companies went into liquidation, hopelessly
insolvent as a result of frauds perpetrated by persons entrusted with their
management, with overall deficiencies estimated as being in excess of $10bn,
bringing financial ruin and misery on many of their erstwhile customers. So
much appears from the judgment of Dillon LJ in Re Bank of Credit and
Commerce International SA (No 2) [1992] BCC 715 at 720ff. In those proceedings the court approved the
liquidators of SA entering into, in particular, two agreements in the context
of the liquidation of SA. One of those agreements (the contribution agreement)
featured in the argument before me, and I shall have to say something more
about it in due course. For the present it is sufficient to say that in essence
it provided that the Abu Dhabi government would contribute $1.435bn to the funds available for creditors of the
companies, provided that there should be mutual releases of claims between the
liquidators on the one hand and the majority of Holdings (including in particular
the ruler, Crown Prince and government of Abu Dhabi) and certain other Abu
Dhabi parties on the other hand, save that “the Abu Dhabi
parties” should be admitted as creditors in the liquidations in the
aggregate sum of about $1.439bn. The other agreement to which I referred which was
approved by the English court was a “pooling agreement”
providing for the assets of the two companies, SA and Overseas, being pooled
for the purposes of liquidation. As explained by Sir Donald Nicholls V-C in
Re Bank of Credit and Commerce International SA (No 2)
[1992] BCC 715 at 719: “I am satisfied that the affairs of
BCCI SA and BCCI Overseas are so hopelessly intertwined that a pooling of their
assets, with a distribution enabling the like dividend to be paid to both
companies” creditors, is the only sensible way to proceed. It would
make no sense to spend vast sums of money and much time in trying to
disentangle and unravel.” The proceedings presently before me were commenced by
an originating application issued on 10 December 1992 by the first four
applicants named therein as the liquidators of SA appointed in the winding-up
proceedings in this court, and by the fifth, sixth and seventh named applicants
as the liquidators of Overseas in its winding up by the Cayman Islands court.
The application was described in an affidavit sworn by the first applicant, Mr
Christopher Morris, as— [*770] “part of a concerted worldwide effort
by the Liquidators … to seek compensation from the Respondents for
their participation and/or assistance in the fraudulent activities of the
senior management of the BCCI Group.” The respondents are: (1) Khalid Salem bin Mahfouz, to
whom I shall refer in this judgment as “Mahfouz”, as he is
referred to in documents in the proceedings to which I shall have to refer. He
is a citizen of and resident in Saudi Arabia. He was a director of SA, Overseas
and Holdings between 4 September 1986 and 18 August 1989; (2) National
Commercial Bank, Saudia Arabia, to which I shall refer as
“NCB”, is a bank incorporated in Saudia Arabia which at all
material times had a place of business in London. According to Mr
Morris’s affidavit, NCB was at all material times owned and managed by
members of the family of Mahfouz, its activities being under the direction and
control of Mahfouz; (3) Haroon Rashid Kahlon, to whom I shall refer as
“Kahlon”, who claims to be resident in Pakistan. According to
Mr Morris’s affidavit, Kahlon at all material times worked as an
officer or employee of NCB under the supervision of Mahfouz. He was also an
employee of one or other of the companies in the BCCI Group for about three
years prior to about May 1980. By the originating application the applicants seek
various forms of relief based on alleged participation by the respondents in
the wrongful activities of the senior management of the BCCI Group, and in
particular to two persons by the names of Abedi and Naqvi. Some of the relief
sought by the originating application is sought by the first four named
applicants as liquidators in the winding up by this court of SA, some by the
last three named applicants as liquidators in the winding up by the Grand Court
of the Cayman Islands of Overseas. The following claims are made by each set of
liquidators. (1) A declaration under s 213 of the Insolvency Act
1986 that Mahfouz, NCB and Kahlon were knowingly parties to the carrying on of
the business of SA or Overseas, as the case may be, with intent to defraud
creditors, and that accordingly the respondents are liable to contribute to the
assets of the company concerned, in the case of SA $5.439bn and in the case of
Overseas $4.436bn (being in each case the amount of the current estimated
deficiency of assets of the company) or to make such contribution as the court
thinks proper. (2) A declaration under s 214 of the 1986 Act that
Mahfouz knew or ought to have concluded that there was no reasonable prospect
that SA or Overseas, as the case may be, would avoid going into insolvent
liquidation no later than 17 September 1986, alternatively April 1987,
alternatively March 1988 or any time thereafter and is accordingly liable to
make a similar contribution to the assets of the company as that sought under
the first head of claim. (3) A declaration under s 212 of the 1986 Act that
Mahfouz was guilty of “misfeasance and breach of fiduciary or other
duty” in misapplying or causing or permitting to be misapplied moneys
of SA and/or Overseas amounting in the aggregate to some $1.4333bn. (4) A declaration under s 212 that Mahfouz and/or NCB
and/or Kahlon received the moneys mentioned in head 3 of the relief sought on
trust for SA or Overseas as the case may be, and that they are liable to
account for the moneys concerned to SA or Overseas, as the case may be. (5) A declaration under s 238 of the 1986 Act that
certain specified payments or transfers totalling $717,663,000 made to one or
other of the three [*771] respondents within
two years of the respective liquidations of the two companies constituted
transactions at an undervalue and should be restored to the company concerned.
All the payments or transfers specified under this head of claim are included
in the payments amounting to $1.4333bn odd included under head 3, to which I
have referred. (6) Consequential orders for payment, interest, costs
etc. The originating application includes some ten pages of grounds on which
the applicants seek the relief to which I have referred. The major part of
these payments, such part amounting to over $1bn, were, according to the
liquidators” claim, made out of the assets of the company concerned as
part of an allegedly fraudulent scheme involving the extraction of moneys from
the insolvent companies by way of payments to purchase from the recipients
shares in Holdings itself or in a Netherlands Antilles corporation by the name
of Credit and Commerce American Holdings NV (CCAH), itself the parent company
of an American financial institution by the name of First American Bankshares
Inc. According to the liquidators” claim the scheme was entered into
at a time when NCB and/or Mahfouz knew that the BCCI Group was in severe
financial difficulties. Not only were BCCI funds thus misappropriated to the
knowledge of the respondents to pay Mahfouz or NCB under the scheme to buy back
shares in Holdings and CCAH, but the misappropriations were concealed in the
books of SA and Overseas by bogus or fictitious transactions which disguised
the true financial position of the companies so as to allow them to go on
trading to the disastrous detriment of future depositors and other creditors.
This is in essence the basis on which it is sought by the liquidators to pursue
the claims set out in the originating application. Mr Morris in his affidavit
evidence explains how the liquidators” enormously complex and lengthy
investigations have led them to the conclusions forming the basis for their
claims, and how those conclusions are similar to conclusions reached by Messrs
Price Waterhouse, former auditors of the companies in the BCCI Group, and
expressed in a draft report produced by them in June 1991 to the Bank of
England pursuant to their appointment by the bank to investigate pursuant to s
41 of the Banking Act 1987. On the same day as the originating application was
issued, an ex parte application was made on behalf of the liquidators to
Vinelott J for Mareva injunctions and leave to serve the originating
application out of the jurisdiction on Mahfouz and Kahlon. The judge gave leave
to serve out of the jurisdiction as sought and granted a worldwide Mareva
injunction against both Mahfouz and Kahlon. The injunction was subject to
common form exceptions permitting payments for legal costs and $10,000 per week
for ordinary living expenses. At the same time Vinelott J ordered that the aid
of the Royal Court of Jersey be sought by the issue of a letter of request to
that court pursuant to s 426 of the 1986 Act requesting the Jersey court to
make similar injunctions against Mahfouz and Kahlon. I shall have to return to
consider s 426 in considerable detail later in this judgment. On the same day, 10 December 1992, the Royal Court of
Jersey made a worldwide injunction in the terms sought by the letter of request
issued pursuant to the order of Vinelott J. Also on the same day the district
court of the District of Columbia in Washington, United States of America, made
a temporary restraining order restraining Mahfouz and Kahlon dealing with
assets in the United States. [*772] On 22 December 1992 the liquidators”
application for a continuation of the Mareva injunctions came before Vinelott J
inter partes. He adjourned the application to a date to be fixed and continued
the injunctions granted on 10 December over the adjourned hearing, with liberty
to Mahfouz and Kahlon to apply on 48 hours” notice to vary or
discharge the order. Also at the hearing on 22 December, Vinelott J refused an
application made on behalf of Mahfouz and Kahlon to require the liquidators not
to bring proceedings against them abroad without the leave of the court. On 21 January 1993 Kahlon issued one of the
applications now before me, namely an application for (inter alia) orders: (1)
discharging the orders made by Vinelott J on 10 December, that is to say the Mareva
injunction and the leave to serve out of the jurisdiction, so far as those
orders related to Kahlon; and (2) setting aside the service of the originating
application on him which had been effected pursuant to the order of Vinelott J. This application was said to be based on the
proposition that England was not a forum conveniens for the proceedings, as
well as on the propositions that Mr Morris’s affidavit did not
disclose a sufficient case to justify the orders made by Vinelott J, and that
at the hearing on 10 December the liquidators had failed to disclose to the
court material facts known, or which ought to have been known, to them. On 25 January 1993 an application to set aside the
Mareva injunction and the service of the proceedings out of the jurisdiction
was also made by Mahfouz. On the same day a Mr Sigler, Mahfouz’s
English solicitor, swore an affidavit in answer to the first affidavit of Mr
Morris. In that affidavit he said that Mahfouz had suffered a heart attack and
was not fit himself to swear an affidavit. On 27 January 1993 the proceedings came before Warner
J. He adjourned the originating application and the applications by Mahfouz and
Kahlon to which I have just referred to a date to be fixed, and continued the
Mareva injunction in the meantime. The judge also gave directions in the
originating application, including directions for the service of points of
claim. He further directed that Kahlon should swear an affidavit of assets
required of him by the order of 10 December 1992 by 17 February 1993, such
affidavit to be retained by his solicitors until further order after the
determination of the application made by Kahlon. Points of claim with schedules thereto running in all
to about 150 pages were served by the liquidators on 24 February 1993. In these
the grounds set out in the originating application are expanded and elaborated
upon with very great complexity. It is fortunately not necessary for me to go
into them in any detail for present purposes. They are the subject matter of
applications to strike out all or various parts of them which have been
launched on behalf of Mahfouz and NCB. Unfortunately, the particular complaints
made on the points of claim were not disclosed by those respondents until the
commencement of the hearing before me, despite the liquidators”
solicitors having pressed their respective solicitors for some time for the
grounds of the applications to strike out, which were in fact issued in May
1993. The grounds now disclosed include a great number of criticisms of the
points of claim which, because they were (in my judgment inexcusably) not
disclosed to the liquidators prior to the beginning of the hearing before me,
the latter had had no opportunity to consider. In those circumstances, not surprisingly,
counsel for the liquidators was not willing to deal with them at the hearing
before me. I accordingly [*773] declined to
deal with the applications to strike out issued by Mahfouz and Kahlon in May. On 28 May 1993 Mahfouz’s solicitors notified
the liquidators” solicitors that Mahfouz no longer intended to pursue
the parts of his application of 25 January which sought to set aside the order
of Vinelott J giving leave to serve him out of the jurisdiction and the service
on him made pursuant to that order. At a very late stage of the hearing before
me, counsel for Kahlon indicated that he wished to abandon his attempt to set
aside service on him outside the jurisdiction and no longer sought to object to
the court’s jurisdiction to entertain the claims made by the
liquidators of SA as against him. He maintains an objection to jurisdiction in
relation to the claims by the liquidators of Overseas, but only on the ground
that they do not fall within the jurisdiction conferred on this court by s 426
of the 1986 Act. A similar objection to jurisdiction in relation to the claims
by the liquidators of Overseas is made on behalf of NCB by a summons issued in
the course of the hearing before me so as to enable the arguments on s 426 of
the 1986 Act to be decided as between the liquidators of Overseas and NCB as
well as between those liquidators and Kahlon. For reasons no doubt best known
to him or his advisers, but which I understand to arise from the stance on
jurisdiction being adopted by him in proceedings brought by the liquidators
against the respondents to the originating application in Washington, Mahfouz
indicated by his counsel that he was not himself seeking to argue that this
court has no jurisdiction in respect of any part of the originating
application, though he may, of course, be the passive recipient of the benefit
of any success his fellow respondents may have on the jurisdiction issue. By the end of the hearing the issues to be decided by
me had been resolved into the following: (1) does this court have jurisdiction
to entertain the claims made in the originating application by the liquidators
of Overseas; (2) if it does, and has a discretion as to the exercise of that
jurisdiction, how should it exercise that discretion; (3) should the Mareva
injunctions be continued until the trial of the originating application; and
(4) irrespective of the answer to question (3), should the Mareva injunctions
made ex parte on 10 December 1992 be discharged on the ground of material
non-disclosure by the liquidators. (1) Jurisdiction There is no doubt that this court has no jurisdiction
to entertain the applications made by the liquidators of Overseas for orders
under s 213 (paras 4 and 5 of the originating application), s 214 (para 6 of
the originating application), s 212 (paras 7, 8 and 9 of the originating
application) and s 238 (paras 10 and 11 of the originating application) of the
1986 Act except to the extent, if any, to which such jurisdiction arises under
s 426 of the Act, for each of those sections applies only to a
“company” within the meaning of the 1986 Act, which Overseas
is not. This was rightly accepted by counsel for the liquidators. He submitted,
however, that in the circumstances of the present case the court does have and
should exercise jurisdiction to make the orders sought in relation to Overseas
by virtue of s 426 of the 1986 Act. It is, I think, convenient at this point to set out
some parts of the sections of the 1986 Act to which I have referred: “212. Summary remedy against
delinquent directors, liquidators, etc—(1) This section applies if in
the course of the winding up of a company it [*774] appears that a person
who—(a) is or has been an officer of the company, (b) has acted as
liquidator, administrator or administrative receiver of the company, or (c) not
being a person falling within paragraph (a) or (b), is or has been concerned,
or has taken part, in the promotion, formation or management of the company,
has misapplied or retained, or become accountable for, any money or other
property of the company, or been guilty of any misfeasance or breach of any
fiduciary or other duty in relation to the company … “(3) The court may, on the
application of the official receiver or the liquidator, or of any creditor or
contributory, examine into the conduct of the person falling within subsection
(1) and compel him—(a) to repay, restore or account for the money or
property or any part of it, with interest at such rate as the court thinks just,
or (b) to contribute such sum to the company’s assets by way of
compensation in respect of the misfeasance or breach of fiduciary or other duty
as the court thinks just. … “213. Fraudulent trading—(1)
If in the course of the winding up of a company it appears that any business of
the company has been carried on with intent to defraud creditors of the company
or creditors of any other person, or for any fraudulent purpose, the following
has effect. “(2) The court, on the application of
the liquidator may declare that any persons who were knowingly parties to the
carrying on of the business in the manner above-mentioned are to be liable to
make such contributions (if any) to the company’s assets as the court
thinks proper. “214. Wrongful trading—(1)
Subject to subsection (3) below, if in the course of the winding up of a
company it appears that subsection (2) of this section applies in relation to a
person who is or has been a director of the company, the court, on the
application of the liquidator, may declare that that person is to be liable to
make such contribution (if any) to the company’s assets as the court
thinks proper. “(2) This subsection applies in
relation to a person if—(a) the company has gone into insolvent
liquidation, (b) at some time before the commencement of the winding up of the
company, that person knew or ought to have concluded that there was no
reasonable prospect that the company would avoid going into insolvent
liquidation, and (c) that person was a director of the company at that time;
but the court shall not make a declaration under this section in any case where
the time mentioned in paragraph (b) above was before 28th April 1986. “(3) The court shall not make a declaration
under this section with respect to any person if it is satisfied that after the
condition specified in subsection (2)(b) was first satisfied in relation to him
that person took every step with a view to minimising the potential loss to the
company’s creditors as (assuming him to have known that there was no
reasonable prospect that the company would avoid going into insolvent
liquidation) he ought to have taken. “(4) For the purposes of subsections
(2) and (3), the facts which a director of a company ought to know or
ascertain, the conclusions which he ought to reach and the steps which he ought
to take are those which would be known or ascertained, or reached or taken, by
a reasonably diligent person having both—(a) the general knowledge,
skill and experience that may reasonably be expected of a person carrying out
the same functions as are [*775] carried out by that director in relation to
the company, and (b) the general knowledge, skill and experience that that
director has. “(5) The reference in subsection (4)
to the functions carried out in relation to a company by a director of the
company includes any functions which he does not carry out but which have been
entrusted to him. “(6) For the purposes of this section
a company goes into insolvent liquidation if it goes into liquidation at a time
when its assets are insufficient for the payment of its debts and other
liabilities and the expenses of the winding up. “(7) In this section
‘director’ includes a shadow director. “(8) This section is without
prejudice to section 213 … “238. Transactions at an undervalue
(England and Wales)—(1) This section applies in the case of a company
where—(a) an administration order is made in relation to the company,
or (b) the company goes into liquidation; and ‘the
office-holder’ means the administrator or the liquidator, as the case
may be. “(2) Where the company has at a
relevant time (defined in section 240) entered into a transaction with any
person at an undervalue, the office-holder may apply to the court for an order
under this section. “(3) Subject as follows, the court
shall, on such an application, make such order as it thinks fit for restoring
the position to what it would have been if the company had not entered into
that transaction. “(4) For the purposes of this section
and section 241, a company enters into a transaction with a person at an
undervalue if—(a) the company makes a gift to that person or otherwise
enters into a transaction with that person on terms that provide for the
company to receive no consideration, or (b) the company enters into a
transaction with that person for a consideration the value of which, in money
or money’s worth, is significantly less than the value, in money or
money’s worth, of the consideration provided by the company. “(5) The court shall not make an
order under this section in respect of a transaction at an undervalue if it is
satisfied—(a) that the company which entered into the transaction did
so in good faith and for the purpose of carrying on its business, and (b) that
at the time it did so there were reasonable grounds for believing that the
transaction would benefit the company.” “The relevant time as defined in s
240 is, for present purposes, within two years of the commencement of the
liquidation of the company concerned. “426. Co-operation between courts
exercising jurisdiction in relation to insolvency—(1) An order made by
a court in any part of the United Kingdom in the exercise of jurisdiction in
relation to insolvency law shall be enforced in any other part of the United
Kingdom as if it were made by a court exercising the corresponding jurisdiction
in that other part. “(2) However, without prejudice to
the following provisions of this section, nothing in subsection (1) requires a
court in any part of the United Kingdom to enforce, in relation to property
situated in that part, any order made by a court in any other part of the
United Kingdom. “(3) The Secretary of State, with the
concurrence in relation to property situated in England and Wales of the Lord
Chancellor, may by order make provision for securing that a trustee or assignee
under the insolvency law [*776] of any part of the United Kingdom has, with
such modifications as may be specified in the order, the same rights in
relation to any property situated in another part of the United Kingdom as he
would have in the corresponding circumstances if he were a trustee or assignee
under the insolvency law of that other part. “(4) The courts having jurisdiction
in relation to insolvency law in any part of the United Kingdom shall assist
the courts having the corresponding jurisdiction in any other part of the
United Kingdom or any relevant country or territory. “(5) For the purposes of subsection
(4) a request made to a court in any part of the United Kingdom by a court in
any other part of the United Kingdom or in a relevant country or territory is
authority for the court to which the request is made to apply, in relation to
any matters specified in the request, the insolvency law which is applicable by
either court in relation to comparable matters falling within its jurisdiction.
In exercising its discretion under this subsection, a court shall have regard
in particular to the rules of private international law … “(10) In this section
‘insolvency law’ means—(a) in relation to England
and Wales, provision made by or under this Act or sections 6 to 10, 12, 15,
19(c) and 20 (with Schedule 1) of the Company Directors Disqualification Act
1986 and extending to England and Wales … (d) in relation to any
relevant country or territory, so much of the law of that country or territory
as corresponds to provisions falling within any of the foregoing paragraphs;
and references in this subsection to any enactment include, in relation to any
time before the coming into force of that enactment the corresponding enactment
in force at that time. “(11) In this section
‘relevant country or territory’ means—(a) any of the
Channel Islands or the Isle of Man, or (b) any country or territory designated
for the purposes of this section by the Secretary of State by order made by
statutory instrument.” “The Cayman Islands were designated
as a “relevant country or territory” by the Co-operation of
Insolvency Courts (Designation of Relevant Countries and Territories) Order
1986, SI 1986/2123. “On 7 December 1992 the Grand Court
of the Cayman Islands, on an ex parte application made by the liquidators of
Overseas, ordered that— “a letter of Request do issue to the
High Court of Justice, England to exercise its jurisdiction under s 426 of the
Insolvency Act 1986 in the terms of the draft Letter of Request attached
hereto.” “The draft letter of request attached
to the order, and therefore the letter of request which I treat as having been
addressed to this court, is in the following terms: “LETTER OF REQUEST “To the High Court of Justice,
England “WHEREAS this Court is a court
exercising jurisdiction in relation to insolvency law in the Cayman Islands AND
WHEREAS a proceeding is pending in this Court in respect of the winding up of
Bank of Credit and Commerce International (Overseas) Limited ("BCCI Overseas")
AND WHEREAS IAN WIGHT, ROBERT ASHFORD AND MICHAEL MACKEY are duly [*777]
appointed liquidators of BCCI Overseas AND WHEREAS it appears to this Court
that it is desirable that the best possible realisation of the assets of BCCI
Overseas (including claims) be achieved for the benefit of all its unsecured
creditors AND WHEREAS the said liquidators have shown to the satisfaction of
this Court that it is just and convenient that this Letter of Request should
issue THIS COURT HEREBY REQUESTS the High Court of Justice, England to exercise
its jurisdiction under section 426 of the Insolvency Act 1986 to assist this
Court by making orders under the respective provisions referred to below in the
form of and substantially in the form of the orders set out below if and
insofar as the High Court of Justice, England considers it just and appropriate
that such orders be made …” The letter of request then repeats verbatim the prayer
for relief contained in the originating application in so far as it relates to
the claims thereby made in respect of Overseas for declarations under ss 212,
213, 214 and 238 of the 1986 Act. NCB filed affidavit evidence of Cayman law to the
effect that that law has no statutory provision comparable to any of ss 213,
214 or 238 of the 1986 Act, and that it does have a statutory provision (s 168
of the Companies Law (Cap 22)) comparable to s 212 of the 1986 Act, save that
under the Cayman section proceedings may only be brought against “any
past or present director, manager, official or other liquidator or any
officer” of the company in liquidation. The liquidators submit that by virtue of the letter of
request issued by the Grand Court of the Cayman Islands, this court has
jurisdiction by virtue of s 426 of the 1986 Act to make such declarations as
are requested by the letter of request, should the facts be found to justify
them, notwithstanding that this court would otherwise have no power to make any
such orders in relation to a foreign company being wound up abroad, as is
Overseas, and the Grand Court would itself have no such power, because its
insolvency law does not include provisions comparable with the sections of the 1986
Act under which the declarations are sought. NCB and Kahlon submit that this court has no
jurisdiction to make the declarations sought in relation to Overseas, firstly,
because the power conferred on this court by s 426 of the 1986 Act is limited
to applying English procedural law for the purpose of recognising and giving
effect in this country to decisions made by a relevant foreign court in the
exercise of its own insolvency jurisdiction by the application of its own
national insolvency law, and, secondly, because in any event the letter of
request issued by the Grand Court is not a letter of request within the meaning
of s 426 of the 1986 Act. NCB and Kahlon submit that it would be quite wrong in
principle that this court should be in a position to apply its own substantive
law to the liquidation of a foreign company in a foreign jurisdiction. Section
426 of the 1986 Act should be construed with this in mind. The legislature
cannot have intended to enable a foreign liquidator of a foreign company not otherwise
subject to the insolvency jurisdiction of this court to seek from this court
orders subjecting a director of the foreign company to liability, including
criminal liability, for acts incurring no such liability under the law of the
place of incorporation of the company concerned. Otherwise, it was submitted,
no one could safely act as a director of a foreign company without knowing what
possible liabilities he [*778 would be incurring not only under the law of the place
of incorporation of the company, but also English law, in the event of the
company going into liquidation. NCB and Kahlon rightly draw attention to the fact that
provisions bearing some resemblance to s 426 of the 1986 Act are to be found in
earlier English bankruptcy statutes. Section 118 of the Bankruptcy Act 1883 was
in these terms:
Counsel for NCB and Kahlon relied for support for the
proposition that s 426 of the 1986 Act does not permit the English court to
apply its own substantive law in relation to a foreign company not in
liquidation in this country on dicta in the House of Lords in Galbraith v
Grimshaw [1910] AC 508, [1908-10] All ER Rep 561 which,
submitted counsel, show that the House did not regard s 118 of the 1883 Act as
enabling the English court to apply English substantive law to a Scottish
bankruptcy. In Galbraith v Grimshaw the
material facts were that, after a judgment creditor had served a garnishee
order nisi on a firm in England that owed a debt to the judgment debtor, the
estate of the judgment debtor was sequestrated under Scottish bankruptcy law
and was transferred to a trustee for creditors with power to recover all assets
of the judgment debtor. The question at issue in the proceedings that came
ultimately before the House of Lords was whether the English garnishee order
took priority over the rights under Scots law of the trustee. The House held
that it did. Thus the House was not concerned to apply, or even to construe, s
118 of the 1883 Act. However, in the course of his speech Lord Macnaghten said
([1910] AC 508 at 511–512, [1908-10] All ER Rep 561 at 563): “It may have been intended by the
Legislature that bankruptcy in one part of the United Kingdom should produce
the same consequences throughout the whole kingdom. But the Legislature has not
said so. The Act does not say that a Scotch sequestration shall have effect in
England as if it were an English bankruptcy of the same date. It only says that
the Courts of the different parts of the United Kingdom shall severally act in
aid of and be auxiliary to each other in all matters of bankruptcy. The English
Court, no doubt, is bound to carry out the orders of the Scottish Court, but in
the absence of special enactment the Scottish Court can only claim the free
assets of the bankrupt. It has no right to interfere with any process of an English
Court pending at the time of the Scotch sequestration.” I do not find this dictum or anything else in the case
of any real assistance on the effect of the request of a foreign court under s
426 of the 1986 Act. The [*779] House of Lords
was not considering a case in which another court had requested its assistance
pursuant to s 118 of the 1883 Act. Another case in which the court considered s 118 of
the 1883 Act and on which NCB and Kahlon particularly rely is an Australian
case, Hall v Woolf (1908) 7 CLR 207. In that case
there were bankruptcy proceedings in Queensland relating to a debtor resident
there who subsequently left Queensland and ceased to be either resident or
domiciled there. He later went to reside in Western Australia and became insolvent
there. He had not obtained a discharge in the Queensland bankruptcy. His
trustee in the Queensland bankruptcy obtained from the Supreme Court of
Queensland an order under s 118 of the Imperial Bankruptcy Act 1883 seeking aid
from the Western Australia court to obtain possession of property of the debtor
situate in Western Australia and an order that all property in the hands of the
trustee in the Western Australia bankruptcy should be delivered to the
Queensland trustee. The Western Australia court was thus being asked to apply
Queensland law so as to pass the property concerned to the Queensland trustee
in priority to the rights of the Western Australia trustee. The court of
Western Australia refused. The High Court of Australia held that it rightly
refused. Thus the issue in that case was not whether the court receiving a
request under s 118 could apply its own substantive law rather than that of the
requesting state. On the contrary, the court of Western Australia was being
asked to apply Queensland law to the prejudice of creditors in its own
bankruptcy proceedings. The case seems little help in relation to the question
I have to decide. However, the respondents rely on a dictum of Griffith CJ who,
in giving the judgment of the High Court of Australia, said (at 212): “Section 118 of the English
Bankruptcy Act 1883 does not create any new rights, but only creates new
remedies for enforcing existing rights.” Given the context in which they were said these words
really do not seem to me to assist in deciding the issue I have to decide. Section 118 of the Bankruptcy Act 1883 was replaced by
s 122 of the Bankruptcy Act 1914, which was in identical terms to s 118 of the
1883 Act. A case decided on s 122 of the 1914 Act is Re Osborn, ex p the trustee
[1931–32] B & CR 189. In that case a lady had been adjudged bankrupt
by the Isle of Man court. There were no bankruptcy proceedings relating to her
in England. The Isle of Man court ordered that: “… the aid of the High Court
of Justice, England … be sought pursuant to section 122 of the
Bankruptcy Act, 1914, and in pursuance of such order a request is made to the
said High Court of Justice … for declarations that the whole of the
real and personal estate of the bankrupt situate in England … became
vested in the trustee … or that the same shall vest in the trustee
from the date of the declarations now sought …” In the course of his judgment Farwell J said (at
194–195): “I think it is clear that I am bound
in a proper case, under section 122, to assist the Court in the Isle of Man in
the bankruptcy which is the bankruptcy under that jurisdiction. I think under
the section it is plain that this Court must give such assistance as it can,
but subject, of course, to the considerations which would arise if there was
also a bankruptcy in this country, as to the rights of the creditors and other
persons in this country. [*780 There not being any such conflict, I think
this Court is bound to give all the assistance that it can. On the other hand,
it is, in my judgment, a matter of discretion in this Court as to what
assistance it ought to give in each case … The question of making
either a vesting order or a declaration that the property in this country has
vested in the trustee in bankruptcy in the Isle of Man, seems to me to be one
of considerable difficulty. In my judgment, it is not possible for me to make a
declaration that ‘all the rights and interests of the above-mentioned
bankrupt in the following property,’ which includes freehold property,
‘has vested in the trustee,’ because I do not think it has.
In my judgment, the effect of the order made in the Isle of Man does not ipso
facto vest the assets in this country in the trustee, but if the trustee
desires to get those assets vested in him, or to get control over them, his
only course is the course which has been adopted in this case of coming to this
Court and obtaining the aid of this Court to enable him to get the control and
possession of the assets.” However, Farwell J went on to hold that he could not
make the vesting declaration or order sought, because English law did not
provide for the making of any such order, since under English law the property
would have vested in an English trustee without any such order. Instead he
appointed the trustee receiver in respect of the property concerned. In my
judgment the case lends no support to the argument put forward on behalf of NCB
and Kahlon. The reference made by Farwell J to the discretion conferred by s
122 is worth noting when I come a little later to consider Re Dallhold
Estates (UK) Pty Ltd [1992] BCLC 621. Another case cited on behalf of NCB and Kahlon decided
in relation to s 122 of the 1914 Act was Re a debtor, ex p Viscount of the
Royal Court of Jersey [1980] 3 All ER 665, [1981] Ch
384. In that case the Royal Court of Jersey had commenced “en désastre”
proceedings against a debtor, and had then requested the English court under s
122 of the Bankruptcy Act 1914 to appoint the Viscount (the principal executive
officer of the Royal Court of Jersey) receiver of the debtor’s movable
property in England. Goulding J held that the désastre proceedings
in Jersey were to be regarded as bankruptcy proceedings for the purpose of s
122 and made the order sought. He gave some consideration to the question
whether the Viscount’s jurisdiction in Jersey extended to
after-acquired property (see [1980] 3 All ER 665 at 678, [1981] Ch 384 at 404).
NCB and Kahlon in the present case rely on Goulding J’s consideration
of this point because, they say, such consideration would have been unnecessary
had the English court simply been able to apply its own substantive bankruptcy
law. However, this point does not seem to have been argued and I do not think
that the case really helps one way or the other on the issue I have to decide
on s 426. The only case cited to me which was decided under s
426 of the 1986 Act was Re Dallhold Estates (UK) Pty Ltd.
The company concerned was a company incorporated in Western Australia. The
liquidator of its holding company applied to the Federal Court for an order
that the company should be wound up. A significant asset of the company was a
leasehold property in this country. The liquidator of the holding company was
advised that a winding up of the company would have the effect of forfeiting
the lease of the English property, and that a better result from the point of
view of the holding company would be achieved by the making by the English
court of an administration order in [*781 relation to the company under s 8 of the 1986 Act.
However, the liquidator was also correctly advised that the English court had
no power under s 8 alone to make such an order since the company (like Overseas
in the present case), being a company incorporated abroad, was not a
“company” within the relevant provisions of the 1986 Act. As
a result the liquidator of the holding company asked the Federal Court to make
a request of this court under s 426 of the 1986 Act to make an administration
order in respect of the company. The Federal Court issued a letter of request
to this court accordingly. Chadwick J held that s 426 of the Act did confer on
this court jurisdiction to comply with the letter of request and make an
administration order in respect of the company notwithstanding the fact that it
was a company in respect of which this court would have had no such
jurisdiction apart from s 426. In dealing with an argument that s 426 did not
confer such jurisdiction which this court would not have had apart from s 426,
Chadwick J said ([1992] BCLC 621 at 626): “The two subsections (4) and (5),
read together, envisage that assistance will be requested by a foreign court
from the English court. If the English court were intended only to exercise the
jurisdiction which it would have under domestic law in relation to the
assistance requested, there would be no need for the provisions of sub-s (5). “It appears to me clear that the
purpose of s 426(5) of the Insolvency Act 1986 is to give to the requested
court a jurisdiction that it might not otherwise have under domestic insolvency
law in order that it can give the assistance to the requesting court which, by
sub-s (4), it is directed to give. “The scheme of sub-s (5) appears to
me to be this. The first step is to identify the matters specified in the
request. Secondly, the domestic court should ask itself what would be the
relevant insolvency law applicable by the domestic court to comparable matters
falling within its jurisdiction. Thirdly, it should then apply that insolvency
law to the matters specified in the request, notwithstanding that on this
hypothesis, those are matters which would not, or might not, otherwise fall
within its jurisdiction by reason of some foreign element. “Also, of course, the domestic court
is authorised to apply those provisions of the foreign insolvency law which the
foreign court could apply to comparable matters falling within the jurisdiction
of the foreign court; but that is not an issue in this case. “The result is that the English court
can act on a request by the Federal Court by applying to the matters specified
in the request provisions of English insolvency law, including the provisions
of s 8 of the 1986 Act, which the English court could apply to comparable
matters falling within the jurisdiction of the English court. Comparable
matters for this purpose must, in my view, include matters in which all the
facts were the same as those specified in the request, save that the company
concerned was a company incorporated in England rather than a company
incorporated in Western Australia. “I should perhaps add that it is my
view that the proviso to sub-s (5) is directed towards the only discretion that
can be exercised under sub-s (5), namely, the discretion of the requesting
court in deciding whether or not to make a request. There is nothing in sub-s
(5) which confers a discretion on the requested court.” [*782] I respectfully agree with that analysis by Chadwick J
of s 426, save for the last paragraph which I have cited. It seems to me that
sub-s (5) does confer a discretion on the requested court, namely a discretion
whether to apply its own law or the law of the requesting court to the matters
specified in the request, and it is to that discretion that what Chadwick J
referred to as the proviso to the subsection referring to the rules of private
international law is directed. With great respect for the contrary view
expressed by Chadwick J, I do not think that by that
“proviso” the legislature can have been intending to attempt
to impose restrictions on the manner in which a foreign court should decide
whether to ask this court for assistance. Giving the words of s 426 of the 1986 Act their
ordinary meaning, I can see no justification for restricting their effect in
the manner urged on behalf of NCB and Kahlon, namely to provisions of English
law which are what counsel described as procedural as opposed to substantive. In
my judgment, the effect of s 426 is to give this court a discretion
(exercisable only for the purpose of carrying out its duty under s 426(4) to
assist the courts having insolvency jurisdiction in other parts of the United
Kingdom or any relevant country or territory) as to whether it should apply
English insolvency law, whether “procedural” or
“substantive”, or the law of the requesting court to matters
specified in the relevant request from the foreign court. The objection raised
on behalf of NCB and Kahlon to this construction of the section, namely that it
would expose, for example, directors of foreign companies to potential
liabilities under English law for activities perfectly lawful under the law of
the company’s incorporation, loses much of its force when it is
remembered that they would only be so exposed where both the court having
jurisdiction in relation to the company’s insolvency and this court
thought fit to exercise their respective discretions to that effect. Section
426 confers no right on anyone to have English law applied in relation to a
foreign company. However, whatever the strength of this objection, it cannot,
in my judgment, prevail over the clear words of s 426. In the course of his submissions, counsel for the
liquidators warned me against taking too much account, in considering the
construction of s 426 of the 1986 Act, of the arguments of counsel for the
respondents based on earlier Acts and decisions in relation thereto, and as
authority for this warning he cited several dicta to the effect that the Act
should be construed as a new piece of legislation not necessarily reflecting
similar intentions on the part of the legislature to those embodied in earlier
apparently comparable provisions, the most recent of which dicta is to be found
in the judgment of Dillon LJ in Bishopsgate Investment Management Ltd (in
prov liq) v Maxwell [1992] 2 All ER 856 at 868,
[1993] Ch 1 at 21. However, in my judgment, there is nothing in the authorities
on earlier statutes cited on behalf of the respondents, to some only of which I
have referred in this judgment, which is inconsistent with the conclusion which
I have expressed in relation to the construction of s 426 of the 1986 Act.
Consequently there is, in my judgment, nothing to be gained by the respondents
from the argument also put on behalf of NCB and Kahlon to the effect that in
construing s 426 I should bear in mind that its purpose was to implement the
recommendation made in para 1911 of the Report of the Review Committee on
Insolvency Law and Practice (Cmnd 8558), chaired by Sir Kenneth Cork, to the
effect that the “provisions for mutual aid” in s 122 of the
Bankruptcy Act 1914 should be extended so as to be available in winding-up
proceedings. [*783] I must now consider the alternative ground on which it
was argued on behalf of NCB and Kahlon that this court has no jurisdiction to
entertain the application made by the liquidators of Overseas, and that is that
the letter of request issued by the Grand Court is not a letter of request
within the meaning of s 426 of the Act and accordingly this court has no power
to operate under that section. The first objection made to the letter of request is
that, so it is submitted, it does not specify any matters on which it seeks
this court’s assistance. It states no facts, but merely sets out
orders which it asks this court to make. A letter of request within s 426 must,
it is said, specify facts to which the requesting court seeks the application
by this court of English law, and not, as does the Grand Court’s
letter of request in this case, ask, in effect, this court first to investigate
the relevant facts and then apply its law to the facts so found. This argument, in my judgment, had a superficial attraction,
but is misconceived. To make a request within the meaning of s 426(5) the court
of another part of the United Kingdom or a “relevant country or
territory” has simply to ask this court to assist it (see sub-s (4)).
The letter of request from the Grand Court in this case asks this court to
assist it in maximising the recoveries effected in the winding up of Overseas
being carried out by the Grand Court by considering whether it can properly
make the declarations set out in the letter of request, and, if so, by making
those declarations. In my judgment, the words “any matters specified
in the request” in sub-s (5) mean no more nor less than “any
part of the subject matter of the request”. Thus, in my judgment, the
effect of sub-s (5) in the context of the letter of request is to authorise
this court, that is confer jurisdiction upon it, to apply either English law or
Cayman law in considering whether it can properly make the declarations sought
by the Grand Court. This leads to a consideration of the second objection
to the letter of request as bringing s 426(5) into operation which was made on
behalf of NCB and Kahlon, and that is that in the context of the terms of the
letter of request this court can have no discretion whether to apply English or
Cayman law, because there is no Cayman law equivalent to the sections of the
1986 Act under which the letter of request seeks declarations. Again, in my
judgment, this objection is misconceived. Of course the Grand Court would not
ask this court to make declarations that could be made under Cayman law. If
they could have been made under Cayman law then no doubt the Grand Court would
not have been asking for this court’s assistance in making them. The
request having been made, this court must consider how to respond to it. It
could decide to apply Cayman law in respect of the subject matter of the
request, in which case it would have to refuse to make the declarations sought,
because they are not available under Cayman law. Alternatively it could decide
to apply English law and go on to consider whether the declarations sought can
properly be made under that law. This would involve an investigation of the
relevant facts, but that, in my judgment, is a factor to be taken into consideration
by this court in exercising its discretion, and not a valid objection to the
existence of that discretion in the terms of s 426(5). Accordingly, in my judgment, this court does have
jurisdiction to investigate the facts to see whether they would justify the
making of all or any of the declarations sought by the letter of request if
Overseas were a company within this court’s insolvency jurisdiction,
and, if they would, to make such declarations. [*784 2. Should this court exercise the jurisdiction? Section 426(4) of the 1986 Act imposes an obligation
on this court to assist the Grand Court. As I have said, this court none the
less does have a discretion as to how it should give such assistance (cf the
similar approach of Farwell J to the application of s 122 of the Bankruptcy Act
1914 in the passage from his judgment in Re Osborn, ex p the trustee
[1931–32] B & CR 189 which I have quoted earlier in this judgment).
In my judgment, this court should exercise its discretion in favour of giving
the particular assistance requested by the Grand Court unless there is some
good reason for not doing so. As the concluding words of s 426(5) make clear,
one such reason could in some cases be found in the rules of private
international law, such as where the request is such that to comply with it
would infringe the rule enforcing another country’s tax claims. In the
present case, in my judgment, there is no good reason in the rules of private
international law or elsewhere for this court not giving the assistance
requested. On the contrary, on the facts of the case already apparent, there
are, in my judgment, good reasons why this court should give the assistance
sought. This court is inescapably seised of claims by the liquidators of SA
against the same respondents for the same declarations arising out of the same
facts as those sought to be relied upon by the liquidators of Overseas in
relation to the declarations sought by the letter of request. As is plain from
the passage which I quoted early in this judgment from the judgment of Sir
Donald Nicholls V-C in Re Bank of Credit and Commerce International SA (No
2) [1992] BCC 715 at 719, the affairs of SA and Overseas
are “hopelessly intertwined”. In my judgment, this is a
classic situation in which it is desirable for the courts having insolvency
jurisdiction in respect of the two companies respectively to co-operate to the
fullest extent possible. Thus, in my judgment, this court should give to the
Grand Court the assistance it has requested by trying the claims by the
liquidators of Overseas for declarations in the terms set out in the letter of
request. It follows that I decline to strike out the claims made in the
originating application by Overseas on the grounds that this court either does
not have or should not exercise jurisdiction to determine those claims. 3. Should the Mareva injunctions be continued? NCB is, of course, not concerned in this aspect of the
case, since no injunction has been made or is sought against it. Both the other
respondents, that is to say Mahfouz and Kahlon, resist the continuation against
them of the injunctions originally granted against them by Vinelott J on 10
December 1992. As has been said again recently by the Court of
Appeal, there are three issues on which the court has to be satisfied before
granting a Mareva injunction: (i) has the applicant a good arguable case; (ii)
has the applicant satisfied the court that there are assets within and, where
an extra-territorial order is sought, without the jurisdiction; and (iii) is
there a real risk of dissipation or secretion of assets so as to render any
judgment which the applicant may obtain nugatory. (See Derby & Co Ltd v
Weldon (No 1) [1989] 1 All ER 469 at 475, [1990] Ch 48 at
57 per Parker LJ.) It is not necessary, before the court can grant an
extra-territorial order, for the applicant to show that the respondent has
assets within the jurisdiction of this court (see Derby & Co Ltd v
Weldon (No 2) [1989] 1 All ER 1002 at 1009, [1990] Ch 65 at
79 per Lord Donaldson MR). As to questions (ii) and (iii), in my judgment, the
affidavit evidence of Mr Morris makes out a prima facie case that each of
Mahfouz and Kahlon does [*785 have assets both within and without the jurisdiction
and that there is a real risk of dissipation or secretion of those assets so as
to render any judgment which the liquidators may obtain nugatory. Nothing in
the evidence filed on behalf of the respondents rebuts this case, and indeed it
is noteworthy that neither counsel for Mahfouz nor counsel for Kahlon made any
submissions to the contrary. Neither made submissions as to why questions (ii)
and (iii) should not be answered in the affirmative, as, in my judgment, they
should. Both counsel for Mahfouz and counsel for Kahlon did
try at some length to persuade me that I should not be satisfied that the
liquidators had shown a good arguable case for the relief sought in the
originating application. In particular, counsel for Mahfouz tried to take me to
various selected bits of the voluminous documentation filed in these
proceedings to support the argument that there were in fact perfectly innocent
explanations for the transfers and payments relied on by the liquidators in the
points of claim that have been delivered. Both counsel for Mahfouz and counsel
for Kahlon raised arguments on the true extent of the court’s
jurisdiction to make orders such as those sought under ss 212, 213, 214 and 238
of the 1986 Act. Throughout the hearing I have tried to bear well in mind the
reminders given on more than one recent occasion both by the House of Lords and
the Court of Appeal that the court should not on an interlocutory application,
even on an application for a Mareva injunction, allow itself to be drawn into
attempting to make a lengthy and detailed assessment of the strengths and
weaknesses of the applicant’s case at trial. See eg Derby & Co
Ltd v Weldon (No 1) [1989] 1 All ER 469 at 476, [1990]
Ch 48 at 58, where Parker LJ said: “It is to be hoped that in future the
observations of Lord Diplock and Lord Templeman will be borne in mind in
applications for a Mareva injunction, that they will take hours not days and
that appeals will be rare. I do not mean by the foregoing to indicate that
argument as to the principles applying to the grant of a Mareva injunction
should not be fully argued. With a developing jurisdiction it is inevitable and
desirable that they should be. What, however, should not be allowed is (1) any
attempt to persuade a court to resolve disputed questions of fact whether
relating to the merits of the underlying claim in respect of which a Mareva is
sought or relating to the elements of the Mareva jurisdiction such as that of
dissipation or (2) detailed arguments on difficult points of law on which the
claim of either party may ultimately depend.” In my judgment, it is even more important than usual
to bear this warning well in mind in the context of a case of such enormous
factual complexity as the present, in which at least two eminent firms of
accountants (I refer, of course to Messrs Price Waterhouse, the former
auditors, who made reports to the Bank of England under s 41 of the Banking Act
1987, and Messrs Touche Ross, Mr Morris’s firm) have spent very large
resources on investigating those facts over many months, and at the trial of
which there seem certain to be wide-ranging issues of fact to be resolved by
lengthy oral evidence and detailed examination of voluminous documentation. I
was told by counsel that the trial could take up to a year, though I sincerely
hope that that will prove to be a significantly over-pessimistic estimate. I
should not, in my judgment, allow myself on this interlocutory application to
be drawn into the sort of selective examination of what will be even more
massive documentation available at the trial which counsel for Mahfouz would
have had me embark. I do not think [*786] it
necessary or appropriate to say more on this part of the case than that I am
satisfied on the evidence I have seen that the liquidators have made out a good
arguable case for the relief sought in the originating application. Accordingly, in my judgment the requirements to be
satisfied for the grant of a Mareva injunction are satisfied in the present
case and, apart from the further submissions of Mahfouz and Kahlon, which I
shall mention shortly, it is, in my opinion, appropriate to continue the Mareva
injunctions presently in force against each of those respondents until the
trial of the originating application. It was submitted by counsel for Mahfouz that even if,
contrary to his primary submission, the court should (as I have decided it
should) continue a Mareva injunction against Mahfouz, (a) that injunction
should not have worldwide effect and (b) it should not restrain dealings by
Mahfouz with his assets to the extent that they exceed in value a figure of
about $1.435bn being the total of the allegedly wrongful payments specifically
quantified in the originating application. As to (a), of course I bear in mind that only in
exceptionable circumstances should the court grant a Mareva injunction
restraining the respondent from dealing with assets anywhere in the world. I
have no doubt that this is such an exceptional case, having regard, in
particular, to the complex international nature of the financial dealings in
the past by both respondents and that both claim not to be resident in this
country. As to (b), the maximum claim made by the liquidators
in the originating application against each of the respondents is the full
amount of the presently estimated deficiencies in the liquidations of both SA
and Overseas, on the basis that that is the maximum of the recoupment that can
be ordered by the court under the discretion conferred on it by the sections of
the 1986 Act relied on. In these circumstances, as I indicated to counsel for
Mahfouz, it seemed to me inappropriate to consider this argument unless and
until there was some evidence before the court that a failure to limit the
injunction to assets of $1.435bn would have some practical effect, having regard
to the assets actually owned by Mahfouz. At present there is no evidence
whatever before the court as to his assets. I invited counsel to consider
whether he wished to renew this argument in the light of some such evidence. He
did not do so. In these circumstances it does not seem to me appropriate to
place any limit on the injunction in this respect. Finally on this part of the case, counsel for Mahfouz
relied on what has been referred to during the hearing before me as the
“Abu Dhabi factor” as something that should weigh heavily
against the court exercising its discretion in favour of continuing the
injunction. The “Abu Dhabi factor” arises from the terms of
the contribution agreement which I mentioned earlier in this judgment as one of
the two agreements which this court authorised the liquidators of SA to enter
into on 12 June 1992. That agreement was conditional upon (in the events which
have happened) final approval being given to the agreement on or before 30 June
1993 by the courts of Luxembourg, the Cayman Islands, and this country. I
understand that an appeal against such an order made by the Luxembourg court is
pending, with the result that this condition has not been fulfilled by the time
limit specified in the contribution agreement and the whole agreement has
ceased to have effect. However, I was told by counsel for the liquidators that
his clients were optimistic that a renewal of the agreement might be negotiated
between the parties. [*787 By virtue of the terms of the contribution agreement,
which are complex, and into which I need not go in any detail, one-half of any
money recovered by the liquidators from any of the respondents in this
litigation would have belonged to the government of Abu Dhabi. The agreement contained
provisions expressly relieving that government from any obligation it might
otherwise have been under to disclose to the liquidators any documents the
disclosure of which the government might consider to be adverse to its
interests. Counsel for Mahfouz submitted that the result of any
resurrection of the contribution agreement such as counsel for the liquidators
said was hoped for by his clients would result in this litigation being
conducted in an unfair manner as against the respondents, in that a 50%
beneficiary of any success on the claims being made against the respondents,
namely the Abu Dhabi government, would be in a position to withhold from the
respondents and the court documents of which that government thought disclosure
might harm the liquidators” case. This potential unfairness, submitted
counsel for Mahfouz, should be a factor influencing this court against granting
a Mareva injunction the benefit of which would enure as to 50% to the
government of Abu Dhabi. I do not accept this submission. Firstly, it does not
seem to me to disclose a good reason for refusing a Mareva injunction if it
would otherwise be appropriate for the protection of the claims by the
liquidators which, even if the contribution agreement is resurrected, will enure
as to half for the benefit of the creditors of the companies, if successful.
Secondly, there is at present no certainty that the contribution agreement will
be resurrected in its former terms. It has presently ceased to have any effect.
Thirdly, even if it is resurrected, the provision that the government of Abu
Dhabi need not disclose documents seems to me not to have any effect on the
position which would obtain apart from any such provision so far as these
proceedings are concerned. The government of Abu Dhabi is not a party to these
proceedings and would be under no obligation to give discovery of documents,
quite apart from any question of sovereign immunity. In my judgment, this point
is of no substance. Counsel for Mahfouz also submitted that the fact that
under the contribution agreement, if resurrected, half the benefit of any
success of the liquidators” claims would be for the benefit of the
government of Abu Dhabi (which, submitted counsel, had itself been a party to
part of the dealings by Mahfouz of which complaint is now made by the
liquidators) was itself a reason for the court not granting a Mareva injunction
for the protection of those claims. This I do not accept, given that the other
half of the benefit of the claims will be for the benefit of creditors of the
BCCI companies and the liquidators were authorised by this court to enter into
the contribution agreement. Accordingly, I do not accept any of the objections put
on behalf of Mahfouz and Kahlon to the grant of Mareva injunctions in the form
previously granted by Vinelott J, and I shall continue those injunctions until
trial of the originating application or further order. [*788 4. Should the Mareva injunctions granted ex parte on
10 December 1992 be discharged on the grounds of material non-disclosure? Counsel for Kahlon submitted that the injunctions
granted ex parte should be set aside on the grounds of non-disclosure by the
liquidators to Vinelott J of (a) the fact that the Abu Dhabi government would
be the beneficiary of half of any success of the liquidators” claims
by virtue of the contribution agreement and was in the position of being able
to withhold material documents from the court and (b) a long list of what
counsel submitted were potential weaknesses in the liquidators” case. Counsel rightly reminded me of the well-established
principle that a litigant seeking relief from the court on an ex parte
application must make full and frank disclosure to the court of matters
relevant to the application, and that in the case of a breach of this duty
becoming apparent to the court the court may not only refuse further relief but
may discharge any order made on the ex parte application, notwithstanding that
the court might well have granted the relief it did on the ex parte application
even had the undisclosed matter been disclosed. However, as to the alleged non-disclosure of the
“Abu Dhabi factor”, I have already explained why I do not
consider that it is relevant to the liquidators” claim for Mareva
injunctions. It follows that I do not consider that any failure to bring the
significance of it to the attention of Vinelott J was any breach of the duty of
full and frank disclosure that I have mentioned. I have carefully considered
the long list of other alleged breaches of this duty relied upon by counsel for
Kahlon in his submissions. I think it unnecessary and inappropriate to say more
on them than that I do not consider that any amounts to a breach of the duty
referred to. Accordingly, I see no good reason to discharge any part of the
order made by Vinelott J. Finally, I should say something of an application
which was made during the hearing before me on behalf of Kahlon for an order
for discovery of documents for the purpose of that hearing. By a summons issued
on 25 June 1993 Kahlon sought production to the court of the following
documents: (a) documents relating to the application to the Grand Court which
culminated in the issue by that court of the letter of request for the purposes
of s 426 of the 1986 Act; and (b) the audited accounts of SA, Overseas and
Holdings from 1977 onwards. I refused the application because, in my judgment,
it would have been wrong to make any such order for partial discovery unless I
was satisfied that it was necessary for the purposes of doing justice to the
other applications before me. I was not so satisfied, because, with regard to
the documents before the Grand Court, I did not consider them likely to be of
any relevance to the issues I had to decide, whether in relation to s 426 of
the 1986 Act or otherwise, and with regard to the accounts of the BCCI
companies, though they might well be relevant on a trial of the issues raised
by the originating application relating to the financial state of the companies
during that period, I did not consider that to look at those accounts in
isolation from other documents that may well emerge on full discovery would be
likely to assist the court in deciding the interlocutory matters before me. [*789] the liquidators. The judge then heard counsel on the form of the
undertakings to be given by RATTEE J. I should just deal briefly with the application that
has been made arising out of a judgment that I have delivered today in relation
to the terms on which the Mareva relief which I have indicated in that judgment
I intend to continue to be granted. The point that remains in issue between the parties is
this. The first and third respondents asked that the court should not continue
the Mareva injunctions granted by Vinelott J, save on terms that the
liquidators, the applicants, should be restrained either by an undertaking or
by express order of this court from seeking to enforce the Mareva injunction in
any country other than England and Wales without first obtaining the leave of the
English court. Secondly, from commencing against the first or third respondents
without the leave of the English court any new proceedings based on the same or
similar subject matter as the proceedings presently commenced in the form of
the originating application. The liquidators have indicated their willingness to
give an undertaking not without the leave of the English court in any country
other than England and Wales to seek to enforce the Mareva injunction. They
have also offered an undertaking not without the leave of this court to use any
information obtained by reason of para 2 of the order, that is to say the order
that the respondents deliver affidavits of assets, except in applications in
chambers or in camera for the purpose of securing compliance with the Mareva
injunction, which I have indicated I propose to continue. The first and third respondents, in reliance in
particular on certain dicta in Derby & Co Ltd v Weldon (No 1)
[1989] 1 All ER 469, [1990] Ch 48 and by Browne-Wilkinson V-C in Tate Access
Floors Inc v Boswell [1990] 3 All ER 303, [1991] Ch
512, rely on those dicta for the proposition that the liquidators should also
be restrained, as I have said, from commencing any other proceedings based on
the same or similar subject matter as that comprised in the originating
applications against the respondents without the leave of the English court. In
my judgment, the dicta relied on by the respondents for that purpose do not
support the proposition. Those dicta in my judgment indicate no doubt a very
proper concern on the part of the judges who were responsible for the dicta, to
ensure that a plaintiff who obtained in particular a worldwide Mareva
injunction, should not be left free without some control by the court to
utilise information obtained as a result of an order that the respondent
disclose his assets for the purpose of enforcement of the Mareva injunction to
enable to the plaintiff to start some further proceedings in some other
jurisdiction, which the plaintiff would not have been in a position to do but
for the disclosure of assets made pursuant to the Mareva injunction and the
ancillary order for production of an affidavit of assets. In my judgment, the respondents in this case will be
adequately protected in that respect by the two undertakings which I have
indicated have been proffered by the liquidator applicants and the judge will
accept, and to impose an obligation on the liquidators not to commence any
other proceedings based on the same or similar subject matter to that comprised
in these proceedings without the leave of the court, would place them under an
inappropriate restriction, and would be to give the respondents protection from
possible further proceedings, from which I see no reason why they should be
protected, as a term of the Mareva injunction which I have indicated I intend
to grant. [*790 Accordingly, I shall grant the Mareva injunction, as I
have already indicated, on the two undertakings which have been offered by the
liquidators being given, and I shall not insist on any undertaking, or make any
order to the effect that the liquidators shall not be permitted to commence any
new proceedings without the leave of the court, save proceedings other than in
England and Wales to seek to enforce the Mareva injunction. Order accordingly. Appeal Cur adv vult 19 November 1993. The following judgments were
delivered. DILLON LJ. The court has before it appeals by the first and third
respondents to these proceedings, Sheikh Mahfouz and Mr Kahlon, against an order
of Rattee J made on 30 July 1993. That order provided that worldwide Mareva
injunctions against Sheikh Mahfouz and Mr Kahlon, which had originally been
granted ex parte by Vinelott J on 10 December 1992, should continue in force
until the trial of these proceedings or further order in the meantime. The
continuation of the Mareva injunctions is not disputed; what is in issue is the
scope of the undertakings which the applicants in these proceedings should be
required to give to the court if the injunctions are thus continued. It is said
for Sheikh Mahfouz and Mr Kahlon that in certain respects indicated in their
notices of appeal the undertakings should, for the protection of Sheikh Mahfouz
and Mr Kahlon, be more stringent than the undertakings which the judge was
prepared to accept. When the appeals were first opened it was urged that
there were two quite separate respects in which the undertakings accepted by
the judge were deficient. By the end of the hearing, however, the parties had
agreed varied undertakings in respect of one of those respects, and accordingly
this judgment [*791] is only directed to the
other of them, which has for convenience been labelled “multiplicity
of suits”. It is of course elementary that the terms of a
Mareva—or other—injunction and the conditions, by way of
cross-undertaking or otherwise, on which it should be granted, must be
dependent on the particular circumstances of the individual case, and are
matters for the discretion of the judge. There is no single form of injunction
with cross-undertakings which is universally applicable. Subject however to the
special features of the individual case, there is a considerable similarity in
the problems which arise in different cases, and there is virtue in having a
measure of uniformity in the practice. In Derby & Co Ltd v Weldon (No 1)
[1989] 1 All ER 469 at 476, [1990] Ch 48 at 59 Nicholls LJ said: “The jurisdiction is established, but
what is still being worked out, in this fast developing area of law, is the
manner in which, in practice, the court should exercise its discretionary power
under this wide jurisdiction. One important matter in this regard concerns the
limitations and safeguards normally appropriate to be built into restraint and
disclosure orders regarding overseas assets.” In my experience, this process of working out is still
continuing. Indeed that is underlined by the recent clarification by the House
of Lords in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd
[1993] 1 All ER 664, [1993] AC 334 of passages in the speech of Lord Diplock in
Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina
[1977] 3 All ER 803, [1979] AC 210 which were regarded as fundamental to the
jurisprudence in regard to the grant of Mareva and other injunctions. The first special features of this case concern the
nature of the proceedings and their international context. The proceedings are brought in the Companies Court by
seven individuals as applicants. They are entitled “In the matter
of” two companies—Bank of Credit and Commerce International
SA (BCCI) and Bank of Credit and Commerce International (Overseas) Ltd
(Overseas)—but in the usual way those companies are not themselves
parties to the proceedings. BCCI is a company incorporated in Luxembourg which
carried on business in England and elsewhere; it had 47 offices or branches in
13 countries. Overseas is a company incorporated in the Cayman Islands; it had
63 offices or branches in 28 countries. BCCI was ordered to be compulsorily wound up by the
High Court in England on 14 January 1992, and of the seven applicants in these
proceedings the first four are accountants (of the English firm Touche Ross)
who on 14 January 1992 were appointed to be the liquidators of BCCI for the
purposes of the English winding up. BCCI is also in liquidation in Luxembourg
under an order of the Luxembourg court of 3 January 1992. The liquidators in
Luxembourg are a further partner in Touche Ross and two Luxembourg lawyers.
Technically the English winding up is ancillary to the Luxembourg winding up.
The appointment of the English liquidators of BCCI by the English court gives
them no authority to act on behalf of BCCI in any jurisdiction other than
England and Wales. Overseas was ordered to be compulsorily wound up by
order of the Cayman Islands court on 14 January 1992. The fifth, sixth and
seventh applicants in these proceedings, (who are accountants in the Canadian
associate firm of [*792] Touche Ross) are the
liquidators of Overseas appointed by the Cayman Islands court. The proceedings are also entitled “In the
matter of the Insolvency Act 1986”. That is because the substantial
relief claimed in the proceedings is relief under various provisions of the
1986 Act viz: (a) fraudulent trading (s 213), (b) wrongful trading (s 214), (c)
misfeasance (s 212), and (d) transactions at an undervalue (s 238). It is thus relief which can only be granted by a
United Kingdom court in respect of a company within the meaning of the
Insolvency Act 1986. BCCI is such a company (because although incorporated
elsewhere it carried on business in this country and was registered and is
being wound up here). Overseas is not, but the liquidators of Overseas, acting
pursuant to letters of request from the Cayman Island court, claim the same
relief under s 426 of the Insolvency Act 1986, the Cayman Islands having been
designated as a “relevant country or territory” for the
purposes of that section under the Co-operation of Insolvency Courts (Designation
of Relevant Countries and Territories) Order 1986, SI 1986/2123. Because of the manner in which the affairs of BCCI and
Overseas were run by the managements before liquidation, a pooling agreement
has been entered into and has been approved by the courts in England, the
Cayman Islands and Luxembourg, under which, broadly, the realisations by the
liquidators of BCCI and Overseas, after payment of costs of liquidation and
preferential claims, will form a single fund to be divided rateably among the general
creditors of both companies. There are limitations to the pooling agreement,
however, one of which is that certain jurisdictions are regarded as
“ring-fenced” in the sense that under the local law of these
jurisdictions assets of eg BCCI within such a jurisdiction are required to be
applied in satisfaction of liabilities incurred within the jurisdiction in
priority to liabilities incurred elsewhere. There are also special arrangements
applicable to the United States in that under a plea agreement entered into in
proceedings in the United States between the United States, acting by the
Justice Department, and the People of the State of New York, acting by the
District Attorney for New York County, on the one hand and BCCI, Overseas, BCCI’s
parent company BCCI Holdings (Luxembourg) SA (Holdings) and certain other
companies on the other hand all assets of all those companies in the United
States are to be forfeited to the United States, and a fund known as
“the Worldwide Victims Fund” was to be established on the
terms of the plea agreement. In these circumstances it is not surprising that there
is close co-operation between the British and Luxembourg liquidators of BCCI,
the liquidators of Overseas, the Luxembourg liquidators of Holdings, which was
incorporated in Luxembourg and is in liquidation there, and the liquidators of
certain other companies in the BCCI group which are not material to this
judgment. Disclosure of information to such liquidators was, so far as the
English court is concerned, authorised by successive orders of Browne-Wilkinson
V-C and Sir Donald Nicholls V-C. It is the case of the liquidators of BCCI, Overseas
and Holdings that those companies are insolvent as a result of massive frauds
perpetrated by senior executives of the BCCI group. Certain former executives
face criminal charges, involving very large sums of money, in this country or
elsewhere. So far as Sheikh Mahfouz and Mr Kahlon are concerned, the
liquidators seek compensation from them in these proceedings for, as it has
been put, their [*793] complicity in the
fraudulent conduct of the senior executives. That complicity is said to be
shown by a series of transactions as set out in the points of claim. It is
claimed that Sheikh Mahfouz and Mr Kahlon are liable to contribute to the
assets of BCCI and Overseas the total deficiency as regards creditors of those
companies, or alternatively such sums as the court thinks proper. Sheikh Mahfouz is a national of Saudi Arabia and
resident in that country. He is a director of the second respondent in these
proceedings, National Commercial Bank, Saudi Arabia, which is—or
was—a substantial bank in Saudi Arabia. We are told that Sheikh
Mahfouz was a director—although it is said on his behalf that he was
only a non-executive director—of BCCI, Overseas and Holdings between
dates in 1986 and 1989. Mr Kahlon is a national of Pakistan, and at present
resident there. He was however at material times resident in Saudi Arabia and
was, we are told, employed there by the second respondent or by Sheikh Mahfouz.
He is described as Sheikh Mahfouz’s “right-hand
man”. We are told that Sheikh Mahfouz and Mr Kahlon have
been indicted in a New York court on charges of fraud in relation to the affairs
of the BCCI Group, although they have not so far appeared, or been brought
before the court, in those proceedings. So far as Mareva injunctions are concerned, it has
been recognised since Ashtiani v Kashi [1986] 2
All ER 970, [1987] QB 888, an early case in this field, that to grant a
worldwide Mareva injunction against a defendant is not an automatic step.
Special grounds have to be shown, and the court has been concerned that if a
worldwide Mareva is granted it should not be enforced oppressively by a
multiplicity of applications in different countries throughout the world. The practice developed through successive cases,
particularly Babanaft International Co SA v Bassatne
[1989] 1 All ER 433, [1990] Ch 13 and Republic of Haiti v Duvalier
[1989] 1 All ER 456, [1990] 1 QB 202, where the position was somewhat different
as the French courts were involved and the Civil Jurisdiction and Judgments Act
1982 applied. Then in Derby v Weldon (No 1) [1989] 1
All ER 469 at 476, [1990] Ch 48 at 59 counsel for the plaintiff proposed, as it
is put by Nicholls LJ— “that this point should be dealt with
by the plaintiffs giving to the English court an undertaking in terms which
will preclude them from making any application to a foreign court to enforce the
order without first obtaining leave from the English court.” Nicholls LJ considered that that would be a convenient
course. He commented ([1989] 1 All ER 469 at 476, [1990] Ch 48 at 59):
“On any application for such leave, which normally would be
inter partes, the judge can be expected to have before him what we do not have,
namely evidence of the law and practice in the country or countries in which
the order is sought to be enforced.” May LJ said that such an undertaking, viz an undertaking
to leave to the English court any decision whether action should be taken by
the plaintiff in any foreign jurisdiction in respect of any of the assets of
the defendants, “should generally be part of any worldwide
pre-judgment Mareva” ([1989] 1 All ER 469 at 474, [1990] Ch 48 at 55).
[*794 Parker LJ said ([1989] 1 All ER 469 at 475, [1990] Ch
48 at 57): “In those circumstances it appears to
me that there is every justification for a worldwide Mareva, so long as, by
undertaking or proviso or a combination of both, (a) oppression of the
defendants by way of exposure to a multiplicity of proceedings is avoided, (b)
the defendants are protected against the misuse of information gained from the
ordinary order for disclosure in aid of the Mareva, (c) the position of third
parties is protected. Whether, ultimately, the order in personam will be
converted into an order attaching some or all of the assets disclosed will of
course depend on (i) the court here giving the plaintiffs leave to proceed in a
jurisdiction in which assets have been found and (ii) the decision of the court
in such jurisdiction whether to make an order.” In accordance with the practice there indicated, the
liquidators who are the applicants readily gave Rattee J, and stand by in this
court, undertakings (d) and (e) (following other undertakings commonly given
and not material to this appeal) which are to the following effect: (d) not
without leave of the court to use any information obtained by reason of the
disclosure provisions in the order except in applications in chambers or in
camera for the purpose of securing compliance with the Mareva injunction in
these proceedings and (e) not without leave of the court to seek to enforce the
Mareva injunction in any country other than England and Wales. In the court below and in the notice of appeal it was
contended for Sheikh Mahfouz and Mr Kahlon that undertaking (d) was inadequate
to protect the confidentiality of the information disclosed, and undertaking
(e) was inadequate as a protection against multiplicity of suits. In the event,
however, while noting as part of the relevant circumstances that undertaking
(d) has been given, we have only to consider whether the judge was justified in
accepting undertaking (e) without further restriction to prevent multiplicity
of suits. So far as undertaking (e) is concerned, what was
sought before Rattee J on behalf of Sheikh Mahfouz and Mr Kahlon was that there
should be added to undertaking (e) words to the effect “or to commence
against Sheikh Mahfouz or Mr Kahlon any new proceedings based upon the same or
similar subject matter as these proceedings”. It has since been discovered that the actual order
made by this court in Derby v Weldon (No 1) [1989] 1
All ER 469, [1990] Ch 48 on 29 July 1988 was somewhat wider than might perhaps
have been supposed from the passages which I have cited from the judgments in
this court. In addition to a confidentiality undertaking
not—for present purposes—dissimilar to undertaking (d) in the
present case, there was an undertaking (B) as follows: “(B) Without the leave of the English
Court not in any country other than England and Wales (i) to seek to enforce
paragraph numbered 1 of this Order or (ii) to seek orders of a like or similar
nature (including for the avoidance of doubt orders conferring a charge or
other security) against the First and Second Defendants or (iii) to commence or
take any further steps in the prosecution of any proceedings against the First
and Second Defendants.” [*795] Applying that, what is now sought on behalf of Sheikh
Mahfouz and Mr Kahlon is to add to the prohibition “without leave of
the court” in undertaking (e), prohibitions (ii) and (iii) so that it
would read: “Not without the leave of the court
in any country other than England and Wales (i) (as in undertaking (e)) (ii) to
seek orders of a like or similar nature (including for the avoidance of doubt
orders conferring a charge or other security) against Sheikh Mahfouz or Mr
Kahlon or their assets or (iii) to commence against Sheikh Mahfouz or Mr Kahlon
new proceedings based upon the same or similar subject matter as these
proceedings (including for the avoidance of doubt the making of any new
complaints laying of any information or similar procedure to criminal
authorities).” So far as (ii) is concerned, it is of course directly
taken, with a minor drafting addition, from the order made in Derby v Weldon
(No 1), and it may in some cases be a useful addition to the
order. But I regard it as unnecessary in the present case, where the applicants
who have given the undertaking (e) are experienced liquidators who are officers
of the English court, and I am wholly unable to conclude that Rattee J erred in
the exercise of his discretion in failing to add on to undertaking (e) a minor
embellishment which no one suggested to him. The proposed sub-para (iii) is much more important. It
falls into two parts. The first, relating to the commencement of new
proceedings, is what was put before the judge. The second—the part
between the brackets—is new and is to indicate that the first part is
to extend to making complaints or laying informations with a view to criminal
proceedings in foreign countries. I propose to deal with that second part first. Under English law if it appears to a liquidator that
any past or present officer or member of a company has been guilty of an
offence in relation to the company, there is a duty to pass that information to
the prosecuting authority, or in the case of a voluntary winding up to the
official receiver. That arises under ss 218 and 219 of the Insolvency Act 1986;
see Re Arrows Ltd (No 4) [1993] 3 All ER 861 at 875-876,
[1993] Ch 452 at 468–469. There are also obligations under the Company
Directors Disqualification Act 1986. Apart from that, in the present case in the United
States plea agreement which I have mentioned and which was entered into with
the sanction of the English court, the liquidators, as being within the
definition of “Court Appointed Fiduciaries”, are under
obligations to co-operate with and supply “investigative
information” to the US Department of Justice and the District Attorney
of New York. In addition, there are criminal proceedings brought by
the Luxembourg Procureur (Public Prosecutor) in the name of the state pending
against Sheikh Mahfouz in Luxembourg. These were instituted following a
complaint made by Holdings and BCCI acting by their Luxembourg liquidators,
Overseas acting by its Cayman Island liquidators, and BCCI’s English
branches acting by the English liquidators. Also, as a result of letters
rogatory issued by the Luxembourg Juge d’Instruction to the Swiss
authorities, there is a separate criminal investigation against Sheikh Mahfouz
being conducted by a Swiss investigating magistrate in Geneva. I regard it as highly undesirable that the part that
liquidators can play in providing material for a prosecution of fraud and the
enforcement of regulatory procedures should, in international cases, be
fettered by [*796] undertakings just because
the liquidators seek worldwide Mareva relief to preserve assets in the hope of
achieving an effective judgment in civil proceedings for the benefit of the
general creditors. Moreover, the fact that in the present case the liquidators
prefer that their civil claims against Sheikh Mahfouz and Mr Kahlon should be
litigated and decided in England does not, to my mind, make it logical that the
English courts should be put into a position to decide in what foreign
countries prosecutions of Sheikh Mahfouz and Mr Kahlon should proceed. It is
not suggested that they should be prosecuted in England rather than elsewhere. I would accordingly refuse to exact from the applicant
liquidators any undertaking in the term of the words in brackets in the
proposed sub-para (iii) above. The confidentiality of disclosures of means
pursuant to the order of Rattee J will of course remain protected by the
separate undertaking (d) already mentioned. I turn then to the final question whether an
undertaking should be required of the liquidators in the terms of the first
part of the proposed sub-para (iii). The judge dealt with this in a short supplementary
judgment which he delivered following submissions and discussion after a much
longer (and reserved) judgment, with which we are not concerned, which he had
delivered earlier in the day on 30 July. He considered that Sheikh Mahfouz and
Mr Kahlon would be adequately protected by the two undertakings which had been
proffered by the liquidator applicants, and he considered also, without
expanding on it, that to impose an obligation on the liquidators not to
commence any other proceedings based on the same or similar subject matter to
that comprised in these proceedings without the leave of the court would place
the liquidators under an “inappropriate” restriction in that
it would give Sheikh Mahfouz and Mr Kahlon protection from possible further
proceedings from which he saw no reason why they should be protected as a term
of the Mareva injunction. The logic of the situation, as I see it, is that the
oppression potentially inherent in the worldwide enforcement of a worldwide
Mareva injunction is adequately cured by an undertaking, such as undertaking
(e), which gives the English court control over the enforcement of the Mareva
injunction. In Derby v Weldon (No 1) [1989] 1
All ER 469 at 476, [1990] Ch 48 at 59 Nicholls LJ referred only to “an
undertaking in terms which will preclude them from making any application to a
foreign court to enforce the order without first obtaining leave from the
English court”. The further undertaking in the first part of the
proposed sub-para (iii) is concerned with a different matter, the issuing by
the same plaintiffs against the same defendants of separate proceedings in
different jurisdictions arising out of the same subject matter. As appears from
the judgment of the Judicial Committee delivered by Lord Goff of Chieveley in SNI
Aérospatiale v Lee Kui Jak [1987] 3
All ER 510, [1987] AC 871, the issue by the same plaintiffs against the same
defendants of separate proceedings in different jurisdictions arising out of
the same subject matter may be oppressive, and if it is shown to be oppressive
it may be restrained either absolutely or on terms. It does not automatically
follow, as a matter of logic, that if a person obtains a worldwide Mareva
injunction and to prevent oppression in the enforcement of the injunction he is
required to give an undertaking not to make any application to a foreign court
to enforce the injunction without first obtaining leave of the English court,
he must also be required to give a further undertaking as a [*797] safeguard against a somewhat different form of
possible oppression, not to issue any fresh proceedings in a foreign court
arising out of the same subject matter without first obtaining the leave of the
English court. But it may none the less be reasonable that he should
be required to give such an undertaking if it seems prima facie oppressive that
he should be free to start further proceedings in other jurisdictions founded
on the same facts as are the basis of the English proceedings. In the present case, special considerations apply to
the court in Luxembourg because the English liquidation of BCCI is ancillary to
the Luxembourg liquidation. I can see no reason why the English court should
have to give prior permission for applications to be made by the liquidators to
the court in Luxembourg. Subject to that, however, the position is that the
liquidators have, so far, chosen the English court as their preferred court for
bringing civil proceedings against Sheikh Mahfouz and Mr Kahlon because of the
breadth of the remedies available in the English court under the Insolvency Act
1986. Sheikh Mahfouz and Mr Kahlon have submitted to the jurisdiction here. Once the affidavits of Sheikh Mahfouz and Mr Kahlon as
to their assets are available to the liquidators, they may well wish to bring
proceedings to enforce the Mareva injunctions in the courts of foreign states
where assets will have been shown to be. That is covered by undertaking (e). But I cannot at the moment conceive what other
proceedings the English or Cayman Island liquidators may want to bring, either
in their own names or in the names of BCCI or Overseas, against Sheikh Mahfouz
or Mr Kahlon in foreign courts other than the courts of Luxembourg arising out
of the matters which are the subject of the present proceedings. It seems to me
therefore reasonable to avoid possible oppression that the liquidators should
be required to give the form of undertaking in the first part of the proposed
sub-para (iii) in respect of civil proceedings in foreign courts other than the
courts of Luxembourg. I regard it as desirable that the practice in these
matters should develop uniformly and I can see good reason for the form of
order made by this court in Derby v Weldon (No 1)
[1989] 1 All ER 469 at 476, [1990] Ch 48 at 59, although we have no transcript
of the discussion which must have preceded it. The liquidators accept that the normal restriction on
enforcing the Mareva injunction in foreign courts without the prior leave of
the English court is as applicable to them as to other litigants. I do not see
why a restriction in the terms of the first part of the proposed sub-para (iii)
should not also be as applicable to them as to other litigants—with
the qualification as to Luxembourg that I have mentioned. The judge regarded it as an inappropriate restriction
as it would give Sheikh Mahfouz and Mr Kahlon protection from possible further
proceedings from which he saw no reason why they should be protected. But he
has not explained, and I cannot see, why it is an inappropriate restriction.
Moreover, without knowing what the possible further proceedings are he cannot
say that there is no reason why the Sheikh and Mr Kahlon should be protected
from them. (That is somewhat similar to the point made by Nicholls LJ in his
judgment in Derby v Weldon (No 1) [1989] 1
All ER 469 at 476, [1990] Ch 48 at 59, to which I have already referred.) I would therefore allow this appeal on the
multiplicity of suits issue to the extent of requiring from the liquidators an
undertaking in the terms of the first [*798 part of the proposed sub-para (iii) in relation to the
commencement of new civil proceedings in foreign courts other than the courts
of Luxembourg. NOLAN LJ. I agree with the order proposed. It must now be taken to be well settled, in this court
at least, that a plaintiff who seeks a worldwide Mareva injunction and an
affidavit of the defendant’s assets will only succeed if he can
satisfy the court that (1) he will not make improper use of the information
contained in the affidavit, and (2) he will not engage in vexatious and oppressive
proceedings against the defendant in other jurisdictions. The parties have now agreed as to the manner in which
the first, and I think the less problematical, of these conditions should be
satisfied. I would hope that it should be possible for an agreement on similar
lines to be reached in most cases. Whatever the practical difficulties may be
in enforcing the confidentiality undertaking and in avoiding the pitfalls
created by RSC Ord 24, r 14A, the principle that the information disclosed by
the defendant should only be used by the plaintiff for the purpose of securing
compliance with the Mareva injunction is straightforward. It is much more difficult to define and guard against
the risk that the defendant may suffer from vexatious and oppressive proceedings
by the plaintiff in other jurisdictions. The matter cannot in my judgment
suitably be governed by a standard form of undertaking. Each case must be
considered according to its facts. The particular facts which to my mind have
to be borne in mind in the present case are that the plaintiffs are liquidators
acting under the provisions of the Insolvency Act 1986, that the liquidation of
BCCI in this country is ancillary to its liquidation in Luxembourg, that Sheik
Mahfouz and Mr Kahlon are non-residents who have submitted to the jurisdiction
of the English court, and that the proceedings being brought against them by
the liquidators in this country are the main action against them. I was at one time inclined to the view that the status
of the plaintiffs as liquidators in a winding up by the court should dispense
them from the obligation to give an undertaking in the wide terms of the first
part of the proposed sub-para (iii). They are senior members of their
professions, acting as officers of the court. It is inconceivable that they
would embark on litigation abroad without taking independent legal advice. The
prospect of their engaging in vexatious and oppressive litigation must be
remote in the extreme. Mr Crystal QC, however, for the plaintiffs, does not
claim that any special regard should be had to their status as liquidators so
far as civil proceedings are concerned. He accepts, as I understand it, that in
this respect they should be treated like any other plaintiff who obtains a
worldwide Mareva injunction. His objection to the proposed undertaking is that
the English proceedings, although the main proceedings, are part of a concerted
worldwide effort to recover the proceeds of fraud from the defendants, and that
both in principle and as a practical matter it would be wrong to subject the
plaintiffs to the delay, expense and inconvenience of coming to the English
court before taking proceedings abroad. It seems to me, however, that so far as
practical considerations are concerned the plaintiffs in the present case are
better placed than most. They are accustomed to obtaining the directions of the
court, and these directions may reasonably be expected to assist rather than
impede the progress of the concerted worldwide proceedings. Thus, if the prior
approval of the English court were given for particular proceedings to be taken
abroad, [*799 it would be that much more difficult for the
defendants to contend subsequently that the plaintiffs should be enjoined from
pursuing them. The control exercised by the court may very well have the effect
of reducing rather than increasing the cost and duration of the liquidation. More generally, if no special status is to be accorded
to liquidators acting as officers of the court, I agree with Dillon LJ that
there is much to be said for a degree of uniformity in the undertakings
required from plaintiffs in these circumstances as regards multiplicity of
suits. I also agree on grounds of public policy that the undertakings should
not extend to criminal or regulatory proceedings abroad; and that, since the
liquidation here is ancillary to the liquidation in Luxembourg, the
undertakings should not extend to any proceedings in that country. For these reasons, as well as those given by Dillon
LJ, I too would allow the appeal to the extent indicated by the proposed order. ROCH LJ. I agree. Appeal allowed in part. |