Representation of DP9 Limited - 12-Mar-2020

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Companies - reasons.

[2020]JRC047

Royal Court

(Samedi)

12 March 2020

Before :

R. J. MacRae, Esq., Deputy Bailiff, and Jurats Thomas and Hughes.

IN THE MATTER OF THE REPRESENTATION OF DP9 LIMITED

Advocate J. D. Garrood for the Applicant.

The Viscount in person.

judgment

the deputy bailiff:

Background

1. On 24^th February, 2020, we heard an application by a UK registered company DP9 Limited to place a Jersey company SPARC Group Limited, en désastre. We gave our decision at the end of the hearing. We now give the reasons for that decision. We will refer to DP9 as the Applicant and will refer to SPARC Group Limited as the Company.

2. The Applicant carries out planning, development and regeneration consultancy.

3. In June 2018 the Applicant and the Company entered into an agreement whereby the Applicant agreed to provide planning consultancy services in respect of the Company’s proposed redevelopment of property in Park Lane, London. Pursuant to the agreement, the Company was to pay the Applicant £20,000 plus VAT costs and expenses per month. Between July and December 2018 invoices totalling £144,273.55 were issued to the Company. None of those invoices were paid. This sum, together with accumulated interest amounts, to the debt due of £148,617.22.

4. The Company has never disputed the debt. Various promises in relation to payment were made but none were honoured. In July 2019 the Applicant issued a statutory demand against the Company under Section 123(1)(a) of the Insolvency Act 1986. That expired without payment being made. Thereafter the Applicant instructed Jersey advocates to prepare an application to declare the Company en désastre.

5. That was filed in November 2019. It was withdrawn on the footing that the Company might pay the debt due, and then re-instated and filed on the Court in January 2020.

6. The extent of the Company’s assets is unclear. The only asset identified by the Applicant in the statement made under the Bankruptcy Rules is the Company’s paid up share capital of £100,000 some or all of which may have been spent. Mr Mills, the Chief Executive Officer and Managing Director of the Company has referred in correspondence with the Applicant to potential claims that the Company may have in England in relation to non-payment related to the Park Lane project. The Company may also have one or more option agreements relating to London property and a bank account. There must be some evidence of realisable assets for the court to make the declarations sought. The Viscount described the evidence as to the extent of the assets as “rather nebulous and uncertain”. We agree.

7. The Viscount has suggested that enquiries in other jurisdictions will need to be made in order to ascertain the Company’s asset position – the Viscount notes that the Company’s principal place of business is in the United Arab Emirates and the invoices relate to a building project in London.

The application

8. The paperwork submitted by the Applicant in this case is compliant with Rule 2 of the Bankruptcy (Désastre) Rules 2006.

9. Accordingly the Court is satisfied:

(i) that the Company is insolvent and is therefore a “debtor” as defined by Article 1 of the Bankruptcy (Désastre) (Jersey) Law 1990 (“the Law”);

(ii) that the Applicant is a creditor of the debtor with a valid liquidated claim against the Company; and

(iii) in the circumstances the Court is, in principle, pursuant to Article 6 of the Law, disposed to make a declaration placing the Company en désastre.

10. We say “in principle” because Article 5(2) of the Law provides that “in the case of an application by a creditor the court may require the creditor to indemnify the Viscount against the costs of the désastre to the extent that it thinks fit”.

The indemnity

11. The issue in this case is the extent of the indemnity, if any, to be ordered in this case and the extent of the court’s powers under Article 5(2) of the Law.

12. The Applicant is in principle prepared to give an undertaking to the Viscount but has said, in summary, that the Viscount has asked for too great a sum and failed to particularise the need for the sum sought. In correspondence the Viscount said that in view of potential costs, a £25,000 initial payment should be deposited at the outset. The Viscount relies upon the possible complexity of identifying any assets and the Applicant’s presence outside the Island, which would create additional costs of enforcement if the Applicant did not honour any indemnity offered.

13. It is clear from previous case law that it is common for the Court to require an applicant to provide an indemnity or for an applicant to offer one in terms which have in some circumstances been wider than an indemnity that the Court might be empowered to order.

14. Our attention has been drawn to the case of SO Holding –v- CDS3 Limited [2011] JCA 189A where the applicant undertook to “provide a full indemnity for the Viscount’s fees and disbursements and to place the Viscount in sufficient funds to enable him to initiate all procedures and activities consequent upon a declaration.”

15. In Buchannan Smith Limited [2008] JRC 174, the court held at paragraph 4:

“The application is straightforward, although the asset structure of the company is complicated, and it is for that reason that delays have followed on delays. We appreciate that £20,000 has been paid in already to the Viscount’s Department. We are going to grant the désastre and it is on the understanding, and the order, that the Viscount will be indemnified against the costs of the désastre in full and if the Viscount requires more money on escrow, he will ask for it, and it will be paid.”

16. In Harbour Fund II LP –v- Orb and Dr Cochrane [2017] JRC 007, the court said at paragraph 52 and 53:

“52. The Viscount had reservations about the scope and complexity of the bankruptcies of Orb and Dr Cochrane but she had agreed the terms of an indemnities to administer the désastres to be given by Harbour under Article 5(2) of the Desastre Law, which was filed with the Court, and she did not oppose the granting of the declarations.

53. The Court appreciated the burden that would be imposed upon the Viscount and her department, but felt it was important that the Island, as a well-respected financial centre, discharged its responsibility for dealing with the affairs of this Jersey registered company and Jersey resident.”

17. In argument, counsel for the Applicant expressed doubts as to the extent that the cases referred to above could be regarded as useful. SO Holding –v- CDS3 Limited and Harbour Fund II LP –v- Orb and Dr Cochrane were both instances of indemnities being given by consent. In neither case was there any argument on the point. Furthermore, in Buchanan Smith Limited, the only instance of a specific sum being required to be paid to the Viscount, it was not clear whether the sum was ordered after the court had heard argument or was provided with the agreement of the creditor(s).

18. Counsel for the Applicant stated that in one unreported case where no judgment is available, relating to the désastre of Rockingham Investments, the Viscount asked the court to order the liquidator, who applied for the désastre, to make a payment into court and the court rejected the application, holding that it had no power to make such an order. The Viscount had a different recollection of that case.

19. The Applicant was prepared to indemnify the Viscount up to the sum of £5,000; whereas the Viscount submitted that this was a case where an unlimited indemnity was appropriate and that she should be put in funds in the sum of not less than £25,000 on account of her likely costs.

Discussion

20. The Applicant argues that this is a modest claim, that the Viscount is publicly funded and that the Applicant should not be prejudiced by virtue of the fact that it resides outside the jurisdiction. It is argued that the Court has no jurisdiction to make the order that is sought, absent the consent of a creditor. It is said that the Court has no jurisdiction to compel a creditor to put the Viscount in funds to carry out the work that the Viscount says that she will have to undertake in relation to this or any désastre. It is argued that the provisions of Articled 5(2) simply are not wide enough to permit the Court to direct a creditor to put the Viscount in funds prior to incurring costs in a désastre. As to the fact that the Applicant resides outside the jurisdiction, it was contended that that was irrelevant and the Viscount was wrong to invite the Court to take that into account. Such an approach would be discriminatory and contrary to the decision of the Court of Appeal in Leeds United –v- Admatch [2009] JLR 186. In that case the Royal Court had required the appellant to lodge a substantial sum in court on account of security for costs on the footing that even if ordering such security against a non-resident plaintiff constituted prohibited discrimination under Article 14 of the European Convention on Human Rights, it was not unlawful as it was objectively justified. The Court of Appeal disagreed. The Court of Appeal held that the indiscriminate practice of requiring security for costs from plaintiffs resident outside Jersey constituted discrimination on the grounds of status under Article 14 of the ECHR in that it impeded their right of access to the courts under Article 6. The Court of Appeal noted that the Appellant, as with many non-resident plaintiffs in Jersey, was British and the registration of a costs judgment in the United Kingdom was straightforward and inexpensive. In respect of the relationship between Article 14 and Article 6 of the Convention, Sumption, JA said:

“12. …The incorporation into English law by the Human Rights Act 1998 of the European Convention on Human Rights introduced a more general prohibition of discriminatory acts by public authorities. Article 6 of the Convention, which guarantees a fair hearing before an impartial tribunal, has for many years been interpreted by the European Court of Human Rights as guaranteeing access to a court to vindicate any legal rights. Under Article 14 of the Convention, the enjoyment of the rights conferred by the Convention (including Article 6) is to be secured ‘without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.’ In Nasser v. United Bank of Kuwait [2002] 1 WLR 1868, the English Court of Appeal held that an order for security for costs was not in itself contrary to Article 6 of the Convention. However, to treat the foreign residence of the Plaintiff as prima facie justifying such an order discriminated against him contrary to Article 14.

13. It is well established that Article 14 does not require that there should have been a breach of some other Article of the Convention. It requires only that there should have been discrimination which in some respect fell within the ambit of another Article and was not objectively justified. In the view of the Court of Appeal in Nasser, the practice was discriminatory because in like circumstances security would not have been ordered against a Plaintiff resident in England or in a state party to the Brussels or Lugano Conventions. This did not mean that security could never be ordered in such a case. But it did mean that there had to be an objective justification for the order in the particular case, based on some real obstacle or burden associated with enforcing a judgment for costs in the country or countries where the Plaintiff had his assets….”

21. A creditor seeking a declaration that a company be placed en désastre cannot, in our view, be equated precisely with a party providing security for costs. One of the difficulties with applications for security for costs is that they can stifle a genuine claim. The argument will be often be that a plaintiff with a strong case should not be required to pay in to court a sum representing a contribution towards a defendant’s likely costs, as if the plaintiff succeeds those are costs which they are ultimately never going to have to bear. The position of the creditor in a désastre is different. The creditor is being asked to indemnify or contribute to costs which the public of the Island, through the Viscount, is certainly going to incur, albeit the creditor will know that if there is a recovery of assets then the creditor will be repaid the sum provided to the Viscount. We did not hear sufficient argument (and were only provided with the one authority referred to) in order to determine whether the submissions made by counsel for the Applicant ought to be accepted. However, in fairness to the Applicant, the Court proceeded on the footing that it would put to one side the question of the Applicant’s residence when considering what, if any, sum should be paid by the Applicant to indemnify the Viscount under Article 5(2). Accordingly in the course of its deliberations, the Court treated the Applicant no differently from a Jersey company.

22. Counsel for the Applicant argued that it was inadequate for the Viscount to have failed to produce a draft budget. He said that there should be a stage-by-stage process and the sum of £5,000 offered by the Applicant would be sufficient to obtain the Company’s books and records and interview the directors. He said there would come a point when the Viscount and his client would know whether or not to continue with the process. He said that is how a private law liquidator would conduct the process.

23. The Viscount argued that the indemnity she sought, including the requirement for £25,000 at this stage, was reasonable as:

(i) the principal of the Company (Mr Mills) lives in the United Kingdom and if the Viscount is unable to require him to come to Jersey, they will need to meet with him in London;

(ii) the information as to the nature and trading activity of the Company is sparse. She said the share capital may have been spent on rent and wages and there may be nothing left;

(iii) the Company may have assets in Dubai; there is reference to a bank account and an annual return filed in 2019 submitted by a corporate services provider in Dubai. Mr Mills also gives a Dubai address. This may lead to investigations being necessary in Dubai;

(iv) applications may be required to the courts of London and Dubai to enable the Viscount to exercise her powers;

(v) legal advisers will need to be engaged in order to investigate the potential contractual claim and advise on its likelihood of success and to review the alleged option agreement and how it may be exploited or realised;

(vi) the Viscount has not declined to provide a detailed cost estimate to the Applicant’s advocates – she simply was unable to do so on the information she has. The Viscount said that her office could not be equated to that of liquidator. A liquidator cannot be compelled to take office. They can charge an hourly rate. The Viscount would not be charging for her time. The sums that she was seeking were purely to cover external costs and expenses. She said that the £5,000 offered was far too low. She said she could not obtain quotes from Dubai and London law firms on the information that was available to her at the moment. The Viscount said once the declaration was made there was under a duty to carry out various tasks. There were a number of statutory notices to issue, and the Viscount was under a duty, as described by the Royal Court in the Désastre of Overseas Insurance Brokers Limited [1966] JJ 547, “to get in and liquidate [the] estate for the benefit of the creditors who proved their claims.” The Viscount said that her duty was to take reasonable steps to identify the assets, obtain control of them, and to liquidate them for the benefit of creditors.

24. As to Article 5(2), the Viscount invited the Court to give a wider interpretation of the provision than that argued for by the Applicant. She argued that Article 5(2) exists to protect the public purse in cases where the extent of the assets is uncertain – precisely this sort of case. The Viscount rejected the assertion that the word “indemnify” in Article 5(2) meant repay after costs have been incurred. In support of her argument, the Viscount provided a redacted Act of Court from another case which contained the provisions stating:

“The Viscount shall not be required to take any such steps unless she has put in sufficient funds by the Representor to cover any costs so arising from time to time pursuant to the existing indemnity.”

Our decision

25. In view of the value of the claim, we do not regard an unlimited indemnity as being appropriate in this case. However, we do take the view that the Court has the power to make such an order in appropriate circumstances.

26. We reject the Applicant’s assertion that Article 5(2) is to be read so as to prevent the Court from requiring a creditor to pay such sums as the Court thinks appropriate in order to indemnify the Viscount in advance of her incurring such costs herself. We note from the Shorter Oxford English Dictionary that the first definition of “indemnify” is “preserve, protect or keep free from, secure against (harm or loss)…”. This is an instance of the Viscount being “preserved or protected” from liability by requiring the creditor to pay such sums as the Court regards as appropriate on the facts of the case. In this case, although we declined to order an unlimited indemnity, we did order that the Applicant provide the Viscount with a sum of £10,000 within 28 days of the hearing in order to fund her external costs in connection with the désastre, and ordered that the Applicant pays a further sum of £5,000 if, in due course the Viscount needs further funding in respect of such costs. Thereafter we ordered that the Viscount shall only incur further costs at the Applicant’s expense with the agreement of the Applicant, and, finally, we gave both parties liberty to apply.

27. We remind the Applicant, as volunteered by the Viscount, that any funds provided by the Applicant will be repaid to it if and when the Viscount realises the assets of the Company and prior to any distributions being made to creditors. Further, to the extent that any funds provided to the Viscount exceed the Viscount’s costs, they will also be returned to the Applicant.

28. Finally, when we gave our decision to the parties, the Applicant’s advocate asked the Court if the Court might not, after all, make a declaration placing the company en désastre and might make such declaration conditional upon his client deciding to pay the £10,000 referred to above. The Court declined this application and we could see no basis under the Law for a “conditional” declaration en désastre. A company or other entity is either placed en désastre or it is not. A creditor making an application to put a company en désastre should always understand, particularly if they are legally represented, that the Court may exercise its powers under Article 5(2) in appropriate cases to indemnify the Viscount against the costs of the désastre to the extent that it thinks fit.