Kensington International Ltd v Montrow International Ltd (in Provisional Liquidation)

• Jurisdiction: British Virgin Islands
• Judge: HARIPRASHAD-CHARLES J
• Judgment Date: 09 May 2007
• Court: High Court (British Virgin Islands)
• Docket Number: Claim No. BVIHCV2007/0041
• Date: 09 May 2007

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE (CIVIL)

Before: Her Ladyship Justice Indra Hariprashad—Charles

Claim No. BVIHCV2007/0041

In the Matter of Montrow International Limited And in the Matter of the Insolvency Act 2003

BETWEEN

Kensington International Limited

Applicant

and

Montrow International Limited (in Provisional Liquidation)

Respondent

Appearances:

Mr. Stephen Moverley Smith QC of Essex Chambers, London with him Mr. Jeremy Walton of Appleby, Cayman Islands and James Hilsdon of Appleby, BVI for the Applicant

Mr. Lawrence Cohen, QC of XXIV Old Buildings, London with him Mr. Michael J. Fay and Clare-Louise Whiley of Ogier for the Provisional Liquidator

Mr. William Hare of Forbes Hare for the Respondent

Cases referred to and considered in the Judgment:

1. Re Claybridge Shipping Co. SA [1997] 1 BCLC 572.

2. Re RBG Global SA. Civil Appeal No. 6 of 2003 (Eastern Caribbean Supreme Court—British Virgin Islands)— unreported Judgment delivered on 12 January 2004.

3. Kensington International Limited v Republic of Congo [2005] EWHC 2684.

4. Brink's Mat Ltd. v Elcombe [1988] 1 WLR 1350.

5. Reg v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486.

6. In re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563

CATCHWORDS

Application for Stay of Provisional Liquidator's powers until full inter partes hearing — Whether Order appointing Provisional Liquidator was too wide-ranging to be made on an ex parte basis — Were there material non-disclosures on the part of the Applicant which justify the Order being discharged — Failure to provide undertakings and fortification to the Court — Delay by the Applicant in bringing the application — Is the Respondent a creditor of the Applicant — Is it just and equitable to appoint a Provisional Liquidator

HEADNOTE

The Applicant (‘KIL’) is a limited company which is incorporated and registered in the Cayman Islands. By virtue of four judgments of the English Commercial Court, it alleged that it is a creditor of the Republic of Congo (‘the Congo’). The Respondent (‘MIL’) is an IBC incorporated in the BVI. It is the sole shareholder of LSA, a limited liability company incorporated in the Congo and is the holder of rights to exploit certain oilfields in the Congo. On 9 March 2007, after an ex parte hearing, the Court appointed a Provisional Liquidator over MIL and LSA until the return date.

It was argued on behalf of MIL that the application should not have been made ex parte, or alternatively, that the Order was too wide-ranging to have been made on an ex parte basis and should not have been made at all since MIL owes no debt to KIL and it is not just and equitable to wind up MIL. It was also argued that KIL is guilty of serious non-disclosures which justify the Order being discharged, i.e. KIL did not disclose that in April 2003, it was refused an application for an ex parte Freezing Order by Morrison J. in the English Commercial Court as the learned Judge decided that the application should have been made on notice to the Congo. The Court of Appeal agreed with the Judge's decision. It was submitted that the reasoning in these judgments applies equally to this application and the judgments should have been brought to the attention of the Court at the ex parte hearing as well as the circumstances by which KIL acquired the debts. It was further submitted that KIL has failed to provide important undertakings to the Court and that KIL delayed in bringing the application.

In response, KIL conceded that failure to provide any undertaking as to damages was an omission on the part of KIL and the Order should be amended to reflect that position. It was submitted on behalf of KIL that the judgments referred to by MIL were in the early days when KIL was trying to enforce the judgments; a trial was subsequently held and the truth about the Congo's behaviour came to the fore. Additionally, it was argued that the Orders sought in those judgments were of a different kind: one was an injunction to enforce a negative pledge provision in an agreement and the other was a freezing order over the Congo itself. It was also submitted that the non-disclosures were not relevant to the present application because the English Commercial Court heard evidence and came to the conclusion that the Congo owes these monies to KIL. KIL is of the view that it is a creditor of MIL because it is an alter ego or emanation of the Congo and that it is just and equitable to wind up MIL because there are strong and compelling reasons to believe that MIL is being used by its principal, the Congo as an instrument of fraud on the Congo's creditors.

HELD:

• 1. The Order should be amended to reflect the undertakings as to damages by KIL. No evidence has been adduced by MIL to suggest that the security of $100,000.00 proffered in support of the undertaking in damages is insufficient so it would be impractical to interfere with this aspect of the Order. If and when such evidence is forthcoming, this issue could be re-argued.

• 2. If MIL or its directors wish to apply for security for costs it must follow the established procedure in Part 24 of the CPR.

• 3. The issue of delay by KIL in bringing the claim does not arise as the court is not aware of any statutory limitation period which prevented KIL from bringing the present application.

• 4. The reasoning in the earlier judgments is inapplicable to this application as the application before this court is dissimilar from the applications that those judgments dealt with. The Orders sought in those judgments were of a different kind: one was an injunction to enforce a negative pledge provision in an agreement and the other was a freezing order over the Congo itself.

• 5. Emanating from the later judgments of the English Commercial Court is the underpinning of a real risk of dissipation of assets. There is overwhelming evidence to demonstrate that the Congo has acted in contempt of many freezing and other orders and such freezing orders are ineffectual if a defendant is prepared to act in contempt of these orders.

• 6. The CPR make adequate provisions for ex parte hearings of this type of applications once the reasons why notice was not given are stated. Applications are brought ex parte in cases where there is evidence of an impending risk of dissipation of assets.

• 7. The evidence before the court was the ability of the Congo to employ dishonest schemes to hide assets and evade the claims of legitimate judgment creditors as found by the English Commercial Court. Therefore the essence of KIL's case for the application to be heard on an ex parte basis was the near certainty that the assets of both MIL and LSA would be dissipated, hidden from view and/or moved beyond the reach of KIL and this Court.

• 8. The rule that an ex parte order will be discharged if it was obtained without full disclosure has a dual purpose. It will deprive the wrongdoer of an advantage improperly obtained and it also serves as a deterrent to ensure that persons who make applications without notice realize that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty.

• 9. The non-disclosures identified in this case were not relevant to the present application. It would be unabashed to look behind the judgments of the English Commercial Court to determine how they came by the loans. The judgments of the English Commercial Court in 2003 are also not relevant as these judgments were before the truth about the Congo's attempt to evade its creditors was known.

• 10. There is a prima facie case that LSA is an alter ego or an emanation of the Congo and so is MIL, as MIL is a pure holding company and sole shareholder of LSA plus it was incorporated around the same time as LSA therefore the Congo's debts are their debts. It follows therefore that there is a prima facie case that LSA and MIL are creditors of KIL.

• 11. Allegations of fraud must be supported by highly cogent evidence. The evidence adduced to this court—findings of the English Commercial Courts that the Congo is involved in elaborate structures to frustrate creditors coupled with the prima facie finding that MIL is an alter ego of the Congo and is been used as an instrument of fraud make it is just and equitable to appoint a provisional liquidator

HARIPRASHAD-CHARLES J

1 This is the return date of two applications dated 7 March 2007 (‘the Applications’) by Kensington International Limited (‘KIL’) for the appointment of the Provisional Liquidator, Mr William Tacon (‘Mr Tacon’) to continue until the applications for the appointment of a Liquidator of Montrow International Limited (‘MIL’) and LikoualaSA (‘LSA’)(together the ‘Companies’) are heard. At this hearing, the Directors of LSA were not represented and consequently, the provisional liquidation of LSA continued.

2 Although Learned Counsel, Mr William Hare appearing for MIL, had not complied with the requirements of Part 63.3 of CPR 20001 and had not filed any application to stay or suspend the order that the Court made on 9 March 2007, the Court nonetheless proceeded to hear Learned Counsel who handed up a skeleton argument prior to the hearing. Mr Hare sought an adjournment and also a stay of the Provisional Liquidator's powers until a full inter partes hearing could be listed.

The Parties

3 KIL is a limited company which is incorporated and registered in the Cayman Islands. By virtue of four judgments of the English Commercial Court, KIL alleged that it is a creditor of the Republic of Congo (‘the Congo’). MIL is an International Business Company (‘IBC’) incorporated on 11 August 2003 in the British Virgin Islands (‘the BVI’). It is owned by a Jersey trust called ‘the Montrow Trust’ and is the sole shareholder of LSA, a company incorporated in the...