Sparkasse Bregenz Bank AG Petitioner v Associated Capital Corporation Respondent

• Jurisdiction: British Virgin Islands
• Judge: Matthew J. Ag.
• Judgment Date: 03 May 2002
• Neutral Citation: VG 2002 HC 21,[2002] ECSC J0503-1,VG 2002 HC 22
• Court: High Court (British Virgin Islands)
• Docket Number: CIVIL SUIT NO. 20 OF 2002
• Date: 03 May 2002

IN THE HIGH COURT OF JUSTICE

CIVIL SUIT NO. 20 OF 2002

BETWEEN

Sparkasse Bregenz Bank AG

Petitioner

and

Associated Capital Corporation

Respondent

Appearances:

Mr. W. Hare for the Petitioner

Miss N. McDavid for the Respondent

Matthew J. Ag.

1 On January 31, 2000 the Petitioner filed a petition to wind up the Respondent Company for non payment of a debt of $430,322.12, a statutory demand having been made for the same on October 3, 2001. The petition was verified by the affidavit of Dr. Peter Mennel, director of the Petitioner, filed on the same day.

2 The affidavit of service of the petition and the affidavit verifying the petition was filed by Andre Jackson on February 21, 2002. The petition was advertised in the BVI Beacon on February 14 and February 21 and in the Gazette in February 21.

3 On March 8, 2002 Phillip Kite, Solicitor, swore to the fitness of Andrew Bickerton, Chartered Certified Account, as proposed Liquidator and exhibited to his affidavit was a letter of consent to act by the said Andrew Bickerton.

4 On March 8, 2002, Solicitors for the Respondent gave notice of their intention to appear and five days later Phillip Kite swore another affidavit to which was exhibited a copy of the statutory demand.

EVIDENCE

5 On March 15, 2002, Gunter Hodyjas, the appointed agent of the Respondent, swore to an affidavit in opposition to the application to wind up the Respondent and says the debt is not owed to the Petitioner and the Petitioner is not entitled to the order it seeks.

6 Hodyjas states that the Respondent is engaged in the business of investing in various financial markets and by power of attorney dated August 7, 1999 the Company authorized him to open and operate a bank account with the Petitioner in Bregenz, Austria.

7 He states that in accordance with the terms of the power of attorney he entered into an agreement with the Petitioner for the opening and operation of an account to enable the Company to invest in the EUREX derivatives exchange. He states that the agreement provided the terms upon which the Petitioner, through the account, would invest or deal with derivatives on the Company's behalf in the EUREX exchange.

8 He states that the EUREX derivatives exchange is one of the world's largest markets for trading and clearing of futures and options in shares, stock indices, bonds and money-market instruments. He states that the Petitioner was solely responsible for placing the investments on the Company's behalf and that every institution that trades at the EUREX exchange is bound by the rules of the exchange.

9 He states further that the rules of EUREX exchange require investment houses (in this case the Petitioner) to ensure that the investor (in this case the company) maintains funds in its accounts at a level that cases and exceeds the value of the options to be sold - called a Margin.

10 He states that the Petitioner is required to calculate this Margin on a daily basis and to ensure that the Company maintains it at the required level. He states that once per month all options are settled.

11 He states that the date for settling options in September 2001 was September 21. He said he attended a meeting at the Petitioner's office in Bregenz on September 24. He said by that date the Petitioner would already have been charged by EUREX for any negative balance in the contracts traded for the previous period.

12 He stated that at the meeting the Petitioner demanded that the Company deposit approximately $420,000.00 and indicated that unless this was done all of the Company's options then open would be closed.

13 He said two days later he was summoned to another meeting this time with the Petitioner's Board of Directors, when he was asked again to ensure that the Company deposit the additional security requested. He said although he asked, he was not provided with any explanation as to how the amount was computed.

14 He said he explained that the Company could not deposit the funds requested as there was no basis upon which the Petitioner could legitimately make the demand. He said that on October 5, 2001 the Company was served with the demand for payment of the sum of $430,332.15.

15 He said on October 8, 2001 he attended a meeting with Dr. Peter Mennel and Mr. Bohie another official of the Petitioner. At that meeting he was presented with a document in the form of a blank promissory note and asked to execute it on behalf of the Company. As he could not understand the full nature of the document he asked whether he could be permitted to have his lawyer examine it and this was refused.

16 He stated that during those discussions he was told to his horror that contrary to the rules of the EUREX Cleary Conditions the Petitioner did not maintain the infrastructure necessary to ensure that the Margin was properly calculated and maintained,

17 He stated that he requested specific information regarding the status of the Company's accounts after settling on September 21, as this would have helped him to understand how the Petitioner arrived at the figure that it was demanding. He was told this information would be forwarded to the Company within two weeks but the Company did not receive any information.

18 He states that the Company denies that it owes the Petitioner the sum claimed.

19 Dr. Peter Mennel in a comparable terse affidavit filed on April 8, 2002 in response to the affidavit of Hodyjas, refers to the Agreement entered into by the Company and the Petitioner, and submits that the Company must pay the Petitioner the amount that the Petitioner owes pursuant to the trade that the customer makes.

20 He states that there is no provision in the Agreement that enables the Company to be "let off" its indebtedness to the Petitioner if the Company has not provided enough security to cover the margin calls on the Petitioner.

21 He states that Mr. Hodyjas omits to make the point that the Petitioner is not itself a member of EUREX, and is not therefore bound by those rules.

22 He states that from 1999 onwards, Mr. Hodyjas was in almost daily contact with the traders and the Petitioner and was reminded time and again of the amounts that were involved and the situation concerning the margins.

23 On April 10, 2002 Anna-Lise Bailey, Associated Attorney employed with the Solicitor for the Respondent, filed an affidavit to which was exhibited a translation in English of the German Agreement that should govern the relationship between the Parties.

24 I should like to state below one section of the Agreement:

"LEGAL DISPUTES AND GOVERNING LAW Any possible legaldispute out of this agreement, which is governed by the law of the Republic of Austria, according to section 104JN it Is agreed that the Court responsible for the Bank's headquarters in Vienna has exclusive jurisdiction."

SUBMISSIONS OF COUNSEL

25 Learned Counsel for the Petitioner submitted that he was relying on the following authorities: TAYLORS INDUSTRIAL FLOORING LTD. V PLANT HIRE LTD. [1980 BCLC 216; and in REBAYOILSA [1999 1 WLR 147. Counsel reminded that the onus was on the Company to show the debt is disputed on substantial grounds.

26 Counsel submitted that the debt which is claimed relates to the Margin which was the amount of security which the Respondent was liable to provide to the Petitioner for the trade it carried out.

27 Counsel submitted that as a result of the trading Commerzbank carried out there was a loss. It followed that the Petitioner is liable to Commerzbank and as a result the Company is liable to the Petitioner. It is nonsense for the Company to say because they have not provided the security they are not liable for the indebtedness that the security was to provide.

28 Counsel referred to various provisions of the Agreement and said it is not an Agreement that binds the Company. Counsel submitted too that there was no explanation before the Court why the statutory demand went unanswered from early October 5, 2001. Counsel referred to sections 115 and 116 of the Companies Act, Cap. 285.

29 Counsel submitted that the Company is disputing the debt in wholly unmeritorious grounds.

30 Learned Counsel for the Respondent submitted that the debt is not owed because the Petitioner has breached the contract with the Company and the particular breach is in not informing the Company of the Margin.

31 Counsel agreed the burden was on the Company to show a bona fide dispute but submitted that it had done so. Counsel submitted that the loss was due to the Petitioner's negligence and its breach of the EUREX Rules and the Agreement.

32 Counsel also referred to the Agreement and submitted that the Petitioner cannot say the EUREX rules do not bind them. Counsel submitted that the Company was bound by the EUREX rules because the EUREX rules are implied terms of the Agreement between the Petitioner and the Company.

33 Counsel relied on the following authorities:

In RE LONDON AND PARIS BANKING CORP. Vol IX Ch. 444 at page 445; and MANN V GOLDSTEIN [1968 2 All E.R. 769 at page 793 and submitted that the Petitioner should sue the Company for the amount claimed for it has not established that the debt is owed.

34 Section 115 of the Companies Act, Cap. 285, lists the circumstances under which the Court is given the discretion to wind up companies. The relevant provision for the purposes of these proceedings is Section 115(d):

"where the company is unable to pay its debts."

35 Section 116 lays down the provision when a company is deemed unable to pay its debts and the relevant provision is Section 116 (a) which for the purposes of these proceedings I state to be - whenever a creditor to whom the company is indebted in a sum exceeding two hundred and forty dollars has served on the company a demand requiring the company to pay the sum due and the company has for the space of three weeks succeeding the service of such...