Trade and Commerce Bank (Through Richard Fogerty, Its Joint Official Liquidator) Appellant v Island Point Properties S.A. First Respondent Jacob Ungar Second Respondent

• Jurisdiction: British Virgin Islands
• Judge: GEORGE-CREQUE, J.A.
• Judgment Date: 13 August 2010
• Neutral Citation: VG 2010 CA 6,[2010] ECSC J0813-4
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: HCVAP 2009/12
• Date: 13 August 2010

[2010] ECSC J0813-4

IN THE COURT OF APPEAL

On appeal from the Commercial Division

Before:

The Hon. Mr. Hugh A. Rawlins Chief Justice

The Hon. Mde. Janice George Creque Justice of Appeal

The Hon. Mr. Davidson Baptiste Justice of Appeal

HCVAP 2009/12

Between:

Trade And Commerce Bank (Through Richard Fogerty, Its Joint Official Liquidator)

Appellant

and

Island Point Properties S.A.

First Respondent

and

Jacob Ungar

Second Respondent

Appearances:

Mr. Robert Nader of Forbes Hare for the Appellant

Ms. Claire Robey of Martin Kenney & Co. for the Respondents

Civil Appeal – appointment of liquidator, originating application – whether statutory demand was bad – whether court's inherent jurisdiction circumscribed by the Insolvency Act – whether an equitable restitutionary claim could constitute a debt immediately due and payable – whether party has locus standi to appear on the originating application – sections 8(1)(a), 10, 55, 155, 156, and 167(1)(a) of the Insolvency Act No. 5 of 2003. Costs -member's entitlement to costs.

The appellant (TCB) applied to liquidate the 1 ^st respondent company (Island Point) based on an unsatisfied statutory demand. The 2 ^nd respondent (Mr. Ungar) filed a Notice of Intention to appear on the hearing of the application on the basis that he was a member of Island point and a putative creditor. Island Point took no part in the proceedings. It was alleged that TCB wrongly transferred funds to the company that owned Island Point (Tarbet) which Tarbet in turn transferred to Island Point. Upon being served with a statutory demand for the debt, Island Point failed to make an application to set aside the statutory demand in time. The debt was not paid, resulting in TCB's application to liquidate Island Point. At the hearing of the application TCB asserted that it had a restitutionary claim against Island Point through Tarbet.

In dismissing the application the learned trial judge reasoned that TCB's statutory demand was bad. He also concluded that on the evidence in support of the application there was no viable cause of action against Island Point. Additionally, he found that Mr. Ungar had no locus to be heard on the application. TCB appealed the decision on numerous grounds, summarily that the learned trial judge erred: (1) in considering the evidence of Mr. Ungar; (2) in failing to apply or give effect to the decision in Metalloyd Ltd v Burwill Resources Ltd [BVIHCV 2006/0083] by finding that the court's inherent jurisdiction was not curtailed by s.8 of the Insolvency Act 2003; (3) in construing s.155 of the Act and concluding that an equitable restitutionary claim could not constitute a debt "immediately due and payable" within the meaning of s.55 and/or cannot form the basis of a statutory demand and; (4) in exercising his discretion as to costs so as to deprive TCB of some or all of the costs incurred on the hearing of the originating application. The 1 ^st and 2 ^nd respondents based their cross appeal on a challenge to the trial judge's findings that Mr. Ungar had no standing to appear at the hearing and his decision not to award Mr. Ungar costs.

Held: dismissing the appeal and allowing the cross appeal; with costs to the respondents to be assessed, if not agreed:

• 1. TCB's complaint that the trial judge wrongly considered evidence by Mr. Ungar is erroneous as the learned trial judge made it plain that he was not entertaining Mr. Ungar's evidence and submissions.

• 2. In Metalloyd the trial judge was not asked to consider whether the court had jurisdiction to review or examine a statutory demand. Metalloyd did not decide that a company's failure to challenge a statutory demand resulted in depriving the court of its inherent jurisdiction to review the statutory demand. If the construction placed on s. 8(1) (a), following Metalloyd, is to the effect that a state of statutory insolvency brought about by a failure to challenge a statutory demand makes it impregnable or wholly unassailable with the inevitable result that winding up must follow, then, such a construction is quite wrong as a matter of law and principle. Such a construction would in effect render otiose the clearly expressed discretion the court is given under s.167 of the Act which preserves the court's inherent jurisdiction. The trial judge, presiding in a court of concurrent jurisdiction with that of his sister's court in Metalloyd, was not bound by the decision.

  Metalloyd Ltd v Burwill Resources Ltd [BVIHCV 2006/0083], distinguished.

  Danone Asia PTE Ltd Et.al -v-Golden Dynasty Enterprise Ltd. Et al. BVI Civ. App. 2/2009, followed.

• 3. The appellant's reliance on s.10 of the Act and OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 788 is futile as they lend no assistance to its case. The trial judge was right in concluding that TCB's asserted restitutionary claim against Island Point was not a debt and that accordingly the statutory demand was bad. He was also right to hold that in the circumstances, the consequence of 'statutory insolvency' under s. 8(1) did not arise given the absence of a present obligation on the part of Island Point to repay.

  OPC Managed rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778, distinguished.

• 4. The learned trial judge was wrong to conclude that Mr. Ungar had no standing as a member to be heard on the originating application and was counter to the well established right of a member to be heard on an application for winding up a company.

  Re Tamarind Club II Limited [BVIHCV 245/2009, delivered on 1 ^st December, 2009, followed.

• 5. Applying the general principle that cost follows the event, TCB is not entitled to costs. The court is minded to award costs to Island Point on the dismissal of the appeal and to Mr. Ungar, on the cross appeal, not by way of applying any general principle as regards entitlement to costs, or by way of stating any general proposition on the matter, but merely to reflect the assistance rendered by counsel for Island Point and Mr. Ungar, and having regard to the unique circumstances of the case. The court is not minded, however, to trouble the costs order made by the trial judge. In the circumstances costs should be assessed unless agreed within 21 days.

  Re Times Life Assurance and Guarantee Company (1870) L.R.5 Ch. App. 381, considered.

GEORGE-CREQUE, J.A.

1 This appeal arose from the decision of the trial judge of the Commercial Division whereby he dismissed the appellant's ("TCB") originating application for the appointment of liquidators in respect of the 1 ^st respondent ("Island Point"). The originating application was brought pursuant to s. 162(a) of the Insolvency Act 1 ("the Act") of the Virgin Islands, grounded on what was said to be an unsatisfied statutory demand, no timely application having been made to set it aside pursuant to s.156 of the Act. The learned judge, in essence, concluded that TCB's statutory demand was bad and further found that the evidence adduced in support of the application did not in any event disclose any viable cause of action, whether in debt or otherwise, against Island Point. Accordingly, he exercised his discretion and dismissed TCB's originating application. He also made no order as to costs.

2 TCB's appeal against the dismissal of its application was heard by the court on 21 ^st May, 2010 and was dismissed with reasons to be given later. Island Point and the 2 ^nd respondent ("Mr. Ungar") also cross-appealed and the decision of the court was reserved. This judgment now sets out the reasons for the dismissal of TCB's appeal and addresses the issues raised by Island Point and Mr. Ungar in their cross -appeal.

The Background

3 A background summary is necessary for placing the matter into context:

• (a) On 29 ^th August, 2002, liquidators were appointed in respect of TCB, a bank registered in and operating out of the Cayman Islands.

• (b) Island Point is a company registered in the Virgin Islands but is said to be part of a group of companies called the Velox Group said to be operating in Latin America. Island Point is also said to be wholly owned by and is the sole asset of Tarbet Trading S.A. ("Tarbet"), a Uruguayan company.

• (c) In the course of liquidation, records of TCB were retrieved and reviewed. These records showed a debt of US$5,650,030.10 as being owed by

  Tarbet to TCB. Tarbet's balance sheet as at February, 2001 showed TCB as a creditor of Tarbet in the sum of $5,683,596. Tarbet's balance sheet showed an entity called 'Island Point' as being a debtor of Tarbet in a sum in excess of a million dollars.

• (d) Island Point is said to hold land in Brazil apparently acquired for in excess of $4million.

• (e) From this information it was concluded or so the argument goes, that TCB had gratuitously and wrongly transferred those funds to Tarbet and that Tarbet had in turn transferred those funds to Island Point. On this basis, it was argued that TCB had a restitutionary claim as against Tarbet and similarly, via Tarbet, a restitutionary claim against Island Point.

• (f) On 5 ^th February 2008, TCB served what was said to be a statutory demand on Island Point for a debt of 5 million plus dollars said to be owing by Island Point to TCB by way of equitable restitution.

• (g) Under the Act as amended, Island Point is allowed 14 days from the date of service within which to apply to set aside the statutory demand. 2 That period expired before Island Point made its application on 28 ^th March, 2008.

• (h) The Act expressly states that the court may not extend time for making or for service of an application to set aside a statutory demand. [See s. 156(3)].

• (i) Island Point in any event, on 11 ^th April, 2008, discontinued its application to set aside the statutory demand. The debt asserted by TCB was not paid.

• (j) On 28 ^th August, 2008, TCB applied to liquidate Island Point based on its unsatisfied statutory demand and...