Vijay Kirtilal Mehta Claimant v (1) Rajesh Kishor Mehta (2) Lunghin Capital Ltd Respondents

• Jurisdiction: British Virgin Islands
• Judge: Joseph-Olivetti J.
• Judgment Date: 10 November 2006
• Neutral Citation: VG 2006 HC 12,[2006] ECSC J1110-1
• Court: High Court (British Virgin Islands)
• Docket Number: BVIHCV2006/0177
• Date: 10 November 2006

[2006] ECSC J1110-1

IN THE HIGH COURT OF JUSTICE

BVIHCV2006/0177

BVIHCV2006/0176

BVIHCV2006/0178

Between:

Vijay Kirtilal Mehta

Claimant

and

(1) Rajesh Kishor Mehta

(2) Lunghin Capital Limited

Respondents

Between:

Vijay Kirtilal Mehta

Claimant

and

(1) Rajesh Kishor Mehta

(2) Wallacery Profits Limited

Respondents

Between:

Vijay Kirtilal Mehta

Claimant

and

(1) Rajesh Kishor Mehta

(2) Darlingfort Company Limited

Respondents

Appearances:

Janet Giret Q.C. with Michael Fay, Claire-Louise Wiley of WSmiths for the Claimant

Francis Tregear Q.C. with Christopher Young, Keisha Durham of Harney, Westwood & Riegels for the First Respondents

(Company law - appointment of liquidator -just and equitable ground - claimant one of two directors and shareholders of three companies - directors unable to hold meetings or to co-operate in the management of companies - whether companies deadlocked -whether conduct of claimant causative of rift between the two directors so as to preclude the court from granting relief on the unclean hands principle - whether alternative remedy available and conduct of claimant unreasonable in seeking relief- The Insolvency Act 2003, as amended)

Joseph-Olivetti J.

1 Case law is replete with stories of internecine warfare within wealthy families 1 and the lengths they will go to seemingly lavish their fortunes on pursuing costly litigation among themselves, often on distant shores far removed from the source of the problem, rather than on each other. The reality behind this application for the liquidation of three BVI companies ("the BVI Companies") is U.S.$40M+ and an uncle's and nephew's inability to, both figuratively and metaphorically, no longer be able to sit at the same table and break naan bread together.

2 The Court is called upon to deal with three identical applications each in respect of three companies all pertaining to applications to liquidate the said companies. No separate issue arises in relation to any of the individual companies and counsel agreed that it was fitting that the applications be heard together and they were. It is noted, not surprisingly in the circumstances, that although properly served none of the companies were represented or took any part in these proceedings.

The Applications

3 The applications 2 in respect of each company (collectively "the BVI Companies") are:-

• a. an application for the appointment of a provisional liquidator ("PL"), or alternatively,

• b. an application for the appointment of a liquidator

• c. an application by the First Respondent, Mr. Rajesh Kishor Mehta ("Mr. Rajesh") to strike out both of the foregoing applications.

Relevant Procedural Background

4 This will help to put the applications in perspective.

5 11 ^th July 2006 -applications by the Claimant, Mr. Vijay Kirtilal Mehta ("Mr. Vijay):-

• (a) Originating Notice of Application for the appointment of a liquidator;

• (b) Ordinary application for the appointment of a provisional liquidator ("PL")

• (c) Notice of application for directions.

6 24 ^th July, 2006 - Consent order on the hearing of the application for appointment of PL and the application for directions.

7 The consent order was made expressly without prejudice to Mr. Rajesh's liberty to apply to stay the substantive application. It was to the following effect:-

• (a) adjourning the PL application generally (but with liberty to restore);

• (b) requiring Mr. Rajesh to file and serve his evidence in reply to the substantive application by 15 ^th September, 2006; (It is noted that Mr. Rajesh filed his affidavit on 4 ^th October, outside the time limited for so doing and without leave, but no issue was taken with that).

• (c) listing time for Case Management Conference on first available date after 25 ^th September, 2006;

• (d) dispensing with the need to advertise the substantive application;

• (e) reserving costs to the trial judge.

8 It is significant that the initial applications for the appointment of a PL were made on two grounds. The first was that the registered agents of the BVI Companies, all international business companies ("IBC's") incorporated in the British Virgin Islands ("the BVI") had resigned and that Mr. Rajesh was refusing to co-operate with Mr. Vijay in adopting the necessary resolutions to appoint a new registered agent. This is a matter of import as under the IBC Act an IBC is liable to be struck off the register if it does not have a registered agent. 3

9 The second ground in essence was that the BVI Companies were hopelessly deadlocked and that the BVI Companies' assets were at risk as Mr. Rajesh had alleged in the Hong Kong Proceedings (as hereafter defined) that Valuable Resources Ltd, ("VRL") the majority of whose shares were held by the BVI Companies, was trading with the Settlement Monies (as hereafter defined) and that Mr. Vijay had no information about this or the whereabouts of the Settlement Monies. 4

10 28 ^th September 2006 - renewed applications by Mr. Vijay for the appointment of a PL on same grounds as those of the 11 ^th July applications save those relative to the registered agents. 5 (This was because the parties had agreed to appoint agents subsequent to the making of the consent order).

11 6 ^th October 2006 - ordinary applications by Mr. Rajesh to strike out or stay the Originating Application or alternatively for directions pursuant to para. 4 of the consent order. 6

12 12 ^th October 2006 - ordinary applications by Mr. Vijay for final relief on his Originating Applications of 11 July for the appointment of a liquidator.

The Form of the Evidence

13 The bulk of the evidence is contained in the following affidavits:-

• a. Mr. Vijay's first - 9 ^th July - see Trial Bundle Tab 10;

• b. Mr. Vijay's second - 14 ^th July - see Tab 13;

• c. Mr. Rajesh's first - 4 ^th October - see Tab 15;

(Counsel for Mr. Rajesh painstakingly analysed this evidence thus:-"a great volume of evidence has been sworn in this case. Vijay's initial application was supported by a lengthy affidavit sworn on the 9 ^th July 2006 and 883 pages of exhibits. Rajesh's affidavit of 16 ^th October 2006 is on an equal scale."

14 In addition, there are other pro forma affidavits dealing with the identity and consent of the proposed PL and the affidavit of Mr. Robert Clarke, solicitor of Messrs Deacons of Hong Kong, of 27 ^th October with the transcript of the proceedings on 21 ^st September 2006 in the HK Proceedings (as hereinafter defined). This was filed on behalf of Mr. Vijay.

15 I mention here that both learned counsel filed skeleton submissions on which they elaborated at the hearing. These were of immense help and I am grateful.

Two preliminary points on procedure

16 I shall first consider what is in effect two preliminary points on procedure taken on behalf of Mr. Rajesh although they were made during the course of his Counsel's response. Learned Queen's Counsel for Mr. Vijay, Ms. Giret, had submitted that the court should grant the final relief prayed for (the appointment of a liquidator) as it was readily apparent from the solicitors' correspondence between the parties exhibited to Mr. Vijay's second affidavit that the BVI Companies were hopelessly deadlocked. Counsel contended that accordingly there was no need to hold a lengthy trial and that the court should deal with the matter in a summary manner on the affidavit evidence as was done in Blythe v. Sams 7.

17 Learned Queen's Counsel, Mr. Tregear, for Mr. Rajesh objected to that application during the course of his arguments. In summary he said that the provisions of CPR 2000 Part 15 which provide for summary judgment were expressly excluded from insolvency proceedings by the Insolvency Rules 2005 Rule 4.2. And, further that it would be a grave injustice to Mr. Rajesh if he were not given an opportunity to contest the serious allegations of fraud leveled at him by Mr. Vijay in these proceedings. He also said that there were issues to be determined in considering final relief in particular whether or not Mr. Vijay had clean hands within the concept explained by Lord Cross in Ebrahimi v. Westbourne Galleries 8 and applied and explained in Vujnovich v. Vujnovich 9 and that these called for a full trial.

18 Counsel however conceded that if Mr. Vijay withdrew the allegations of fraud then perhaps Mr. Vijay might have a case for the appointment of a PL with very limited powers of making inquiries of VRL.

19 Mr. Tregear submitted secondly, that, by section 170(3) of the Insolvency Act 2003, leave is required before a member can apply for the appointment of a PL and that no leave had been sought or obtained here.

20 On the aspect of leave, Ms. Giret responded that the consent order of the 24 ^th July gave Mr. Vijay liberty to renew his applications for a PL and that that was sufficient. On the

issue of summary judgment, Ms. Giret, in brief, submitted that she was not asking for summary judgment as envisaged by CPR 15 which she agreed did not apply to insolvency proceedings but simply that the court exercise its case management powers under CPR 2000 Part 26 to find that there was sufficient evidence before it to determine that the BVI Companies were hopelessly deadlocked and that a decision on the issue of fraud was not necessary and so dispense with the need for a prolonged and costly trial. Counsel submitted that the English High Court in Blythe adopted that approach using rules with similar effect to our case management provisions and was commended by the Court of Appeal and urged us to follow suit

Decision on the procedural points

21 First, the question of leave. Mr. Tregear is correct that under Section 170(3) of the Insolvency Act leave to apply for a PL is necessary where the application is being made by a member and he is also correct that no application for leave was made. I note that this point was not taken as a preliminary point. Rather, counsel made it during the...