Jersey Unreported Judgments
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URL: http://www.bailii.org/je/cases/UR/2011/2011_189A.html
Cite as: [2011] JCA 189A
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> SO Holding v CDS3 and HM Viscount [2011] JCA 189A (29 September 2011) URL: http://www.bailii.org/je/cases/UR/2011/2011_189A.html Cite as: [2011] JCA 189A |
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Désastre - application by SO Holding AG for a declaration in pursuance of Article 3 of the Bankruptcy (Désastre)(Jersey) Law 1990.
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Before : |
The Hon. Michael J. Beloff, Q.C., President;
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Between |
SO Holding AG (formerly known as "SO Finance AG", formerly known as "Horizon21 Private Equity Holding AG") |
Appellant |
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And |
CDS3 Limited (formerly known as "Capital Dynamics Services III Limited") |
First Respondent |
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And |
HM Viscount |
Second Respondent |
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Application by SO Holding AG for a declaration in pursuance of Article 3 of the Bankruptcy (Désastre)(Jersey) Law 1990.
Advocate A. D. Hoy for the Appellant.
HM Viscount.
JUDGMENT
Jones ja:
1. The appellant is a private limited company incorporated in Switzerland. By sale and purchase agreement, dated 1 June and 5 July 2007 ("the Agreement"), the appellant sold its holding of 310,000 registered shares in a company called Capital Dynamics Holding AG ("CDH") to Capital Dynamics Employee Participation Limited ("CDE"), for the sum of US$25 million, to be paid in two equal instalments. Mr Thomas Kubr, the owner of a majority of the shares in CDH and having an address in Switzerland, was a party to the agreement, in terms of which he undertook to enter into a share pledge and pledge holder agreement, providing for 310,000 of his CDH shares to be pledged to the appellant as security for payment of the second instalment. The pledge was duly given on 30 November 2007, and the pledged shares were deposited with a pledge holder in Switzerland. On the same date, the appellant, CDE, Mr Kubr and Capital Dynamics Services III Limited ("the debtor company") entered into an Amendment Agreement, whereby it was agreed that all of CDE's rights and obligations under the Agreement would be assumed by the debtor company. The debtor company is a private limited company, incorporated in Jersey under the Companies (Jersey) Law 1991. By 30 November 2007, as a result of a restructuring exercise which had been carried out by CDH, the shares to be sold and pledged under the Agreement numbered 3,100,000. The Agreement, the Amendment Agreement, and the share pledge and pledge holder agreement provide that they are governed by and are to be construed in accordance with Swiss law, and that certain Swiss courts have exclusive jurisdiction in the determination of disputes.
2. Payment of the first instalment was duly made. Payment of the second was due by 30 June 2010. By letter, dated 23 June 2010, the debtor company, now called CDS 3 Limited, advised the appellant that it was not currently in a position to make payment, and could not give any indication of whether or when it would be able to pay.
3. By letter of 10 March 2011, addressed to the Viscount, the appellant applied to have the property of the debtor company declared en désastre. The application was made by way of a demande, an affidavit and a statement of the debtor company's assets and liabilities, so far as known to the appellant, together with supporting documentation, all as required by the provisions of the Bankruptcy (Désastre) Rules 2006. Thereafter, as a result of an exchange of correspondence between the appellant's solicitors on the one hand and the Viscount's department and its solicitors on the other, the appellant undertook:-
(i) To give notice of, and formally convene the debtor company to the hearing of the appellant's application, so that it could be held inter partes;
(ii) To provide a full indemnity for the Viscount's fees and disbursements; and
(iii) To place the Viscount in sufficient funds to enable him to initiate all procedures and activities consequent upon a declaration.
4. On 3 June 2011, the Royal Court heard the application, unopposed, the debtor company having chosen not to appear or be represented. At the conclusion of the hearing, the application was refused. The appellant appealed and, on 28 September 2011, the matter came before this court. The following day, we allowed the appeal. Our reasons for so doing are now explained.
5. The source of the Royal Court's power to make a declaration en désastre is to be found in the Bankruptcy (Désastre) (Jersey) Law 1990. Article 6(1) provides as follows:-
6. The use of the word suggests that, after considering the application, the court has a discretion whether or not to grant a declaration. The court below construed the Article in that way, and the appellant does not challenge the Royal Court's interpretation. There is, however, a difference of emphasis between them, to which I shall return.
7. Read in isolation, the terms of Article 6(1) might be thought to imply that the determination of an application for a declaration is a two-stage process - (i) consideration of the application and the affidavit and (ii) exercise of discretion. Reading the relevant provisions of the Law as a whole, however, it is clear that there are three stages. After consideration of the prescribed material, the court may not move on to determine how its discretion is to be exercised, unless and until it is satisfied on that material that two conditions precedent are met. These are:-
(i) that the person whose property is the object of the application is insolvent (and is, therefore, a "debtor" as defined by Article 1); and
(ii) that the creditor has a valid liquidated claim against the debtor. (Article 3(1))
8. The court below, correctly in my judgment, and for the reasons which it gives, expresses the view that In the full judgment of this court in In re Baltic Partners Ltd, which is reported in note form at [1996] JLR N 1C, Southwell JA, with whom Collins and Nutting JJA agreed, made the following observation:-
9. I reproduce that passage in Southwell JA's judgment, not because I believe that it is necessary to have recourse to the common law (rather than the statute) in order to identify what a creditor must establish at the second stage, but because it demonstrates that the statutory scheme is firmly rooted in the common law.
10. If the court is not satisfied that the person in respect of whose property the declaration is sought is insolvent or that the creditor has a valid liquidated claim against that person, the court has no jurisdiction to make the declaration. In these circumstances, no question as to the exercise of a discretion will arise. On that analysis, I agree with the view expressed by Birt, Deputy Bailiff in Bridgen and Ports Trading Limited [2005] JRC 073, [2005] JLR N 21, in the following terms:-
11. The court below held that the circumstances of this case were such that it had jurisdiction to make a declaration as sought and that it had a discretion as to whether or not to do so. At that point, however, in my opinion the Royal Court fell into error in two respects. First, it held that, in a case such as this, where the applicant is the only known creditor, the court should make a declaration only if there is good reason to do so or if to do otherwise would cause an injustice to the applicant. (Draft judgment, paragraphs 22 and 23) Second, in determining how to exercise its discretion, it took into account the burden of work that the Viscount might have to shoulder if the declaration were made. (Draft judgment paragraph 25) The first was, in my view, an error of law, and the second involved errors of principle and fact. To explain my reasons for so concluding, it is necessary to consider the historical context in which the désastre jurisdiction sits.
12. In Re Overseas Insurance Brokers Ltd. (1966) JJ 547 Le Masurier, Bailiff said this:-
13. The Bailiff defined the scope of a désastre, as developed up to 1966, in these terms:-
14. In its 1998 Consultation Paper on dégrèvement, the Jersey Law Commission describes the désastre jurisdiction as having developed to meet changing social and economic conditions. Prior to its introduction, a creditor was at liberty to obtain an Act of Court authorising the sale of the debtor's moveables, the proceeds of which would be applied to the satisfaction of the debt owed to that creditor. If there were several creditors and not enough assets to satisfy them all, the first creditor to effect distraints would gain an advantage over the others. In a small business community, at a time when an individual debtor was likely to have relatively few creditors, all of whom would probably be aware of his deteriorating financial position, that was not regarded as a serious problem. The situation changed, we are told, with the growth of commerce in the 18th century. Not only might one trader have a great number of creditors, but trading reverses could cause a business to fail within a very short timescale. In these circumstances, the advantage that one creditor might gain over others by moving quickly was no longer regarded as tolerable. To address the problem, a procedural solution was developed. If satisfied that a debtor's affairs were in a state of collapse (en désastre), the court would hear all actions against him together, thus creating equality among creditors. This hearing came to be known as the passation des causes. Thereafter, the Viscount was responsible for sequestrating the debtor's goods and selling them for the benefit of the creditors.
15. The désastre procedure was codified in 1964 by the Royal Court ("Désastres")(Jersey) Rules of that year ("the 1964 Rules"). At that time, the declaration en désastre was made by the creditor or the debtor. The court's function was to receive and to confirm the declaration. (See, e.g. In re the désastre of Barker 6 Sep 1984 [1991] JLR N 2A, per Tomes, Deputy Bailiff) The 1964 Rules brought a significant change to the désastre process. The passation des causes, described by the Law Commission as , was expressly abolished. (Rule 2) When the goods of a debtor were declared en désastre, the Rules required the Viscount to publish a notice in the press, giving every creditor a specified period of time within which to file a statement of claim. Provision was made for the claims to be investigated and adjudicated upon by the Viscount, with a right of appeal to the court. The 1964 Rules did not prescribe the form or content of the application. Once the procedure was in the hands of the Viscount, however, he might require creditors to produce such documents as may be necessary to substantiate his claim and/or an affidavit of proof of debt. (Rule4(1)) Rule 4(2) provided that such affidavit . It was clearly envisaged that there may be foreign creditors who would wish to enter the process.
16. The 1964 Rules were amended by the provisions of the Royal Court ("Désastres")(Amendment)(Jersey) Rules 1966 ("the 1966 Rules"). Significantly, a new Rule was inserted in the following terms:-
17. The terms of the new Rule - that the court may refuse to receive the declaration 'en désastre' unless certain conditions are met - might arguably be taken to suggest that, provided that they were met, confirmation would automatically follow, by reference to the principle expressio unius est exclusio alterius. I need not consider that possibility further, however, because that Rule was superseded by the provisions of the 1990 Law.
18. The 1964 Rules and the 1966 amendment were revoked and re-enacted by the provisions of the consolidated Royal Court Rules 1968. The Rules now in force are the Bankruptcy (Désastre) Rules 2006.
19. In the years preceding the enactment of the 1990 Law, it was recognised by the Royal Court that, not only had the désastre jurisdiction evolved, but that it was still evolving. In the Re Overseas Ins. Brokers Ltd. case, the Bailiff made the following observation:-
20. Later in his judgment, the Bailiff discussed remedies which were available to creditors before "the evolution of the désastre". (Page 552) In the course of doing so, he referred to the case of Smith v. d'Auvergne 1886, Ex. 210, p. 492 and continued as follows:-
21. The evolutionary theme was adopted by the Royal Court in its analysis of the désastre process in Jobas Limited v. Anglo Coins Limited and 14 Others [1987-88] JLR 359. At page 365, Tomes, Deputy Bailiff said this:-
23. Returning to circumstances of this case, when the application for a declaration was heard in the Royal Court, the appellant was the only known creditor of the debtor company. During the course of the hearing, there was some discussion about whether a declaration of désastre is only available to a creditor if it is shown that he is, or may be, one of a number of creditors. The Royal Court resolved that issue in these terms:-
24. The difference in emphasis between the Royal Court's recognition that it has a discretion as to whether to grant or refuse a declaration, and the approach adopted by the appellant on that matter can be seen from the following passage in the appellant's written contentions:-
25. If I have correctly understood the Royal Court's reasoning and the appellant's contentions, the difference between them amounts to this: in the Royal Court's view, where there is only one known creditor, the court looks to him to persuade it either that there is "good reason" for the grant or that, if the declaration is not made, the creditor will suffer injustice: the appellant's position is that, once the jurisdictional door is open, the Royal Court must make the declaration sought; alternatively it should do so unless there is good reason not to do so.
26. In my judgment, with respect to the Royal Court, its formulation should be rejected. The Royal Court cites no authority in support of the proposition that the exercise of its discretion should be fettered in the way suggested, nor is anything to be found in the 1990 Law to support it. If it were a feature of the common law that a creditor is required to identify other creditors, or risk having his application for a declaration refused, it might be expected that there would be some reference to or indication of that requirement in the decided cases or the Law. Nor, in my view, is there any reason in principle why the court should approach the exercise of its discretion as held in the court below. The Royal Court suggests that other methods of execution of a judgment debt might cause less administrative expense to the public purse. The court has power, however, to protect the public purse. Article 5(2) of the Law provides, An example of the application of that provision is to be found in In the matter of Buchanan Smith Limited (Désastre Application) in which the Royal Court granted a declaration ([2008] JRC 174)
27. The constraint which the Royal Court would place on the exercise of its discretion effectively adds another to layer to the conditions which an applicant would have to meet in order to qualify for the grant of a declaration. Not only must the creditor come to court with evidence of a liquid debt and of the debtor's insolvency, he must also obtain evidence of the existence of another creditor or be able to establish "good reason" for the declaration. The practical consequence of the Royal Court's approach would be that, in order to avoid risking the loss of the advantages which a declaration brings, by failing to establish good reason, it would become necessary for applicants to take steps to discover the existence and identity of other creditors. Before applying for a declaration, they would thus have to do precisely what it is the function of the Viscount to do after a declaration is granted. It appears that, at common law, that was not a burden which the creditor seeking confirmation of a declaration en désastre was required to shoulder. In Re Overseas Insurance Brokers Ltd, in his exposition of the history of the désastre, the Bailiff said this:-
28. Further, if a creditor in the position of the appellant were to choose an alternative form of enforcement as suggested by the court below, that could operate to the disadvantage of other, unknown, creditors who were unaware of the insolvency of the debtor and over whom the enforcing creditor would establish priority. In my view, that would defeat a central purpose of a désastre which is among creditors.
29. In his written contentions for the appellant, in support of his argument that the fact that there is only one creditor , Advocate Hoy cited two cases which were not discussed during the hearing in the court below, although one of them, Re Rosedale (J.W.) Investments Limited [1995] JLR 123, is considered in the Royal Court's draft judgment. That case concerned an application to the Royal Court by a single creditor to declare the goods and effects of an individual and five companies to be en désastre. Neither the grounds of opposition to the application nor the arguments of the parties are recorded in the judgment. It appears from the narration in the headnote, however, that the opposition to the application rested on a number of grounds, one of which was in the following terms:-
30. As we have seen, Article 3(1)(a) of the Law requires an application for a declaration of désastre to be made by Article 1(1) of the 1990 Law defines as and means The use of the expression gave rise to what the Royal Court described as . The and its solution were described by the court in the following passage, at page 131:-
31. The court held that the debtor was insolvent, on the view that and continued:-
32. Under the heading , the which the Royal Court then considered was whether or not to grant an adjournment to allow the individual debtor to pay the debt which lay at the heart of the application. The question how its discretion might be exercised was solely concerned with that issue. In the result, the court declined to grant the adjournment, and, instead, granted the declaration.
33. It is clear from the judgment why the Royal Court rejected the argument that an application for a declaration could not be granted unless there was more than one debt. The court does not give its reasons, however, for rejecting the submission that, since the purpose of the Law was to prioritize the debts of multiple creditors, there has to be more than one creditor. It does not explain, in terms, how the problem of the was resolved. The court appears to have considered that the answer lay in the submission for the applicant that The court does not explain why that may have removed the difficulty, but it might be said that the debtor's preference of other debtors over Rosedale had created an inequality that a declaration of désastre would rectify.
34. In any event, in my view the Rosedale case is of limited assistance in determining the issue which is before this court. The Royal Court does not appear to have applied its mind in that case to the question whether, and if so how it should exercise its discretion when deciding whether or not to grant the application.
35. The second case, Giles v Forrest 1999/106 offers a little more help. Hamon, Deputy Bailiff presided, as he had done in Rosedale. Unlike the position in Rosedale, where it was known that there was only one creditor, in Giles, as here, there was only one known creditor. The debtor opposed the application on the express ground that The argument that may have been advanced in support of the submission is not, unfortunately, recorded in the judgment, and the point is dealt with shortly in the following passage at page 2:-
36. The writer of the headnote has managed to put a construction on the judgment in Rosedale which eludes me, but the Royal Court was content to adopt it. In common with Rosedale, the case sheds no light on the question of how the exercise of the court's discretion is to be approached. What can be said, however, is that in neither case does the Royal Court suggest that, where there is only one known creditor, the court is in any way restricted in the exercise of its discretion.
37. How, then, should the court approach the exercise of its discretion? In support of its submissions, the appellant prayed in aid the English cases of Re Demaglass Holdings Ltd [2001] 2 BCLC 633, Bowes v Directors of Hope Life Insurance and Guarantee Co (1865) 11 HL Cas 389 and Harrison and another v Seggar [2005] EWHC 411 (Ch). These cases appear to provide support for the appellant's line of argument, but they were concerned with the application of certain provisions of the Insolvency Act 1986 and the Companies Act 1862, and I would be reluctant to import any principle which might be derived from them when applying the terms of a Jersey Law which sits in a common law setting which is special to Jersey.
38. Guidance on the exercise of discretion in désastre proceedings is to be found in Bridgen and Ports Trading Limited [2005] JRC 073. In that case, the Royal Court refused an application for a declaration on the ground that it was not satisfied that the applicant's status as a creditor was certain. (Paragraph 20) The Deputy Bailiff, Birt, went on in his judgment, however, to consider what the court would have decided if it had concluded that the applicant was a creditor, . (Paragraph 21) I have quoted part of the relevant passage at paragraph 10 above, but, for convenience, I repeat it here. Under the heading the Deputy Bailiff said this:-
39. In my view, the logic of that approach, which I respectfully endorse, is that where, as here, an applicant qualifies for the grant of a declaration by meeting the criteria specified in the 1990 Law, the question for the court will normally be whether there is anything in the facts and circumstances of the particular case which militates against the grant. If not, it will normally grant the application. I acknowledge that, in the Bridgen case, the indications were that there were unpaid creditors other than the applicant. Once jurisdiction to grant a declaration is established in accordance with the terms of Article 6 of the 1990 Law, however, it seems to me to be unsatisfactory to have two quite different approaches to the exercise of the court's discretion depending on whether the existence of other creditors is or is not known. In exercising its discretion in the way which I hold that it should, the court remains free to refuse to grant a declaration where the facts and circumstances of a particular case justify refusal.
40. Having dealt with the discretion point as a matter of principle, the court below gave the following reasons for refusing this application, having regard to the circumstances as known to the court:-
41. The Viscount's department has a large number of functions within the context of the court system, but central to them is its responsibility for ensuring that the decisions of Jersey's courts are carried out. It is funded for that purpose and, as noted in paragraph 26 of this judgment, Article 5(2) of the 1990 Law empowers the court to ensure that the Viscount is fully indemnified. As to the nature and extent of the work which the Viscount may have to do, a similar point was raised by the Viscount in the Re Overseas Insurance Brokers Ltd case, in opposing the application for confirmation of a declaration. He contended that the principal assets of the corporate debtor were monies due by a private individual and a loan account due by an associated company, and argued that, if the désastre procedure were to go forward, he would have to collect these monies. In rejecting that submission, the Royal Court said this:-
In my view, these words are of equal application here.
42. At the conclusion of the hearing in this court on 28 September, we were of the view that the Royal Court misdirected itself with regard to the principles in accordance with which its discretion had to be exercised and that it took into account matters which it ought not to have done. Looking at the matter afresh, we were of the view that we should grant the application to declare the property of the debtor company en désastre and duly so ordered. (See Abdel Rahman v. Chase Bank (C.I.) Trust Co. Ltd (1984) J.J. 127)
43. Coupled with its appeal, the appellant made an application to adduce fresh evidence, to the effect that there are now known to be three other creditors of the debtor company. In light of our disposal of the appeal, it was not necessary for us to address that matter.
44. The Viscount appeared in person at the hearing before us. We were greatly assisted by the insights provided by him into the historical context in which the modern désastre jurisprudence lies, and we are very grateful for his help. During the course of the discussion, we were informed that the Viscount's personal intervention was prompted by what had appeared to him to be a desire on the part of the appellant to seek costs against his office. Advocate Hoy explained that that was not his intention. Further, he conceded that the Viscount's costs in the appeal should be awarded against the appellant, and we so ordered.
THE PRESIDENT:
45. I agree and have nothing to add.
STEEL JA:
46. I agree.