CHANCERY DIVISION
COMPANIES COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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IN THE MATTER OF BANGLA TELEVISION LIMITED (IN LIQUIDATION) AND IN THE MATTER OF THE INSOLVENCY ACT 1986 ROBERT VALENTINE THE LIQUIDATOR OF BANGLA TELEVISION LIMITED (In Liquidation) |
Applicant |
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(1) BANGLA TV LIMITED (2) FEROZE KHAN (3) SYED SAMADUL HAQUE |
Respondents |
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Hearing dates: 25th June 2009
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Crown Copyright ©
THE DEPUTY JUDGE:
(1) At the time of the BSA the Company was hopelessly insolvent. The effect of the BSA was to extract the business and assets from the Company to be carried on, shorn of its liabilities, in a new "phoenix" company, BTVL.(2) The relief sought by Mr Valentine was resisted by all of the Respondents including BTVL at the time when the hearing began before the Deputy Judge. The position changed rapidly in the course of the hearing so that BTVL accepted that the sale constituted a transaction at an undervalue, as did Mr Khan, who also accepted that an order against him under section 214 of the Act was appropriate.
(3) BTVL and Mr Khan maintained that as against the value of the assets (which were agreed to have been £250,000 on the basis of an independent valuation in September 2003), they should be given credit in any order for a number of payments which the Deputy Judge mentioned. He specifically recorded that the hearing before him was in consequence focused upon that argument.
(4) Mr Haque's solicitors had come off the record a few months prior to the hearing. Mr Haque was neither represented nor present at the trial, save that at an adjourned hearing he did attend Court when he accepted that the transaction was at an undervalue, but did not suggest that credit should be given for any payments. He did not participate otherwise in the trial.
(5) The cases advanced by BTVL and Mr Khan to the effect that there should be credit in respect of alleged payments were rejected.
"30. As regards [BTVL], the choice appears in practice to lie between an order setting aside the transaction and one requiring [BTVL] to compensate the Company for the loss occasioned by the transaction. Before me, [Mr Valentine] reserved his position and, though the topic was broached, it was not the subject of systematic submissions. Since then I have been informed that [Mr Valentine] intends to seek an order setting aside the BSA transaction and that the Respondents oppose such relief. That is not a matter which I can determine in this judgment or in advance of hearing submissions, and probably receiving further evidence, on the point.
31. The relief sought against Mr Khan and Mr Haque is an order that they make such contribution to the Company's assets as the Court thinks proper. It is unclear to me what, if anything, this would entail in practice if the transaction were to be set aside, as requested by the [Mr Valentine], and this point will also require further submissions and probably evidence.
32. If the Court were to decide against setting aside the transaction, further questions would arise on which submissions and probably further evidence would be required. Without any attempt to be exhaustive, these would appear to include whether and how any improvement or degeneration of the business in the hands of [BTVL] over the past 3 years should be determined and reflected, and the financial consequences of any such change.
33. In short, this litigation is very far from terminated and may demand significant further expenditure in terms of time and cost. The parties and those financing them, would be wise to reflect collectively on the implications of this depressing conclusion."
THE RES JUDICATA ISSUE
Background
"It is declared that the Second and Third Respondents engaged in wrongful trading under section 214 of the Insolvency Act 1986 by causing the assets of Bangla Television Limited to be transferred to Bangla TV Limited under the Business Sale Agreement dated 9th September 2003. The issue of what (if any) contribution the Second and Third Respondents should be declared liable to make to Bangla Television Limited's assets shall be adjourned with liberty to restore."
"The issue of whether the Second and Third Respondents pursuant to section 214 of the Insolvency Act 1986, should be ordered to make any, and if so, how much contribution to the Company's assets, should be adjourned with liberty to restore."
"(1) As I indicated in an earlier communication, the order should cover the point which actually formed the subject of the hearing before me, namely whether the Defendants were entitled to a "credit". Formally, as I summarised it in paragraph 21 of the judgment, the contest was whether the case fell under section 238(4)(a) or 238(4)(b) of the Insolvency Act. I therefore consider that the declaration should take the form proposed by Mr Clegg as item (1) of his draft order.
(2) The question of wrongful trading received little discussion before me, and I do not think it necessary to address it in my judgment. I do not make the order proposed by Mr Clegg as item (2).
(3) I do not approve the proposal by either Mr Clegg or Mr Gibbons as to the order re further directions. I shall only order that further directions as to the conduct of the case be sought from the Master (i.e. not from me or any other judge)."
Submissions on behalf of Mr Khan
(1) The Deputy Judge expressly did not make a declaration as to wrongful trading, and did not make any order adjourning the issue arising under section 214.(2) In the light of the Deputy Judge's decision not to make a declaration as to liability under section 214, Mr Valentine could do one of three things. First he could accept the decision of the Deputy Judge. Secondly he could apply to re-open the consideration of the relief under section 214, and thirdly he could appeal the decision not to make a declaration or adjourn the issue.
(3) Mr Valentine accepted the decision of the Deputy Judge. That decision, providing that all further matters were to be dealt with by the Registrar and not a Judge, did not envisage that the Originating Application would be re-opened to have a Judge try the section 214 claim.
(4) Since Mr Valentine had accepted the decision of the Deputy Judge, he could not now re-open issues under section 214.
(5) The directions order made by the Deputy Judge was concerned only with issues connected with section 238 and not the grant of any other relief.
(6) The Court could have ordered contribution against the Respondents under section 214, and refrained from quantifying it, making it clear that any issue of quantum was to be dealt with on a later occasion. This course was not adopted.
(7) In all the circumstances, all matters concerning section 214 were res judicata, and it would be an abuse of process for them to be re-opened.
(8) This issue arises upon an application for summary judgment, so that I must be satisfied that there is no real prospect of Mr Khan's successfully defending the claim made by Mr Valentine on the basis of the plea of res judicata or abuse of process, and I must also be satisfied there is no other compelling reason why the case should be disposed of at trial in relation to that issue. Further, if the case were to proceed to trial, the Court would be likely to have the benefit of additional material, such as skeleton arguments which had been before the Deputy Judge.
Submissions made on behalf of Mr Valentine
Decision
(1) At trial, as is demonstrated by the passages in the judgment and the subsequent ruling which I have cited above, the focus was upon the issue of whether BTVL and Mr Khan should be given credit for a number of alleged payments. The Deputy Judge did not consider himself able on the material before him to decide whether (1) to make an order setting aside the BSA transaction, or (2) to make an order requiring BTVL to compensate the Company for loss occasioned by the transaction. He considered that further submissions and evidence were likely to be required.(2) The Deputy Judge did not rule that there should be no order under section 214, but only that the order which he made should cover the limited point which he had tried. When giving his decision on the form of order on 24th October 2006, the Deputy Judge recorded that the question of wrongful trading had received little discussion before him, and he did not think it necessary to address it in his judgment. When saying that he was not making the proposed order in relation to section 214, I do not consider he was suggesting that there should never be such an order made, only that since he had not tried that aspect of the case, it was inappropriate for him to make the order sought.
(3) On Mr Khan's part it had been accepted that an order under section 214 was appropriate, as was recorded in paragraph 4 of the judgment handed down on 14th July 2006. Against that background it would be very remarkable if the Deputy Judge intended to exclude any possibility of such an order's ever being made, and had he so intended I would have expected him to make it clear in express terms. It is noteworthy that Mr Khan's then counsel clearly did not entertain the view that what was disposed of at trial was exhaustive of all forms of relief, including an order under section 214. As the history demonstrates, he contemplated that the Court might make an order under the section. This, too, suggests that those who participated in the trial realised that what was being conducted was not an exhaustive enquiry into forms of relief that might be available; the trial dealt with only part of the case.
(4) Contrary to Mr Moraes' submission, the Deputy Judge did not decide that all further matters were to be dealt with by a Registrar and not a Judge. What he decided was that further directions as to the conduct of the case be sought from the Registrar. Such an order enabled the Registrar to give directions for trial as to outstanding issues, including that any trial was to take place before a Judge.
"Litigants are not without scrupulous examination of all the circumstances to be denied the right to bring a genuine subject of litigation before the court …".
That observation was made in a case where an abuse of process was alleged in that the plaintiff in those proceedings had not brought an action against solicitors at the same time as the company, which he controlled, had done so. When he later issued proceedings against the solicitors, it was suggested that in those circumstances, those proceedings amounted to an abuse of the process of the court. Lords Goff of Chieveley, Cooke of Thorndon and Hutton expressly agreed with Lord Bingham's speech on the abuse of process point, and Lord Millett delivered a concurring speech. Lord Bingham, at page 23, referred to the well known passage in the judgment of Sir James Wigram V-C in Henderson v. Henderson 3 Hare 100, at 114-115:
"In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
A little later in his speech Lord Bingham said at page 30:
"It may very well be, as has been convincingly argued (Watt, "The Danger and Deceit of the Rule in Henderson v Henderson : A new approach to successive civil actions arising from the same factual matter" (2000) 19 CLJ 287 ), that what is now taken to be the rule in Henderson v Henderson has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
"... these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented.
In one respect, however, the principle goes further than the strict doctrine of res judicata or the formulation adopted by Sir James Wigram V-C, for I agree that it is capable of applying even where the first action concluded in a settlement. Here it is necessary to protect the integrity of the settlement and to prevent the defendant from being misled into believing that he was achieving a complete settlement of the matter in dispute when an unsuspected part remained outstanding.
However this may be, the difference to which I have drawn attention is of critical importance. It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. This latter (though not the former) is prima facie a denial of the citizen's right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953) . While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression. In Brisbane City Council v Attorney General for Queensland [1979] AC 411 , 425 Lord Wilberforce, giving the advice of the Judicial Committee of the Privy Council, explained that the true basis of the rule in Henderson v Henderson 3 Hare 100 is abuse of process and observed that it "ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation". There is, therefore, only one question to be considered in the present case: whether it was oppressive or otherwise an abuse of the process of the court for Mr Johnson to bring his own proceedings against the firm when he could have brought them as part of or at the same time as the company's action. This question must be determined as at the time when Mr Johnson brought the present proceedings and in the light of everything that had then happened. There is, of course, no doubt that Mr Johnson could have brought his action as part of or at the same time as the company's action. But it does not at all follow that he should have done so or that his failure to do so renders the present action oppressive to the firm or an abuse of the process of the court. As May LJ observed in Manson v Vooght [1999] BPIR 376 , 387, it may in a particular case be sensible to advance claims separately. In so far as the so-called rule in Henderson v Henderson suggests that there is a presumption against the bringing of successive actions, I consider that it is a distortion of the true position. The burden should always rest upon the defendant to establish that it is oppressive or an abuse of process for him to be subjected to the second action."
THE APPLICATION UNDER SECTION 214 OF THE INSOLVENCY ACT 1986
Background
"(1) Subject to subsection (3) below, if in the course of the winding up of a company it appears that subsection (2) of this section applies in relation to a person who is or has been a director of the company, the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company's assets as the court thinks proper.
(2) This subsection applies in relation to a person if—
(a) the company has gone into insolvent liquidation,
(b) at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and
(c) that person was a director of the company at that time;
but the court shall not make a declaration under this section in any case where the time mentioned in paragraph (b) above was before 28th April 1986.
(3) The court shall not make a declaration under this section with respect to any person if it is satisfied that after the condition specified in subsection (2)(b) was first satisfied in relation to him that person took every step with a view to minimising the potential loss to the company's creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken.
(4) For the purposes of subsections (2) and (3), the facts which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both –
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and
(b) the general knowledge, skill and experience that that director has.
(5) The reference in subsection (4) to the functions carried out in relation to a company by a director of the company includes any functions which he does not carry out but which have been entrusted to him.
(6) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. ..."
The submissions made on behalf of Mr Valentine
(1) BTVL's bank account was held with the Bank of Baroda. When the account was established Mr Khan was represented as being BTVL's Chief Operating Officer. This is not challenged in the points of defence; it is said merely that when Mr Mustafa Pasha, a director of BTVL, could not travel to London, arrangements were made for Mr Khan to sign cheques. Thus Mr Khan's description as Chief Operating Officer appears to be undisputed.(2) Mr Khan signed many cheques on behalf of BTVL. In his points of defence he said that he was unable to deal with that allegation until disclosure of the cheques referred to, but he has still not dealt with the allegation although he has had copies of the cheques concerned.
(3) Mr Khan represented himself to third parties as "CEO" for BTVL; this was not addressed in the points of defence.
(4) A great deal of BTVL's documentation including that relating to advertising contracts and invoices was dealt with in Mr Khan's name. Mr Khan admitted his authority to sign all such documentation.
(5) Mr Haque's name appeared on many of BTVL's invoices; this was not disputed by Mr Khan.
(6) VAT returns were signed by Mr Khan in the absence of Mr Pasha.
(7&8) Solicitors' bills for Mr Khan were sent to BTVL's address; Mr Khan says that he was working and staying in London and asked that that should happen.
(9) Accountants' bills for Mr Khan were sent to BTVL's address. Mr Khan answers this by saying that no personal bills were sent to him at BTVL's address. Mr Clegg accepted that in this respect there was a properly pleaded answer.
(10) Photographs at BTVL's address taken on 31st January 2007 showed Mr Khan in what appeared to be the director's office, and further similar photographs were taken on 30th November 2006. In answer to this Mr Khan merely says that the property concerned was temporarily rented and had all the facilities to run as a TV station.
(11) A number of invoices concerning other companies were sent to the offices of BTVL for the attention of Mr Khan. Mr Khan does not appear to dispute this but says that any bills were paid in accordance with the liabilities of whatever companies were concerned.
"In my judgment the jurisdiction under section 214 is primarily compensatory rather than penal. Prima facie the appropriate amount that a director is declared to be liable to contribute is the amount by which the company's assets can be discerned to have been depleted by the director's conduct which caused the discretion under subsection (1) to arise. But Parliament has indeed chosen very wide words of discretion and it would be undesirable to seek to spell out limits on that discretion, more especially since this is, so far as counsel were aware, the first case to come to judgment under this section. The fact that there was no fraudulent intent is not of itself a reason for fixing the amount at a nominal or low figure, for that would amount to frustrating what I discern as Parliament's intention in adding section 214 to section 213 in the 1986 Act, but I am not persuaded that it is right to ignore that fact totally".
"… I am not persuaded that there is power to include a punitive element in the amount of any contribution which, in the exercise of the power conferred by section 213(2) of the 1986 Act a person should be declared liable to make to the assets of the company. As I have said, I think that the principle on which that power should be exercised is that the contribution to the assets which the company's creditors will share in the liquidation shall reflect (and compensate for) the loss which has been caused to those creditors by the carrying on of the business in the manner which gives rise to the exercise of the power. Punishment of those who have been party to the carrying on of the business in a manner of which the court disapproves – beyond which is inherent in requiring them to make a contribution to the assets of a company with limited liability which they could not otherwise be required to make – seems to me foreign to that principle."
Submissions made on behalf of Mr Khan
"In my judgment, under a section 214 claim the starting point for measuring the directors' contributions to the assets of the company is, or at the very least is likely to be, the loss to the company caused by the wrongful trading. Mr Atherton said that there are a range of possible starting points, of which the loss to the company is only one. Alternatively, it might be fairer to say that he had said that of the range of possible starting points the increase in net deficiency (the IND) is only one. Perhaps there is a range of possible starting points, but if the loss to the company from the continued wrongful trading can be ascertained, I believe that either that is the only possible starting point or, at least, it is the normal starting point. In this case I see no reason to take a different starting point. I believe that what I have said in this respect is in accordance with the authorities …".
Decision
(i) Both Mr Khan and Mr Haque were well aware of the Company's financial predicament well before the BSA was made. This is demonstrated by answers to questionnaires completed by them at Mr Valentine's request. He exhibited these at "RV5" to his first affidavit dated 27th September 2004. In answer to question 10, which was "Detail when and how you first became aware the Company was insolvent", Mr Khan replied "We tried to come to break-even to run the TV channel and company profitably but this became impossible by the beginning of 2003 we started looking for new fund.". Question 11 asked when he first became aware of the Company's inability to pay its debts to which he answered "... the revenue was not sufficient and from the beginning of 2003 we started building up debts." There is nothing to suggest that as at the time of the BSA there was a reasonable prospect that the Company would avoid going into insolvent liquidation.(ii) As I have noted above, at the trial before the Deputy Judge, Mr Khan conceded that an order against him under section 214 was appropriate. This carried with it the implication that he conceded that he had the requisite knowledge, or at least should have drawn the necessary conclusions, at the relevant time.
DISPOSAL