International Brands USA Inc. and Mark Stephen Goldstein and Shruth Ltd (in creditors voluntary liquidation); International Br ands USA Inc. and Interbr ands Inc. and Julian Haswell and Mark Stephen Goldstein and Shruth Ltd
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE GLOSTER, DBE,Mrs Justice Gloster, DBE |
| Judgment Date | 23 June 2005 |
| Neutral Citation | [2005] EWHC 1293 (Ch) |
| Court | Chancery Division |
| Date | 23 June 2005 |
| Docket Number | Case No: 7490 of 2004 |
[2005] EWHC 1293 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
in the matter of Shruth Limited (in creditor's voluntary liquidation)
and in the matter of the Insolvency Act 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Gloster, DBE
Case No: 7490 of 2004
2567 of 2004
Ms Jane Giret QC and Mr Jamie Riley
(instructed by Messrs Halliwells) for the Applicants
Ms Marianne Perkins (instructed by Messrs Stephenson Harwood) for Mr Goldstein
Mr John Briggs (instructed by Messrs Collyer Bristow) for Mr Haswell
Hearing dates: 17 th and 18 th March 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mrs Justice Gloster, DBE
Parties
There are two linked applications before the Court. International Brands USA Inc ("International Brands") is the Applicant in both applications i.e., 2567 and 7490. Interbrands Inc ("Interbrands") is a co-applicant in 2567 of 2004, but not an applicant in 7490 of 2004. Interbrands is a company incorporated in Delaware in 1978 which operated as an importer and distributor of alcoholic beverages in the USA. In 1989 it was appointed as an exclusive distributor of the products of Shruth Limited ("the Company"), the second respondent to application 7490 and the third respondent to application 2567. International Brands was incorporated in Delaware in 1994. International Brands took over the business of Interbrands. It contends, in particular, that it took an assignment of the exclusive distributorship between Interbrands and the Company in 1994. The Company is an English registered company which was incorporated on 26 April 1972, and which was formerly known as "Old St Andrews Limited". Until recently, the Company produced alcoholic beverages including the Old St Andrews Clubhouse range of golf ball-shaped whisky bottles. The Company went into voluntary liquidation on 26 February 2004.
The first Respondent to application 2567, Mr Julian Haswell ("Mr Haswell"), was the sole director and controlling shareholder of the Company and sat as the chairman of the meetings of the Company's creditors held pursuant to section 98 of the Insolvency Act 1986 ("the Act") on 12 and 26 March 2004. He is also a director and the secretary of Gilfin International (Tapemate) Limited ("Gilfin"), a director of Wholly Spirits Drinks Co Limited and a director of Old St Andrews International Limited.
The first Respondent to application 7490 (and the second respondent to application 2567) is Mark Stephen Goldstein ("Mr Goldstein"). Mr Goldstein is an insolvency practitioner and the liquidator of the Company. Mr Goldstein was nominated as liquidator by Mr Haswell and eventually appointed at the section 98 meeting on 26 March 2004.
The applications
The first of the two applications before the Court (2567) is an appeal from the order of Registrar Jacques dated 30 July 2004 in which he dismissed the Applicants' application pursuant to r4.70 of the Insolvency Rules 1986 ("the Rules") whereby they sought to appeal the decision of Mr Haswell (as chairman) rejecting their proof for voting purposes at the section 98 meeting and to remove Mr Goldstein as liquidator ("the r4.70 application"). The second of the two applications (7490) is brought by International Brands pursuant to r4.83(1) seeking to reverse the decision of Mr Goldstein rejecting the Applicants' proof of debt for a dividend ("the r4.83 application").
The US proceedings
On 26 February 2002 the Applicants began proceedings against the Company (then trading as Old St Andrews Limited) in the United States District Court for the District of Connecticut ("the US Proceedings"). In the US Proceedings the Applicants claimed that the Company had unlawfully terminated an exclusive distribution agreement pursuant to which the Company appointed the Applicants the exclusive right to distribute the Company's whisky products in the USA.
On 17 December 2003, the case was listed to come on for trial in the US District Court on 19 April 2004. On 5 March 2004, the Company's US attorneys, Feldman & Hickey LLC issued a motion before the US District Court to withdraw appearance, which was akin to an application in this jurisdiction to come off the record.
The Applicants' statement of claim in support of their proof in the liquidation of the Company shows that the Applicants sought to recover damages against the Company in the total sum of US$ 1,505,608.53 (approximately £813,842.45) under the following heads:
i) advertising and promotional expenses for the Company's products during the period 1999–2001, less profits from sales in that period, in the sum of US$ 1,224,324.00;
ii) amounts due under credit invoices numbers 715 and 716 for goods returned in the sum of US$ 37,903.64;
iii) advance payment for bulk whisky less purchase price for 1,200 cases of Clubhouse Scotch whisky delivered to the Applicants in the sum of US$ 6,801;
iv) legal fees and expenses in the sum of US$ 236,579.89.
The motion to withdraw appearance stated that Mr Haswell had informed the Company's US attorneys that the Company did not intend to defend the Applicants' claim. The evidence clearly shows that the reason for the Company's US attorneys withdrawing was not only because the Company did not intend to defend, but also because the Company lacked funds to pay its outstanding legal bills and the ability to keep funding the defence. That position is confirmed in the report prepared by Mr Haswell in advance of the section 98 meeting.
On 10 March 2004, on the recommendation of the judge in the US proceedings, the Company's US attorneys wrote to Mr Goldstein and Mr Haswell setting out the consequences of their coming off the record. In their letter, the US attorneys clearly advised both Mr Goldstein and Mr Haswell that, pursuant to Connecticut law:
i) without counsel the Company was not permitted to represent itself;
ii) if the motion to withdraw were upheld and no new counsel were retained, then it was very likely that a default judgment would be entered against the Company;
iii) the effect of the entry of a default would be that there would be judgment on liability for the Applicants and that the Company's counterclaims would be dismissed; and
iv) there would then be a hearing for the quantification of damages based upon the evidence of the applicants, which the Company would not attend; the Company would therefore not be in a position to challenge the damages estimate of US$ 1,505,608.53 submitted by the Applicants.
The letter from the US attorneys also confirmed a conversation with Mr Goldstein that the Company would not be arranging for the attendance at the trial nor would it pay legal fees for the preparation of the Company's case.
On 2 April 2004, the US District Court made an order granting the Company's US attorneys permission to come off the record and giving notice to the Company that, unless it retained legal representatives, the Applicants could seek to enter judgment.
By a judgment dated 15 June 2004, District Judge Kravitz awarded the Applicants damages in the sum of US$ 1,378,246.64 ("the US judgment"). Although it was technically a default judgment, the judge gave a fully reasoned decision and it is clear that he had had the opportunity to consider various documents which had been provided to the Court by the Applicants including several affidavits, deposition transcripts and numerous exhibits relating to both the merits of the claim as well as the issue of damages. There is no suggestion in the judgment that there was any issue raised by the defence as to the identity of the company with whom the Company had concluded the distributorship agreement.
The section 98 meeting
By a notice dated 26 February 2004, the Company convened a meeting of creditors pursuant to section 98 of the Act to be held on 12 March 2004. In accordance with his obligations under section 99 of the Act, Mr Haswell prepared a report setting out the background of the Company and its decline, and to which he appended a statement of affairs. In the section of the report commenting on creditors, Mr Haswell explained that the claim of the "American customer", namely the Applicants, was disputed, but that it had been included in the list of creditors as a prospective claim for the sake of completeness. The value placed on the Applicants' claim in the statement of affairs was £658,363.97, as compared with the figure claimed in the US Proceedings, which totalled approximately £813,842.45.
The report also explained that, only a few days prior to the liquidation of the Company, the assets of the Company and the brand "Old St Andrews" had been sold for a total consideration of £74,000 and that the proceeds of sale had been paid to the Company's lenders in satisfaction of a charge over the assets. The report did not name the purchaser of the assets or the party who took an assignment of the Old St Andrews brand. However, trademark searches of the Old St Andrews brand carried out by the Applicants have revealed that, in May 2002, the trademarks were assigned to Gilfin.
In advance of the meeting a director of International Brands, Mr Rolf Andersen, submitted a proof for voting purposes at the section 98 meeting in the sum of £813,843.45 and a proxy appointing Mr David Grant of Halliwells (the Applicants' solicitors) as the Applicants' proxy holder to...
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