Queensgate Place Ltd v Solid Star Ltd ((in Liquidation))

Hearing dates: 11 and 12 January 2023

Approved Judgment

This judgment was handed down remotely at 10.00am on 20 January 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives..

HIS HONOUR JUDGE Jarman KC

HH JUDGE Jarman KC:

The petitioner (Queensgate) seeks an order that its shares in the first respondent (Star) should be purchased by the other respondents because of conduct which is unfairly prejudicial to it as a shareholder within the meaning of section 994 of the Companies Act 2006. Such conduct is denied. The sum which Queensgate says should be paid is over £10 million. A seven day trial on liability is listed in just over six weeks' time on 27 February 2023. By an application dated October 2022, Queensgate seeks summary judgment against the second respondent (Viking) and third respondent (Mr Bhundia). By an application made at about the same time, the fourth respondent (Mr Bhundia's brother to whom I shall refer to distinguish him as Minesh Bhundia) seeks an order that Queensgate should provide security for his costs.

Both those applications are disputed and came on for hearing before me. At the end of the summary judgment application I indicated that it would be dismissed and that I would give written reasons in due course. At the end of the application for security for costs, I indicated that I would order security in respect of the costs from the date of the application, for reasons to be given in writing. These are my written reasons in respect of both applications.

I shall deal with the application for summary judgment first, before turning to the application for security for costs. Summary judgment is dealt with in CPR Part 24.2 as follows:

“The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if—

(a) it considers that—

(i) that the claimant has no real prospect of succeeding on the claim or issue; or

(ii) that the defendant has no real prospect of successfully defending the claim or issue; and

(b) there is no other compelling reason why the case or issue should be disposed of at a trial.”

CPR Part 24.3(2) provides that the court may give summary judgment against a defendant in any type of proceedings, except those set out in the rule, which exceptions are not relevant here.

After the petition was filed, Mr Bhundia was made bankrupt on 8 June 2022. Star was put into liquidation on 7 September 2022. The latter order was made on the petition of Lazuli Properties Ltd (Lazuli) on the basis of a judgment it had obtained against Star (see Lazuli Properties Ltd v Prakash Bhundia and others [2022] EWHC 758 (Ch)). Both the trustee in bankruptcy of the former and the liquidator of the latter are aware of these proceedings but have no wish to take part.

Mr Moeran KC, for Queensgate, says that it is likely that any sum which Mr Bhundia is ordered to be paid can be pursued against him, his bankruptcy notwithstanding. This on the basis that such a sum will constitute a bankruptcy debt, even though any order to pay it will be made after the bankruptcy order. He relies on the case of In re Nortel Gmbh (in administration) [2014] AC 209, where the Supreme Court held that costs orders in proceedings which were commenced before liquidation, but which were ordered after the winding-up order, would be provable in the insolvency. Whilst accepting that there is no direct authority on the point, Mr Moeran says that the same principle applies by analogy to an order for payment for shares under section 994.

Even if that is so, it will not assist Queensgate if the usual rule applies as to release of bankruptcy debts upon the discharge of the bankruptcy. Mr Moeran relies on the preservation from general discharge set out in section 281(3) of the Insolvency Act 1986, as follows:

“281.—Effect of discharge.

(1) Subject as follows, where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, but has no effect—

(a) on the functions (so far as they remain to be carried out) of the trustee of his estate, or

b) on the operation, for the purposes of the carrying out of those functions, of the provisions of this Part;

and, in particular, discharge does not affect the right of any creditor of the bankrupt to prove in the bankruptcy for any debt from which the bankrupt is released.

(2) Discharge does not affect the right of any secured creditor of the bankrupt to enforce his security for the payment of a debt from which the bankrupt is released.

(3) Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.”

It has been held that a dishonest breach of fiduciary duty by a director may be recognised and characterised as a fraud or a fraudulent breach of trust a within the meaning of section 281(3) ( Templeton Insurance Ltd v Brunswick [2012] EWHC 1522 (Ch), paragraph 76, per Simon Barker KC, sitting as a judge of the High Court). It is well established that the test for dishonesty in such cases is an objective one. The question is whether the person alleged to be dishonest knew of elements of the transaction in question which made it dishonest according to normally acceptable standards of honest behaviour.

Mr Moeran realistically accepts that to give summary judgment on a petition under section 994 is unusual, but points out that it may be given “in any type of proceedings.” Moreover, he also accepts that generally conclusions on dishonesty should be reached at trial, but says that this is an overwhelmingly clear case of dishonesty.

In Wrexham Association Football Club Ltd v Crucialmove Ltd [2007] BCC 139, the Court of Appeal upheld a summary judgment given by His Honour Judge Norris, as he then was, sitting as a judge of the High Court. The President of the Queen's Bench Division, Sir Igor Judge as he then was, said this:

“57. I do not underestimate the importance of a finding adverse to the integrity to one of the parties. In itself, the risk of such a finding may provide a compelling reason for allowing a case to proceed to full oral hearing, notwithstanding the apparent strength of the claim on paper, and the confident expectation, based on the papers, that the defendant lacks any real prospect of success. Experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate. In short, oral testimony may show that some such cases are only tissue paper strong…

58. This collective judicial experience does not always, or inevitably, provide a compelling reason for allowing the case to proceed to trial, nor for that matter require the judge considering the application to reject the conclusion that there is no real prospect of a successful defence of the claim if he is satisfied that there is none. That is not what the Rules provide, and if that had been intended, express provision would have been made. It is however a factor constantly to be borne in mind, if and when, as here, the reason for concluding summary judgment is appropriate is consequent on a disputed finding, adverse to the integrity of the unsuccessful party.”

That case was cited by Gross J, as he then was, in Antonio Gramsci Shipping Corpn v Recoletos Ltd [2010] EWHC 1134 (Comm), at paragraph 3 as follows:

“On the one hand, summary judgment is designed for plain cases—cases which are not fit for trial at all: Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1, para 95, per Lord Hope of Craighead. That consideration weighs all the more heavily when the case involves allegations of serious fraud or dishonesty; generally, conclusions on such issues ought to be reached at trial, so that obvious caution ought to be exercised before giving summary judgment in a case of that nature: Wrexham Association Football Club Ltd v Crucialmove Ltd [2007] BCC 139, especially at paras 49–59. On the other hand, where it can be ascertained without the conduct of a mini-trial that there is no realistic prospect of a successful defence, then summary judgment will or may be appropriate and the court should not be deterred from granting such relief simply because of the volume—or, in some cases, smokescreen—of documents. Moreover, if in all the circumstances, there is no real prospect of a defendant successfully defending a claim, then, even though good faith, fraud or integrity are an issue, there is no longer a bar to giving summary judgment: Wrexham Associated Football Club, above.”

However, Mr Moeran says that it is overwhelmingly clear from contemporaneous documentation that there has been dishonest conduct in several respects on the part of Mr Bhundia and on that basis summary judgment is sought against him and Viking, a Panamanian company believed to be wholly owned beneficially by Mr Bhundia. Although he denies dishonesty, he gives no proper...