State Bank of India & Others v Dr Vijay Mallya
| Jurisdiction | England & Wales |
| Judge | Master Cook |
| Judgment Date | 17 April 2019 |
| Neutral Citation | [2019] EWHC 995 (QB) |
| Docket Number | Case No: CL-2017-000717 |
| Court | Queen's Bench Division |
| Date | 17 April 2019 |
[2019] EWHC 995 (QB)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Master Cook
Case No: CL-2017-000717
and
Nigel Tozzi QC (instructed by TLT LLP) for the Claimant
John Brisby QC and Alexander Cook (instructed by DWF LLP) for the First Defendant
Hearing date: 3 April 2019
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.
This is the hearing of the Claimants' application for a Third-Party Debt Order [TPDO]. The interim order was made by Master Kay QC on 14 January 2019 and in the usual way the Interim Third-Party Debt Order [ITPDO] was made on paper and without notice to the Defendants or the Third Party.
The ITPDO was served on the Third Party on 17 January 2019 and had the effect of attaching £258,559.79 that was in the First Defendant's account with the Third Party.
The judgment debtor Dr Mallya owes the Claimants more than £1.142 billion arising from proceedings in the Bangalore Debt Recovery Tribunal against Kingfisher Airlines and others by way of a judgment dated 19 January 2017. The judgment was registered in this jurisdiction under the Foreign Judgments (Reciprocal Enforcement) Act 1933 by Picken J on 24 November 2017. On the same day Picken J granted a worldwide freezing order [WWFO].
Dr Mallya's applications to set aside the orders made by Picken J and for a stay of the judgment were refused by Mr Andrew Henshaw QC sitting as a judge of the High Court on 8 May 2018, see State Bank of India v Mallya [2018] EWHC 1084 (Comm). Dr Mallya was refused permission to appeal against this decision by Flaux LJ on 24 July 2018.
On 11 September 2018 the Claimants presented a bankruptcy petition against Dr Mallya. Dr Mallya has filed a notice of opposition to the petition relying upon a variety of grounds including assertions that the judgment debt is secured, that the judgment creditor has failed to state the value of its security, that there is a reasonable prospect of payment of the petition debt within a reasonable period and that the petition debt is subject to collective insolvency proceedings in India. I am told that it is unlikely the petition, which has now been transferred to the High Court, will come on for hearing before December 2019.
On 19 February 2019 Dr Mallya made an application pursuant to section 285 (2) of the Insolvency Act 1986 for a stay of all enforcement proceedings which have been commenced since the presentation of the Bankruptcy Petition. This application will be heard by a Judge of the Commercial Court on 22 May 2019.
On behalf of Dr Mallya, Mr Brisby QC put forward four grounds of opposition to making the ITPDO final;
i) having started bankruptcy proceedings based on the judgment debt of £1.142 billion it is (and was) not open to the Claimants to seek to pursue a TPDO as this is fundamentally inconsistent with the policy of the bankruptcy regime, which is to ensure the assets of a bankrupt are distributed pari passu among all unsecured creditors,
ii) the application for a TPDO is oppressive in that the ITPDO freezes only £258,559.79, a very small proportion of the judgment debt, in circumstances where the Claimants have effective security over assets worth £1.6 billion,
iii) the application for an ITPDO was a deliberate ploy on the part of the Claimants to thwart Dr Mayalla's ability to meet his ordinary living and reasonable legal expenses permitted under the terms of the WWFO,
iv) there had been a failure on the part of the Claimants to make full and frank disclosure when applying without notice for the ITPDO of the matters set out at (i) to (iii) above such that the ITPDO should be set aside.
In the circumstances there are two issues for the Court. Firstly, should the ITPDO be set aside by reason of the alleged non-disclosure? If not, secondly, should the ITPDO be made final?
What is the nature of the duty of disclosure in an application for an ITPDO? In Merchant International Company v Natsionalna Aktsionerna Naftogaz Ukrainy [2014] EWHC 391 (Comm) Blair J said;
“68. No authority was cited to me on the duty of disclosure in the specific context of a without notice application for a third party debt order. Naftogaz submits that the same principles apply as apply in the case of applications for freezing orders, which has been the subject of much case law. Whilst accepting that there is a duty of disclosure, MIC submitted that the duty was a lesser one, and relied (if necessary) on the cases which show that a freezing order which has been discharged on non-disclosure grounds may, in some circumstances, be re-imposed where the interests of justice require it.
69. In my view, some force is given to Naftogaz's submission by the fact that the effect of an interim third party debt order is to freeze the debt in question (for example, money in the judgment debtor's bank account) up to the amount of the judgment debt. In that respect, it is not unlike a freezing order, though it is directed at the third party not the judgment debtor. There, however, the similarity ends. Whereas a freezing order is exceptional relief, even where the claimant has obtained judgment, the third party debt order procedure is a long established and routine way to attach debts owed to the judgment debtor by a third party. I can see no reason to import the case-law applying to disclosure in the case of freezing orders, and no authority has been cited to me that requires it.
70. On the other hand, the importance of accurate evidence on a without notice application is undoubted, as is the duty of disclosure on such an application (see for example Ghafoor v Cliff [2006] 1 WLR 3020 at [46], David Richards J, in the context of without notice applications for the grant of administration). As Hobhouse J put it in a well known passage in The “Jay Bola” [1992] 2 Lloyd's Rep 62 at 67, there is a duty of disclosure on all ex parte applications, but the extent of the duty and the gravity of any lack of frankness will depend in any given case on the character of the application. Applying that approach, where the consequences of an interim third party debt order are potentially serious, and the grounds for making an order debateable, the duty of full and frank disclosure will be commensurately higher.
71. Independent of any issue of non-disclosure, the question whether an interim order should be made final is one for the discretion of the court. This is established in many cases, including Roberts Petroleum Ltd v Kenny, cited above. It was held at [1982] 1 WLR 301 at 307 that in exercising its discretion, the court must take into account all the relevant circumstances whether they arose before or after the interim order, and should exercise its discretion equitably having regard to the interests of all parties involved. The principles are well summarised in the White Book at CPR 73.4.5. Where no complicating factor exists, such as the effect of an order on other creditors, or the possibility that an order may require the third party to pay twice, there is usually no reason not to make the interim order final, and indeed normally there is no dispute.”
In BCS Corporate Acceptances Ltd v Terry [2018] EWHC 2349 (QB) Morris J adopted the reasoning of Blair J:
“As to the first question, the existence, and extent, of a duty of disclosure in the context of a without notice application for an interim third party debt order was considered in Merchant International, supra, at §§68–71. Blair J held, on the one hand, that there is no reason to import the case-law applying to disclosure in the case of freezing orders, since the latter is “exceptional relief” whilst a third party debt order is long established and routine. On the other hand, the importance of accurate evidence and the duty of disclosure on a without notice application is undoubted. The extent of the duty and the gravity of the lack of frankness depends on the character of the application. Where, as in that case, the consequences of an...
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