The Deposit Guarantee Fund for Individuals (as liquidator of National Credit Bank PJSC) v Bank Frick & Company AG (a company incorporated in Liechtenstein)
| Jurisdiction | England & Wales |
| Judge | Master Clark |
| Judgment Date | 01 December 2021 |
| Neutral Citation | [2021] EWHC 3226 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2021-000962 |
[2021] EWHC 3226 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Master Clark
Case No: BL-2021-000962
Michael Ryan (instructed by PCB Byrne LLP) for the Claimant
Andreas Gledhill QC and Luka Krsljanin (instructed by Mishcon de Reya LLP) for the Defendants
Hearing date: 3 November 2021
Approved Judgment
I direct that this approved judgment, sent to the parties by email on 26 November 2021, shall deemed to be handed down on that date, and copies of this version as handed down may be treated as authentic.
Application
This is my judgment on the application of the first defendant, Bank Frick & Co A.G. (“Frick”), dated 13 October 2021 (“the second application”), which seeks a declaration and directions as to the disposal of its application dated 26 July 2021 (“the first application”).
Parties and the claim
The claimant, The Deposit Guarantee Fund For Individuals, is the liquidator of PJSC National Credit Bank (“the Bank”), a Ukrainian company. Frick is a company incorporated in Liechtenstein, which, unsurprisingly, trades as a bank.
The claim arises out of 6 pledge agreements made with Frick in 2013–2014 (“the pledge agreements”), under which the Bank pledged funds as security for various loans made under agreements between 3 entities incorporated in the UK (“the debtors”), including the second defendant, Eastmond Sales LLP.
The claimant's case is the debtors did not carry on any legitimate business. They had been incorporated shortly before obtaining the loans, and their shareholders of record were off-shore entities. The loan monies were, it says, dissipated shortly after being transferred to the account of the debtors.
In 2015, the debtors having failed to repay the loans, Frick enforced the pledge agreements, and thereby obtained US$25.8 million held by the Bank in its Frick account.
The claimant's case is that the pledge agreements and associated loan agreements were part of a dishonest money laundering scheme instigated by 2 senior managers (“the Employees”) at the Bank, for the purpose of extracting assets from and putting them beyond the reach of the Bank's creditors.
The claim is brought under ss.423–5 of the Insolvency Act 1986. These provide, so far as relevant:
“ 423 Transactions defrauding creditors.
(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—
…
(c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.
…
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.
424.—Those who may apply for an order under s. 423.
(1) An application for an order under section 423 shall not be made in relation to a transaction except—
(a) in a case where the debtor …is a body corporate which is being wound up or is in administration, by the official receiver, … or the liquidator or administrator of the body corporate or (with the leave of the court) by a victim of the transaction”
The reduction in the Bank's assets resulting from Frick's enforcement of the pledge agreements led to insolvency proceedings, in which, in February 2016, the claimant was appointed liquidator under the relevant Ukrainian legislation.
By the order dated 29 April 2021 of Deputy Insolvency and Companies Court Judge Passfield, the liquidation was recognised as a foreign main proceeding, and the claimant was recognised as the “foreign representative” under the Cross Border Insolvency Regulations 2006.
This claim was commenced on 7 June 2021. Frick acknowledged service on 28 June 2021, stating its intention to contest jurisdiction. The second defendant has not responded to the claim.
On 26 July 2021, Frick issued the first application notice. This seeks orders:
(1) staying the claim in favour of arbitration pursuant to s.9 Arbitration Act 1996 (alternatively, the court's inherent jurisdiction), and the arbitration clauses in each of the pledge agreements (“the Stay Application”);
alternatively, and “only in the event that the Stay Application is unsuccessful”,
(2) striking out the claim under CPR 3.4(2)(a) (no reasonable grounds), or for summary judgment (“the SJ Application”); as to this, the application notice states:
“In advancing this conditional application in the alternative and only in the event of the Stay Application not succeeding, the First Defendant does not (and does not intend to) take any substantive step in the proceedings which would affect the Stay Application.” (emphasis added)
(3) for a directions hearing in respect of both applications.
Both substantive applications are supported by evidence included in the application notice. The evidence in support of the SJ Application again states:
“This application is not intended as and should not be construed as a substantive step in the proceedings as it is made solely in the alternative to the s.9 application for a stay of proceedings in favour of arbitration.”
The reference to a “step in the proceedings” is of course a reference to section 9 of the Arbitration Act 1996, which relevantly provides:
“ 9.—Stay of legal proceedings.
(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
…
(3) An application may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.”
(emphasis added)
The parties then corresponded as to the directions to be made for the hearing of the applications. Frick asked the claimant to agree that:
(1) the hearing (and determination) of the SJ Application did not constitute a substantive step in the proceedings, and therefore a submission to the jurisdiction;
(2) on that basis, the SJ Application be listed for a hearing before the Stay Application.
The claimant declined to agree to this proposal. Its position is that determination of the SJ Application would be a step in the proceedings.
Frick therefore issued its second application notice. This seeks (so far as relevant)
(1) a declaration that, in seeking case management directions for the determination of the SJ Application before the Stay Application, Frick shall not be deemed to have taken a step in the proceedings, or accordingly to have lost its right to apply for a stay;
(2) if a declaration is made, an order for the listing of the SJ Application.
Although Frick's counsel submitted that it has made it “crystal clear” that the SJ Application seeks only a conditional order, its position has not been consistent.
Thus, the draft order attached to the first application notice includes:
“[Alternatively: the claim is struck out pursuant to CPR 3.4(2)(a)/summary judgment be entered in favour of Bank Frick and the claim dismissed]”
At para 6 of the evidence section of the second application notice, it is stated that if the SJ Application were successful, the claim would be struck out in its entirety, obviating the need for any other issues to be addressed. Similarly, para 7 states that if the SJ Application were resolved in Frick's favour it would bring the proceedings to an end.
Frick's counsel submitted, and I accept, the SJ Application itself seeks only a conditional order. If, therefore, Frick succeeded, the resultant order would have to be expressed as taking effect only if the Stay Application was unsuccessful. It might be the case that this would have the practical effect of bringing the claim to an end: Frick would no longer have any interest in pursuing the Stay Application, and the claimant no longer have any interest in resisting it. If, however, the claimant wished to appeal the result of the SJ Application, it might seek the determination of the Stay Application.
Issues in the application
In these circumstances, the two issues which arise are:
(1) whether by pursuing the determination of the SJ Application before the determination of the Stay Application, Frick is taking a step in the proceedings to answer the substantive claim;
(2) if not, whether as a matter of case management the SJ Application should be listed before the Stay Application.
“Step in the proceedings”
Both sides relied upon Capital Trust Investments Ltd v Radio Design TJ AB [2002] EWCA Civ 135, [2002] CLC 787 in support of their positions.
That decision therefore requires careful consideration. In it the claimant had applied for (and bought) shares in the defendant, by signing a subscription application form which it had submitted to the defendant's placement manager. The form provided that it was governed by Swedish law, and that any dispute was to be settled exclusively by arbitration in Stockholm. The claimant claimed...
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