Wednesday 23 May 2007

Jacques Bénichou v Mauritius Commercial Bank

Jacques Benichou

Appellant

v.

Mauritius Commercial Bank

Respondent

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 23rd May 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hope of Craighead

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

Lord Carswell

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[Delivered by Lord Walker of Gestingthorpe]

This appeal is concerned with three consolidated sets of proceedings for the enforcement of securities granted by the appellant, Mr Jacques Benichou. The creation of these securities and their enforcement raise substantive and procedural issues under the Mauritian Civil Code and Code of Civil Procedure, both derived from the Code Napoleon. In such a matter the Board will naturally be very slow to differ from the Supreme Court of Mauritius, which has unparalleled knowledge and experience of the technical issues which arise on this appeal.

The issues arise in the context of the largest corporate insolvency in the history of Mauritius. The company in question, Woventex Ltd (“Woventex”) was incorporated in Mauritius in 1987. It was established as an ambitious joint venture for a new integrated mill and textile factory in Mauritius. The moving spirit was Mr Benichou. He was managing director (and latterly executive chairman) of Woventex. He was also a shareholder, either directly or through a Panamanian company called Soltex International (“Soltex”). The other principal participants were the Commonwealth Development Corporation (“CDC”), Deutsche Finanzierungsgesellschaft für Beteiligungen in Entwicklungsländern GmbH (“DEG”) and the Mauritius Commercial Bank (“the Bank”). The original plan, set out in a joint venture agreement dated 6 November 1987 (“the JVA”), was that the total cost of the project would be R580m. Mr Benichou was to take up about 56% of the equity capital (initially totalling R215m). CDC and DEG were each to take up about 14% of the equity and put in 30% of the loan capital (initially totalling R365m). The Bank was to take up about 14% of the equity and put in 40 % of the loan capital.

The project did not prosper. The detailed facts as to the deterioration of Woventex’s financial position, and of relations between the parties, is a complicated and contentious matter, on which no court in Mauritius has yet made findings (there have been some concluded legal proceedings in France, which it will be necessary to return to briefly). The ascertainment of the facts has been complicated by Mr Benichou’s having been in contempt of court since June 1994, when he failed to return to Mauritius in obedience to a court order permitting him to leave the Island for one month only. Mr Benichou has not himself made any affidavit, either in these proceedings or in linked proceedings (Woventex Ltd (In Receivership) v Benichou) in which the Board heard an appeal immediately before the hearing of this appeal. Instead he has caused a large number of affidavits to be sworn on his behalf. Some of these resemble pleadings or skeleton arguments rather than factual depositions. Much of their contents has been objected to as inadmissible hearsay, and before the Board leading counsel for Mr Benichou (Mr Hodge Malek QC) accepted that on matters of fact he could rely only on documentary evidence, the Bank’s own affidavit evidence, and such of the affidavits on behalf of Mr Benichou as the Bank did not object to; but there has been no formal striking-out of parts of the evidence filed on behalf of Mr Benichou. That is a further and regrettable complication on what is, on any view, a complicated matter.

Apart from his shareholding (through Soltex) in Woventex Mr Benichou had numerous other business interests. In particular he had a controlling interest in P R Ltd (“PR”), a Mauritian company which owned a hotel. PR is in receivership and is a party, as garnishee, in the first of the appeals. Mr Benichou also had interests in seven other companies (“the second group of garnishees”) which are parties, as garnishees, in the second appeal. The second group of garnishees includes a Mauritian company called Maurigarments Ltd (“Maurigarments”). The garnishee in the third appeal is Mr A K Rajah, who was Mr Benichou’s attorney but has ceased to act for him because of a conflict of interest. All the garnishees have submitted to the court and none of them has been represented before the Board.

PR, the second group of garnishees and Mr Rajah can conveniently be referred to as garnishees but none of them is an ordinary trade debtor of Mr Benichou. In relation to PR and the second group of garnishees Mr Benichou’s interest, which the Bank seeks to attach, was as a shareholder (in particular, Mr Benichou had 2,357m shares in PR, apparently the most successful of his companies). In relation to Mr Rajah, Mr Benichou’s interest was said to be as beneficial owner of funds which were held in a bank account in the name (or under the control) of Mr Rajah. In relation to all these assets the Bank relies on a floating charge dated 17 October 1990 entered into in its favour by Mr Benichou. Despite its date the actual signature of the charge by Mr Benichou may have occurred after his receipt of a letter dated 27 October 1990 about which there has been much discussion. The floating charge is a standard-form printed document suitable for execution by an individual surety providing a secured guarantee of a company’s indebtedness. It recites that Woventex had requested banking facilities of R15m (that sum being typed into the form). But in the body of the charge Woventex entered into an unlimited “all monies” obligation, as did Mr Benichou as guarantor; and Mr Benichou created in favour of the Bank “a floating charge of all his undertaking, goodwill, movable and immovable properties as well as on all or any part of his properties which may from time to time belong to him and generally on all his properties of any kind and nature whatsoever and wheresoever”.

The letter of 27 October 1990 has given rise to a good deal of argument. It is a commercial document, unlikely to have been prepared by lawyers, and there is no agreement or finding as to its commercial context (although it is clear from the letter itself that there were problems caused by the need for further financing of a project which was proving unexpectedly expensive and difficult). The gist of the letter was that the Bank would provide bridging finance to Woventex until further equity and loan capital had been contributed by various participants. Details of these were given and the letter went on (with paragraph numbers inserted for ease of reference):

[1] “. . . being guaranteed by:

(a) a pledge of all shares owned and/or controlled by yourself directly or indirectly in Maurigarments Co Ltd for an amount of R50M.

(b) a pledge of all shares owned and/or controlled by yourself directly or indirectly in PR Ltd, owner of Le Grand Gaube Hotel, for an amount of R50M

(c) a floating charge on your other personal assets in Mauritius for a total amount of R15M.

[2] It is hereby agreed that the above guarantees will be terminated automatically and proportionately as soon as CDC, DEG and yourself (Soltex) actually disperse loans or subscribe to equity as per above Table I.

[3] Put another way, the above guarantees will only stand for all amounts which, at any point in time, would still be financed by us beyond our commitments which are as follows.”

There is then a list of items of equity and loan capital totalling R202m.

Leading counsel for the appellant submitted that the Bank’s attachment, so far as it depended on the floating charge, must fail for the simple reason that the claim was (apart from accrued interest) for much less than R202m. But that cannot be the correct interpretation of the words of paragraph [3] set out above. The Bank had permanent commitments to Woventex, in equity and loan capital, which by October 1990 amounted to R202m. Mr Benichou was not responsible for any of those sums. The Bank was then providing Woventex with further, temporary bridging finance which Mr Benichou was required to guarantee. He was to be liable for everything which the Bank advanced to Woventex beyond its existing commitments totalling R202m. Mr Malek’s suggested interpretation would in effect put in place not one limit, but two limits of R202m. That point is in their Lordships’ view perfectly clear. There are other more obscure points on the letter of 27 October 1990 which it will be necessary to return to.

In relation to the PR shares (only) the Bank also relies on two pledges (nantissements) of Mr Benichou’s 2,357m shares made on 12 October 1991 for R50m in respect of the indebtedness of Woventex and then on 11 September 1992 for R20m in respect of the indebtedness of Maurigarments. The Bank’s case is that the pledges were to be effected by the delivery of blank transfers and share certificates, but that Mr Benichou repeatedly failed to comply with the Bank’s requests to hand over the share certificates. Nevertheless, the Bank says, the pledges were registered in the books of PR under section 85 of the Companies Act 1984, and that was good enough to enable them to be enforced by way of attachment. Had the share certificates been delivered as they should have been, it is said on behalf of the Bank, the security would have been enforceable without the need for any application to the court at all.

Three applications by way of praecipe were made to the Supreme Court: (1) on 18 April 1994 for the attachment and sale of Mr Benichou’s PR shares, (2) on 18 April 1994 for the attachment and sale of Mr Benichou’s shares in the second group of garnishees, and (3) on 9 June 1994 for the attachment of Mr Benichou’s funds in Mr Rajah’s hands. The sum claimed by the first attachment was just over R76,295m with accruing interest. The second and third attachments claimed just over R56,295m with accruing interest. The difference (of exactly R20m) is accounted for by the multiplicity of securities relied on in the first attachment, which cover (on the Bank’s case) Mr Benichou’s liability for indebtedness of Maurigarments as well as for indebtedness of Woventex.

Mr Benichou has, on various grounds, resisted all three of the Bank’s applications for attachment. But he did not take any positive action to protect his interests (as he could have done under article 2202-47 of the Civil Code) when the floating charge was crystallised. Nor did he contest the validity of the floating charge in a separate action (open to him under article 2202-15 of the Civil Code). The Supreme Court regarded Mr Benichou’s failure to take action as providing a very short answer to his objections to the enforcement of the floating charge:

“Above all and furthermore, as submitted by learned Counsel for the attaching party, at no point in time has the defendant contested the validity of the charge in a separate action as provided by article 2202-15 of the Code Civil or object[ed] to the crystallization of the charge as provided for by article 2202-47 of the Code Civil. The defendant cannot therefore in the present proceedings for the validation of the attachment orders and at this late stage contest the validity of the charge.”

Their Lordships are not satisfied that the Supreme Court, which has great experience in these matters, has been shown to have erred in this view. But in deference to the detailed arguments put forward by both sides their Lordships think it right to address the other issues raised in relation both to the floating charge and to the pledges of PR shares. In relation to the floating charge Mr Benichou raised before the Supreme Court a point on community of goods which was not relied on before the Board. But counsel for Mr Benichou did before the Board rely on two grounds of appeal which were considered in detail by the Surpreme Court. Counsel also relied on four further points which were, they say, raised in the Supreme Court (at least in written submissions) but were not considered (or were only very briefly considered) by the Supreme Court. These can be summarised as follows:

(1) Article 1326 of the Civil Code;

(2) Article 551 of the Civil Code;

(3) the sale of the Reunion property;

(4) the beneficial ownership of the funds held by Mr Rajah;

(5) the letter of 27 October 1990 and the R15m limit on the floating charge; and

(6) the agreement of 14 April 1992.

Their Lordships will consider these points in turn. They will then address the point taken by the appellant in relation to the pledges. Points (1) to (4) above, and the pledges, were argued by Mr Oakley, junior counsel for the appellant.

Article 1326 provides:

“L’acte juridique par lequel une seule partie s’engage envers une autre à lui payer une somme d’argent ou à lui livrer un bien fongible doit être constaté dans un titre qui comporte la signature de celui qui souscrit cet engagement ainsi que la mention, écrite par lui-meme, de la somme ou de la quantité en toutes letters et en chiffres. En cas de difference, l’acte sous seing privé vaut pour la somme écrite en toutes letters.”

It is common ground that the floating charge did not comply with this article, since although Mr Benichou signed it, the figure R15,000,000 was typed onto the printed form. The Supreme Court held that this did not make the instrument void. The appellant submits that that missed the point, which was that the charge, since it did not comply with article 1326, was not a titre executoire (enforceable security).

Before the Board Mr Sauzier (for the Bank) has put forward further arguments: that the floating charge, once registered, was enforceable under article 2202-7 and 2202-8 of the Civil Code, and that that effect could have been set aside only by an action under article 2202-15, which (as already noted) Mr Benichou never took. Mr Sauzier also submitted that article 1326 is giving effect to a policy of consumer protection, and that it has been held not to apply to commercial transactions between traders: see IOIB Ltd v Alleck [2004] SCJ 141 and Aquachem v Delphis Bank (in receivership) [2005] SCJ 32. Their Lordships accept these submissions as well-founded.

Article 551 provides:

“Il ne sera procédé à aucune saisie mobilière ou immobiliere, qu’en vertu d’un titre exécutoire, et pour des choses liquides et certaines: si la dette exigible n’est pas d’une somme en argent, il sera sursis, après la saisie, à toutes poursuites ultérieures, jusqu’à ce que l’appréciation en ait été faite.”

In short, an attachment is permitted only for a liquidated sum. If the sum claimed could be ascertained only by taking an account, attachment is not possible: Soomally v Soomally [1968] MR 138. That was a case in which a complicated account had to be taken in the administration of an estate, and it was admitted that some vouchers (needed for taking the account) were not available. The principle is not in doubt but their Lordships do not accept that it applies in this case. The Bank’s claim is for the principal of, and unpaid interest on, monies advanced to Woventex. The necessary computation may be complex but the entire claim is for a liquidated sum.

In November 1992 the Bank agreed to Mr Benichou selling a property known as Reunion on condition that its proceeds of sale were (as it was put in the Bank’s letter dated 20 November 1992) “lodged in Maurigarments’ current account with us: being shareholder’s equity or loan in the name of Mr J Benichou”. The consent of the Bank (as holder of the floating charge) was needed because the sale of the property was not a routine business transaction. But the proceeds were not used to reduce Woventex’s indebtedness to the Bank. The payment to Maurigarments was to be reflected either by an increased shareholding in Maurigarments owned by Mr Benichou, or by a debt owed by Maurigarments to Mr Benichou. The shares or debt would remain subject to the floating charge. This argument must therefore be rejected.

The point about the funds held by Mr Rajah must also be rejected. It was hardly mentioned in argument in the Supreme Court. There is no reliable evidence to support Mr Benichou’s claim that he was not the beneficial owner of the funds, and some documentary evidence contradicts it.

The letter of 27 October 1990 evidenced what was intended to be a short-term arrangement to provide bridging finance covering the amounts of further equity and loan capital to be put into Woventex by Mr Benichou (through Soltex), CDC and DEG. The total new finance from these sources was set out in the letter as R122.7m. CDC and DEG were institutions of high standing and were obviously good for the money, once the necessary consultants’ report had been obtained. The funds to come from Mr Benichou may have been regarded as more problematical.

In these circumstances it would not have made commercial sense if paragraph [2] of the letter (set out in para 6 above) had produced the result that Mr Benichou’s guarantee was drastically reduced in amount as soon as CDC and DEG complied with their obligations, even if (as happened) Soltex defaulted in its obligation. Leading counsel for Mr Benichou did not, as their Lordships understand it, press any argument to the contrary. Paragraph [3] of the letter, which their Lordships have already addressed, makes the position clear. It is also significant that in a recital (C) to a share subscription agreement dated 17 January 1992 (to which Mr Benichou was a party) it was recited that

“[the Bank] has made available to [Woventex] against securities provided by [Mr Benichou] a bridging overdraft in the amount of R36m bearing interest at variable rates.”

Leading counsel did however argue that there was a limit of R15m on the principal sum secured by the floating charge. That figure appears both in the floating charge itself and in the letter of 27 October 1990. But in the floating charge it appears only as a recital (possibly for stamp duty purposes, although that is a conjecture) and the operative part of the charge is clearly unlimited in amount. Their Lordships recognise that the limit mentioned in the letter seems to present more of a problem. The Supreme Court did not refer to it directly, but repeated the point that Mr Benichou had not objected to the crystallisation of the floating charge. That point seems to carry special weight in a situation where Mr Benichou was relying on an informal, collateral document to vary the effect of a formal, registered charge, under a Civil Code and Code of Civil Procedure which accord considerable importance to formalities. Their Lordships are not therefore satisfied that the Supreme Court was in error in failing to deal with this point at greater length.

Finally, in relation to the floating charge, there is a point taken on a shareholders’ agreement dated 14 April 1992. This contained a recital (D) that it replaced and superseded the JVA. That does seem to have been its effect, since it contained complex options and other provisions superseding those in the JVA. But there is no reason to suppose that the agreement of 14 April 1992 was intended to put an end to the collateral stipulations in the letter of 27 October 1990, so far they were still operative at the latter date. As already mentioned, an agreement dated 17 January 1992 had recited Mr Benichou’s secured liability for bridging finance provided to Woventex in the amount of R36m. For the reasons already mentioned their Lordships conclude that the collateral stipulations were still operative, and recital (D) did not bring them to an end.

Their Lordships can deal more briefly with the objections taken in regard to the pledges. They accept the submission of Mr Sauzier that, if the Bank had succeeded in obtaining custody of the share certificates which Mr Benichou had promised to deliver, it could have enforced its security (by a commercial sale) without the need for any judicial intervention. As it was, it had to go through the procedure of attachment. But that procedure was available, as the Supreme Court held, under section 85(2) of the Companies Act 1984 and article 2077 of the Civil Code.

Before the Board Mr Sauzier took some preliminary points which were not taken before the Supreme Court, and to which their Lordships have not yet referred. One was the submission that Mr Benichou, as a party who is still in contempt of court, ought not to be heard at all before the Board. The other main point relied on was that the subject-matter of the appeal is res judicata as a result of proceedings in France in which an appeal by Mr Benichou was dismissed by the Cour d’Appel de Paris on 10 April 2002 and again by the Cour de Cassation on 14 October 2004. Their Lordships have concluded that they ought not to refuse to hear Mr Benichou at all in a matter in which leave to appeal has been granted by the Supreme Court. They consider that it is not necessary or appropriate to go into the complex issues raised by the res judicata issue. For the reasons set out above, which are essentially the same as those of the Supreme Court, their Lordships dismiss this appeal with costs.

Thursday 10 May 2007

Woventex Ltd v Jacques Isaac Bénichou and Others

Woventex Ltd (In Receivership)

Appellant

v.

Jacques Isaac Benichou & Others

Respondent

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 10th May 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hope of Craighead

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

Lord Carswell

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[Delivered by Lord Walker of Gestingthorpe]

This appeal is concerned with the jurisdiction of the Bankruptcy Division of the Supreme Court. It arises in the context of what is, as their Lordships were told, the largest corporate insolvency in the history of Mauritius. The full facts as to the insolvency have not yet been established, and many are strongly contested. For present purposes, however, the material facts are largely undisputed and can be stated quite shortly.

Woventex Ltd (“the company”) was incorporated in Mauritius on 31 March 1987. It was the vehicle for a joint venture for setting up an integrated mill and textile factory which (it was hoped) would make an important contribution to the Island’s economy. The principal participants were Mr Jacques Benichou, the Commonwealth Development Commission (“CDC”), Deutsche Finanzierungsgesellschaft fuer Beteiligungen in Entwicklungslaendern Gmbh (“DEG”) and Mauritius Commercial Bank (“the bank”). There was a joint venture agreement (“the JVA”) dated 6 November 1987 which contemplated that the total investment (of equity and loan capital) would be R580m. But costs escalated and further equity and loan capital was committed to the company during 1991 and 1992 under agreements which first amended, and then replaced, the JVA.

The company’s financial position deteriorated, and so did relations between the parties. On 9 October 1992 CDC, DEG and the bank appointed receivers under powers in debentures granted to them by the company. On 6 May 1994 a search order was made against Mr Benichou which, it is claimed, produced evidence of serious impropriety on his part. On 1 June 1994 the Court granted Mr Benichou permission to leave Mauritius for one month but directed him to return to the island before the end of that month. Mr Benichou has never returned to the island. His counsel accepts that he has been in contempt of court since the end of June 1994. On 30 June 1994 a freezing order was made against Mr Benichou. All these orders were made, as their Lordships understand, in anticipation of proceedings intended to be launched by the company, acting by its receivers, shortly afterwards – that is these proceedings, commenced on 25 November 1994 and leading to the Supreme Court’s order of 17 October 2003 from which the company now appeals to the Board.

The proceedings were commenced by a notice of motion (or notice of denunciation) with the company (in receivership) as applicant and Mr Benichou as respondent, eight companies associated with Mr Benichou and one individual (Mr Rajah, then Mr Benichou’s attorney) being named as interested parties. Service was eventually effected on the respondent (through an agent) and on the interested parties. The application was supported by a joint affidavit made on 15 November 1994 by the receivers, Mr Wahed Abbasakoor and Mr Jean Harel. It stated that the company’s deficiency was then more than R750m, and that figure has not been challenged. The relief claimed by the notice of motion was an order

“(a) condemning and ordering the respondent to refund and pay to the applicant the sum of R120m; and

(b) ordering the respondent to account to the applicant for all secret profits made by him and arising out of the conclusion of contracts of purchase of machinery, equipment and raw materials made by [the company].”

The receivers’ joint affidavit asserted that Mr Benichou had received from machinery suppliers secret profits (in the form of bribes or similar payments) amounting to R80m and from suppliers of cloth, yarn, chemicals and dyestuffs, secret profits to an estimated total of R40m.

By section 2(2)(b) of the Courts Act 1945 an action may be commenced by way of motion, supported by affidavit, where the circumstances require urgency. It has not been suggested that the use of a notice of motion was by itself improper or irregular, although the sense of urgency seems to have utterly vanished from the proceedings. Their Lordships do not propose to recount in detail the circumstances in which Mr Benichou’s jurisdictional objection to the proceedings in the Bankruptcy Division was not heard at first instance until 25 July 2000 (resulting in a judgment of the Hon S B Domah, the Judge in Bankruptcy, handed down on 20 February 2001, over six years after the proceedings were commenced). But their Lordships have to observe that the delay is deeply regrettable. The record shows that on 11 October 1999 there was a hearing for the specific purpose (mentioned at the previous hearing on 4 October 1999) of fixing the case “for merits.” The hearing on 11 October did not produce any fixed dates (counsel for the company suggested that 10 days would be needed for the hearing) but on 18 October four dates (in July 2000) were fixed. At none of these hearings was the Judge in Bankruptcy told that a preliminary point was to be taken on jurisdiction. The point was first mentioned to the Judge in Bankruptcy on 12 July 2000, at the beginning of what was supposed to be the hearing on the merits. That is not how litigation ought to be conducted.

The judge in bankruptcy decided that he had no jurisdiction and he declined to proceed with the matter. He did not take any action to transfer the proceedings to another court. Nor did the Supreme Court (Matadeen SPJ and Balgobin J, who had as Judge in Bankruptcy had the case before her in 1995) when it dismissed the company’s appeal on 17 October 2003. In its appeal to the Board the company submits that the Judge in Bankruptcy and the Supreme Court were wrong on the issue of jurisdiction.

The Bankruptcy Division of the Supreme Court is established and regulated by sections 62 to 67 of the Courts Act 1945 (as amended). Sections 62 and 63 are in the following terms:-

“62 Bankruptcy Division of Supreme Court

(1) There shall be a division of the Supreme Court to be called the Bankruptcy Division of the Supreme Court having jurisdiction to deal with all matters of bankruptcy, insolvency or the winding up of companies.

(2) The jurisdiction of the Bankruptcy Division of the Supreme Court shall vest in and be exercised by the Master and Registrar concurrently with the judges.

(3) The jurisdiction of the Master and Registrar when sitting as a judge of the Bankruptcy Division shall not extend to the trial of criminal offences against the law of bankruptcy, insolvency or the winding up of companies.

(4) The Master and Registrar when acting in the Bankruptcy Division shall have all the powers and privileges of the judges.

(5) Several sittings of the Bankruptcy Division may be held concurrently for the despatch of business.

63. Judge of Bankruptcy Division

(1) Where in any enactment dealing with bankruptcy and insolvency, the expressions “Master”, “Court”, “Judge” or “Judge in Bankruptcy” are used, they shall mean the Registrar sitting as a judge of the Bankruptcy Division of the Supreme Court, or a judge exercising jurisdiction in the Bankruptcy Division of the Supreme Court, and any jurisdiction exercisable under any such enactment by the Registrar in Chambers shall be exercised by a judge in Chambers.

(2) Where in any enactment dealing with bankruptcy or insolvency the words “Bankruptcy Court” or “Court” are used, they shall mean the Bankruptcy Division of the Supreme Court.”

Section 67 provides for procedural rules to be made, but there are at present no such rules.

None of the expressions “bankruptcy, insolvency or the winding up of companies” in section 62(1) is specially defined. Bankruptcy and winding-up are technical terms that do not call for definition. Insolvency is a wider and less technical term in that it covers both individuals and companies, and is generally used to cover situations in which the law makes special provision for those threatened with bankruptcy or insolvent winding-up, even if that eventuality does not occur: see the general observations of Sir Donald Nicholls V-C in Re Paramount Airways [1993] Ch 223, 230. Their Lordships consider that the use of the expression “insolvency” in section 62(1) is not redundant. It extends the scope of the Bankruptcy Division’s jurisdiction to include issues arising during the receivership of an insolvent company, at any rate if the issues are concerned with the governance of the company and the reasons why the company became insolvent.

The jurisdiction of the Bankruptcy Division does not depend solely on section 62 of the Courts Act. It also has numerous functions under the Companies Act, many of which apply to solvent as well as insolvent companies. As the Supreme Court (Lallah SPJ and Pallay J) said in Ah Chuen v Ah Chuen [1993] MR 310,

“There is no doubt that, in the normal course of things, all matters relating to the administration and management of companies and all disputes relating thereto should be dealt with, in the first place, in the Bankruptcy Division. A great number of provisions in the Companies Act clearly point to this.”

(The Companies Act 1984 has been repealed during the course of the proceedings, but it was not suggested that the Companies Act 2001 does not contain similar substantive provisions and appropriate transitional provisions.)

The Company’s claim against Mr Benichou arises out of his administration and management of the company as its managing director (or, latterly, its executive chairman). The claim is based on alleged breaches of Mr Benichou’s statutory duty, as a director, under section 102(1)(e) of the Companies Act 1984:

“To account to the company for any monetary gain, or the value of any other gain or advantage, obtained by them in connection with the exercise of their powers, or by reason of their position as directors of the company, except remuneration, pensions, provisions and compensation for loss of office in respect of their directorships of any company which are approved by the company under section 103.”

The relief claimed is restitutionary relief in respect of his unjust enrichment by acts in breach of his fiduciary duty as a director.

Their Lordships are naturally very reluctant to differ from the courts of Mauritius on issues concerned with their own jurisdiction and practice, of which they have so much experience. Nevertheless their Lordships respectfully differ from the decisions of the Judge in Bankruptcy and the Supreme Court. In their Lordships’ view the Judge in Bankruptcy asked himself the wrong question: Is the defence bona fide and seriously raised? – instead of asking: As a matter of law, do I have jurisdiction? He noted that in section 2 of the Companies Act “Court” is defined as the Bankruptcy Division of the High Court, and he embarked on a careful survey of all the sections of the Companies Act. But he misdirected himself by concluding that section 102 does not contemplate the enforcement of a director’s statutory duties by the company itself, despite the clear terms of section 102(2)(a), and by misconstruing section 102(2)(b)(ii) (which is an exceptional provision enabling a member to sue, subject to the safeguards in section 185) as if it were both mandatory and exhaustive.

Their Lordships accept that the special provisions of section 185 contemplate representative proceedings being sanctioned and monitored by the Judge in Bankruptcy, and that the proceedings themselves would necessarily be heard by a different judge. That is a fairly familiar situation in England, exemplified by the recent abandonment (authorised by the Companies Court) of proceedings against the Bank of England brought by the liquidators of BCCI. But the need for separate judges (though it might create practical difficulties in a relatively small court system) is not in principle a reason for concluding that both judges could not be exercising the jurisdiction of the Bankruptcy Division. By section 62(2) of the Courts Act the jurisdiction of the Bankruptcy Division is exercisable by the Judge in Bankruptcy (previously the Master) and the Registrar concurrently with the judges (see Thumiah v Mohadeb [1993] MR 128)).

In his judgment the Judge in Bankruptcy observed, correctly, that the Bankruptcy Court (meaning the Bankruptcy Division of the Supreme Court: Courts Act section 63(2)) is a “court of celerity.” Much of its business is of a routine nature, and capable of being despatched without delay; some of the business might even be termed more administrative than judicial in nature. But from time to time more complex issues of law and fact will arise in matters within the jurisdiction of the Bankruptcy Division. It appears to their Lordships that the Bankruptcy Division has the means to deal with these exceptional cases, either by arranging for a Judge of the Supreme Court to sit in the Bankruptcy Division, or by referring the matter to one or more judges of the Supreme Court under section 71 of the Courts Act. That sort of flexible procedure is also contemplated by section 103 of the Bankruptcy Act 1887. If necessary, points of claim and defence can be ordered. Deponents can be required to attend for cross-examination on their affidavits, as the Hon Mrs Balgobin (when sitting as the Judge in Bankruptcy) recognised in her judgment given in this matter on 17 May 1995. The crucial issue of jurisdiction must be kept separate from questions of procedure and case management which, important though they are, do not go to jurisdiction.

In upholding the judgment of the Judge in Bankruptcy the Supreme Court referred to Karamuth v Universal Hotels Ltd [1988] MR 171 as establishing that the Bankruptcy Division is “only nominally” a Division of the Supreme Court. Their Lordships cannot agree with that proposition if it is regarded as cutting down the wide statutory jurisdiction which has, in their opinion, been conferred on the Bankruptcy Division. As already noted, much of its work is of a routine nature. But it is a Division of the Supreme Court, in which judges of the Supreme Court can sit (or from which matters can be referred to Supreme Court judges) whenever a matter of particular gravity or complexity makes it inappropriate or inconvenient for the matter to be dealt with by the Judge in Bankruptcy. The position is in their Lordships’ view similar (although not of course identical) to that in England as described by Brightman J in Re Shilena Hosiery Co. Ltd [1980] Ch 219, 224.

“The Companies Court is not a court separate and distinct from the High Court, with its own peculiar jurisdiction . . . The Companies Court is a way of describing the High Court when dealing with matters originating in the chambers of the Bankruptcy Registrar dealing with company matters, and the Companies judge is a way of describing a High Court judge when trying such matters. If authority is needed for this proposition it will be found in Re Rolls Razor Ltd (No. 2) [1970] Ch 576, 588 ff. Once it is accepted that the Companies Court is merely a description of the High Court when operating through the chambers of the Bankruptcy Registrar dealing with company matters, the question of jurisdiction is greatly narrowed . . .”

The passage in Re Rolls Razor (No. 2) contains a very learned historical survey by Megarry J.

For these reasons their Lordships will allow the appeal with costs before the Board and in the courts below. The Bankruptcy Division has jurisdiction in this matter and must now proceed to address the merits of the company’s application, bearing in mind the need for active case-management in order to ensure that the real issues are defined and decided with the least possible delay.

There are two further matters calling for mention. First, the Judge in Bankruptcy expressed some doubts (not, it seems, raised by the parties) as to whether the receivers could and should have embarked on proceedings of this nature. The receivers have no doubt been fully advised as to their powers and duties under the debentures granted to CDC, DEG and the bank. Their Lordships have not seen the debentures, but it would be very surprising if these proceedings were beyond the receivers’ powers, since one of the main functions of receivers is to intervene in order to halt mismanagement and to seek restitution of any misappropriated assets.

Second, article 170 of the Code of Civil Procedure provides:

“Si néanmoins le tribunal était incompétent à raison de la matière, le renvoi pourra être demandé en tout état de cause; et si le renvoi n’était pas demandé, le tribunal sera tenu de renvoyer d’office devant qui de droit.”

The effect of this provision is that if a court declares itself incompetent for lack of jurisdiction, it nevertheless has the power and the duty to transfer the matter to a competent court. It is regrettable that neither the Judge in Bankruptcy nor the Supreme Court considered itself bound to take any such steps if (as they incorrectly supposed) the Judge in Bankruptcy lacked jurisdiction to hear the matter on its merits. Their Lordships do not accept the argument (put forward in the respondent’s further written submissions) that there would be anything illogical or nonsensical in that course.