JUDGMENT OF THE LORDS OF THE JUDICIAL COMMITTEE OF THE PRIVY COUNCIL. Delivered the 23rd May 2007

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1 Benichou v. Mauritius Commercial Bank (Mauritius) [2007] UKPC 36 (23 May 2007) Privy Council Appeal No 35 of 2005 Jacques Benichou Mauritius Commercial Bank v. Appellant Respondent FROM THE COURT OF APPEAL OF MAURITIUS JUDGMENT OF THE LORDS OF THE JUDICIAL COMMITTEE OF THE PRIVY COUNCIL Delivered the 23rd May Present at the hearing:- Lord Bingham of Cornhill Lord Hope of Craighead Lord Walker of Gestingthorpe Baroness Hale of Richmond Lord Carswell [Delivered by Lord Walker of Gestingthorpe] 1. 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. [2007] UKPC 36

2 2 2. 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 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. 3. 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. 4. Apart from his shareholding (through Soltex) in Woventex Mr Benichou had numerous other business interests. In particular he had a

3 3 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. 5. 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. 6. 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):

4 4 [1]... being guaranteed by: (a) (b) (c) a pledge of all shares owned and/or controlled by yourself directly or indirectly in Maurigarments Co Ltd for an amount of R50M. 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 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. 7. 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.

5 5 8. 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. 9. 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. 10. 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 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 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 of the Code Civil or object[ed] to the crystallization of the charge as provided for by article 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.

6 6 11. 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 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. 12. 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).

7 7 13. Before the Board Mr Sauzier (for the Bank) has put forward further arguments: that the floating charge, once registered, was enforceable under article and of the Civil Code, and that that effect could have been set aside only by an action under article , 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. 14. 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. 15. 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.

8 8 16. 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. 17. 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. 18. 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. 19. 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 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.

9 9 Their Lordships are not therefore satisfied that the Supreme Court was in error in failing to deal with this point at greater length. 20. Finally, in relation to the floating charge, there is a point taken on a shareholders agreement dated 14 April 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. 21. 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. 22. 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 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.