IN THE HIGH COURT OF JUSTICE IN THE MATTER OF CLICO INVESTMENT BANK LIMITED IN COMPULSORY LIQUIDATION AND

Transcription

1 THE REPUBLIC OF TRINIDAD AND TOBAGO CV IN THE HIGH COURT OF JUSTICE IN THE MATTER OF CLICO INVESTMENT BANK LIMITED IN COMPULSORY LIQUIDATION AND IN THE MATTER OF THE COMPANIES ACT, CHAP. 81:01 AND IN THE MATTER OF THE COMPANIES WINDING UP RULES SECOND SCHEDULE, COMPANIES ACT, CHAP. 81:01 BETWEEN THE DEPOSIT INSURANCE CORPORATION (as the Liquidator of Clico Investment Bank Limited In Compulsory Liquidation Applicant AND RICHARD TROTMAN First Respondent LOUIS ANDRE MONTEIL Second Respondent LENNOX ARCHER Third Respondent Before the Honourable Mr Justice Ronnie Boodoosingh Page 1 of 10

2 Appearances: Mr Michael Green QC leading Mr Ian Benjamin instructed by Ms Elena Araujo for the Applicant Mr Richard Trotman, First Respondent, In Person Mr Martin Daly SC leading Mr Jason Mootoo and Mr Christopher Sieuchand instructed by Sarah Sinanan for the Second Respondent Ms Nalini Sharma instructed by Mrs Andrea Goddard for the Third Respondent Date: 24 May 2017 RULING 1. On 11 September 2015 the applicant, the Deposit Insurance Corporation (liquidator), applied for declarations against the respondents, Mr Richard Trotman, Mr Louis Andre Monteil and Mr Lennox Archer. These were declarations that the business of Clico Investment Bank Limited (now CIB-ICL / CIB / the company) was carried on with intent to defraud creditors of the company and others and for a fraudulent purpose; with reckless disregard of the company s obligations to pay its debts and liabilities; or, with reckless disregard of the insufficiency of the company s assets to satisfy its debts and liabilities. A further order was sought that these three persons, as officers of the company or persons who were knowing parties to the carrying on of the business, should be held personally liable for the debts and liabilities of the company and for payments to the applicant of debts found due. A third order sought was that they shall not, without the court s permission, be a director or be allowed to take part in the management of a company for a period of 5 years or less. 2. The company was incorporated in It was part of the CL Financial Group whose parent company was CL Financial Limited (CLF). 3. Mr Trotman was the President, Chief Executive Officer and a director of the company until 1 January Before that, he worked as a corporate finance executive at CLF and reported to Mr Monteil. In 2005 he was appointed Vice President and Chief Operating Officer of the company. Page 2 of 10

3 4. Mr Monteil was from March 2003 until April 2008 a director and the Chairman of the company. From 1991 he was a senior executive of CFL and the Group Financial Director. 5. Mr Archer was from September 1998 to February 2007 the President, Chief Executive Officer and a director of the company. 6. I gave directions for the hearing of the application. The applicants filed points of claim. The defendants filed points of defence. These can be seen to be in the nature of pleadings. Since then, two applications have been filed. 7. The first application is that the liquidator has applied to strike out paragraphs 2, 3, 4 and 5 of Mr Monteil s points of defence. The second application is that Mr Archer has applied for other persons to be joined as respondents. These persons are Lawrence Dupery, Mariano Brown, Amjad Ali, Anthony Rahael, Faris Al Rawi, Andrew Aleong, Claudius Dacon, Wendell Mottley and Mervyn Assam. These persons were among the directors or persons who had oversight over the affairs of CIB during the relevant periods. They were therefore parties who knowingly were parties to carrying on the company s business. Alternatively, if those persons are not joined in the proceedings, Mr Archer contends the application for the reliefs set out above should be dismissed. 8. The parties, with the exception of Mr Trotman, who is representing himself, filed written submissions. I also heard oral submissions from the parties. The Liquidator s Strike Out Application 9. Paragraphs 2, 3, 4, and 5 of Mr Monteil s points of defence can be summarised as follows. DIC is a court appointed liquidator. It must act fairly, impartially, free of conflict, honourably, and without abusing its powers. The court has supervision over the liquidator. Mr Monteil contends that the liquidator has breached these duties, is acting fraudulently, abusing its powers, or wrongfully exercising its powers. This, he says, is because of the following: i. The liquidator has failed to include additional persons who served as directors. Page 3 of 10

4 ii. The liquidator appears to be funding these proceedings out of the resources of CIB with assistance of the Central Bank of Trinidad and Tobago, which it is not entitled to do. iii. The liquidator is spending a disproportionate amount of time and resources to pursue this and another claim against Mr Monteil and his company, Stone Street Capital Limited. iv. The liquidator is doing this while failing to proceed with other core duties and obligations such as winding up CIB promptly; taking reasonable steps to realise the assets of CIB; taking reasonable steps to pay CIB s debts; filing statements of affairs promptly with the court; failing to convene meetings of creditors and contributors of CIB; properly addressing proofs of debts; keeping proper books; paying monies received into a court appointed bank; settling lists of contributories with sufficient speed; complying with proving debts rules; submitting to the court every 3 months the Record Book and Cash Book of CIB; maintaining a distinct account of CIB s trading incorporated into the Cash Book; transmitting to the Official Receiver CIB s accounts; furnishing relevant particulars to the Official Receiver. v. These proceedings have been commenced while maintaining CV against Mr Monteil, Stone Street Capital, and others, for not less than 78 million dollars while at the same time they opposed the bringing of a claim by Stone Street Capital for the release of shares held in Flavorite Foods Limited by CIB. vi. The liquidator has refused to release Stone Street s shares in Flavorite valued over 27 million dollars. vii. The Board of the DIC is comprised of 5 persons, two of whom represent the Central Bank. viii. The Central Bank has been in continuous control of CIB since February 2009 even though DIC was appointed liquidator in ix. The Central Bank is a co-claimant against Mr Monteil and Stone Street Capital Limited and others in CV in which substantial payments are sought against the defendants. x. The liquidator has acted without due regard to the interests of CIB s shareholders. 10. Mr Monteil submits these proceedings are an abuse of process. 11. Paragraph 5 of the Points of Defence noted it was filed without prejudice to his right to file an application to strike out the Summons and Points of Claim on the basis of the breach of duties and that the claim is an abuse of process, and to contend, at trial, that the liquidator should not be granted any relief sought in its summons on the basis that in commencing Page 4 of 10

5 and maintaining this claim it has acted in breach of its duties and obligations mentioned above. 12. The liquidator contends that the matters raised in paragraphs 2 to 5 of the Defence are extraneous to the matters the court has to deal with. They provide no grounds for defending the claim made against Mr Monteil and they are there to divert attention from the weaknesses of his defence. 13. The liquidator accepts that it is subject to the supervisory control of the court. However, it contends that is not open to use this forum to air complaints about the liquidator in unrelated aspects. The liquidator contends that the alleged breaches have been described in a generalised way. It suggests there is no nexus between alleging these matters and the liquidator s right to advance these proceedings for the specific reliefs sought, including compensation. 14. There are 4 main sets of allegations made by Mr Monteil: Breaches in the conduct of the liquidation; Failure to include other directors in this claim; Allegations concerning the Central Bank s involvement in these proceedings; Complaints regarding Mr Monteil s company s shares in a company called Flavorite. 15. In respect of the breaches point, the liquidator says they are generalised and unparticularised; they are irrelevant; they cannot constitute a defence; they are scandalous and an abuse. 16. On the failure to include other directors, the liquidator says there are good and proper reasons for pursuing these respondents; these respondents were the most knowledgeable and responsible for the fraudulent or reckless conduct complained of; the liquidator was entitled to decide whether there was sufficient evidence to commence the proceedings; the liquidator cannot be compelled to bring other persons here to allege fraudulent or reckless conduct. Page 5 of 10

6 17. On the Central Bank point, the liquidator says the Bank s involvement or influence is irrelevant; the liquidator is entitled to fund the proceedings out of CIB s funds; the other civil proceedings are separate and unrelated; and the Central Bank, by law, is entitled to have its representatives on the DIC. 18. On the Flavorite shares point, the liquidator says those proceedings are not relevant and it is duty bound to act impartially as between creditors and to retain assets to deal with them in accordance with the law. 19. Mr Monteil has taken issue with the liquidator s position. He says that the liquidator has asked for the sanction of the court to proceed with this matter. That being the case, the matters raised are relevant to the grant of the court s permission. The court- appointed status is significant. The liquidator is placed under a duty to act fairly. Reference was made to the case of Lomans and Others v Burlington Loan Management Limited and Others; Re Lehman Brothers International (Europe) (In Administration) [2015] EWHC 2270 per Mr Justice Richards. That case referred to the case of Ex parte James (1874) LR 9 Ch App 609 and the James principle under which the court can exercise control over its officers such as liquidators. The James case concerned the retention of funds by the liquidator paid under a mistake of law. The court directed that the funds be repaid even though there was no obligation by operation of law to do so. The liquidator could not in good conscience retain the money as it would amount to an unjust enrichment of the estate. The principle has been developed over time. The touchstone of the principle is to ensure honest and fair conduct by the liquidator. 20. As Richards J said at paragraph 183 of the Lomans case: I take it that unfairness is a sufficient ground for the application of the principle in Ex parte James if the court thinks that, in all the circumstances, it is right to apply the principle. This is not a surprising development. While in some of the earlier cases the judges refer to the difficulty of applying the principle in Ex parte James because it involved moral rather than legal judgments, unfairness as a substantive legal concept is now well embedded in our law. It is directly applicable to the conduct of administrators, by virtue of paragraph 74 to which I refer below. What constitutes unfairness will, just like what constitutes dishonourable conduct, depend on the circumstances of the case. Page 6 of 10

7 21. The issue in the Lomans case itself concerned agreements made during the administration of Lehman Brothers (Europe) between the administrators and creditors. The issue was the effect of these agreements. 22. The rationale for this rule of fairness has been addressed in the text, Mc Pherson s Law of Company Liquidation, third edition, Andrew Keay at where it was stated: It appears that the enrichment of the officer [trustee] is the critical thing, and it does not matter how that came about. 23. In Re: Clark [1975] 1 WLR 559 certain conditions were set out. These all related to preventing the unjust enrichment of the trustee. I disagree that the issue of unjust enrichment would be a live issue here on account of the dispute over the Flavorite shares. That respectfully must properly be the subject of other proceedings. These cases can therefore be considered to be distinguishable since that is not the contention of Mr Monteil here at paragraphs 2 to 5 of the points of defence. 24. The most significant question that is relevant here is whether the matters raised by Mr Monteil would amount to a defence to the case being alleged against him. Put another way, would it be relevant to allow him to raise the issues he has set out at paragraphs 2 to 5 of his defence in relation to what has been alleged against him, as a defence. Respectfully, I think they do not. 25. There are many matters the respondents here can properly raise in answer to the claim. These include: I acted diligently; I followed orders of others; I was merely implementing policy; I was not aware; I acted based on information supplied to me; I had no reason to question the information supplied to me; I had no control over markets events; the alleged matters are neither fraudulent nor reckless in nature; the evidence does not establish what is alleged, etc. Mr Monteil s points of defence run to over 100 paragraphs and sets out the framework to meet the allegations of the applicant. These matters are somewhat removed from the contentions at paragraphs 2 to 5. It would be a matter for the court to evaluate the evidence presented on both sides, bearing in mind that the applicant must prove its case. 26. The notion that because the liquidator should be doing other things; or is not doing some things as well as they need to; or it is not doing other things; or that the Central Bank has some involvement in directing this litigation; or that there are other proceedings involving Page 7 of 10

8 Mr Monteil; or that others should also be here; do not, in my view, affect whether these proceedings should go forward or whether any order should be made against the respondents in these proceedings. 27. The court would be required to consider all of the evidence placed before it, including any explanations placed by the respondents in respect of the specific allegations made against them, to decide if to make the orders sought. The other matters being raised by Mr Monteil in paragraphs 2 to 5 are really not relevant to the determination the court has to make, even if the right of the respondent to advance a defence is considered in a wide and reasonably indulgent way. 28. The respondents would, of course, be entitled to cross-examine witnesses on issues of credibility which may impact on the eventual determination. But matters affecting credibility need not be pleaded in civil proceedings. Thus there is no proper purpose to allow these matters to remain as part of the points of defence. They do not advance a defence for Mr Monteil. It would be a matter for the trial how widely a respondent may be permitted to cross-examine on issues of credit. 29. In determining if to grant sanction to bring these proceedings those matters would also not be material. This is the clear effect of the Re Goodwill General Insurance Company Limited decision, unreported, Rajkumar J, 30 July The court considers certain factors in deciding whether to grant its sanction. These matters identified by Mr Monteil are extraneous to any sanction needed to bring these proceedings. 30. In consequence, the liquidator s application to strike out paragraphs 2 to 5 of Mr Monteil s points of defence succeeds. Mr Monteil must pay the costs of this application to the liquidator to be assessed in default of agreement. Mr Archer s Application to Join Other Parties / Strike Out Claim 31. The third respondent, Mr Archer, has applied to the court to have other persons who were directors of the company joined in these proceedings. The essential point he makes is that both by law and the company s articles, the company was governed by a board of directors. The members of the Board acted collectively. They were all part of the management and Page 8 of 10

9 decision making process of the company. They all had oversight responsibilities. He also says that he did not exercise independent responsibility for the operation of the company. It is unfair or incorrect in law to hand-pick directors for responsibility. He therefore submits that they should all stand together to face the music or none should stand. 32. The submission is based on construing section 447 (1) of the Companies Act and Article 4.2 of the by-laws of CIB. 4.2 provides that the business and affairs of the company shall be managed by the directors. Other articles referred to include 6.3 (quorum); 6.4 (majority voting); 11.7 (president is the CEO and performs the powers of the Chairman if absent or refuses to act); 11.6 (managing director exercises powers delegated by Board). 33. Mr Archer submits our Act is similar to the Insolvency Act, 1986, UK where the focus is on the liability of the board as a whole. He focuses on our section 447 which includes in its ambit not only officers but also persons who were knowingly parties to the carrying out of the business in a fraudulent or reckless manner. 34. He says the deliberate exclusion of the remaining officers of CIB, without explanation, cannot be sustained. Even if he had reported information to the Board, the Board members would be liable because they cannot demonstrate wilful blindness by shutting their eyes to the obvious. He said the responsibility to grant loans was that of the Board and others. He and the selected respondents should not be the only persons before the court. 35. The liquidator says it cannot be compelled to bring any particular persons, especially to make allegations of fraud or reckless conduct against them. It was entitled to decide, based on the evidence which it had, to have considered who to bring this application against. The focus is on the personal involvement and responsibility of the individual persons in their areas of operation. In this regard it is not about collective responsibility. 36. Section 447 of the Companies Act provides that the court can make a declaration of liability against any of the officers or any other persons who were knowingly parties to the carrying on of the business in that manner 37. The liquidator says the third respondent as President and Chief Executive Officer for a lengthy period had certain powers delegated to him. These included power to approve Page 9 of 10

10 loans up to US $1 million; with one executive, up to US $2 million; and with the Credit Committee, up to US $5 million. He was in charge of the loans department and he approved loans in excess of his authority. The liquidator says he had personal culpability. It points to a specific allegation concerning the misuse of Investment Note Certificates (INCs) Mr Archer having had the benefit of legal advice. The liquidator also suggests that Mr Archer had implied powers of the managing director consistent with the case of Smith v Butler [2012] Bus L.R. 1836; EWCA Civ 314 per Arden LJ at paragraph The liquidator therefore says the deliberate choice to bring this application against these respondents is that, based on the evidence, it can establish the misconduct of these persons. It is entitled to bring its case to see if the court will agree. 39. I agree with the liquidator that it cannot be compelled to bring a claim against any other persons. It is either they can establish the case against these respondents to the level of proof required, or they cannot. This will depend on the evidence against them of their personal knowledge, what they did, and what they failed to do, and what did these matters demonstrate. I also agree that there are material differences between our section 447 and section 213 of the UK Act. Here the Parliament has distinguished persons with a special position of responsibility as against ordinary directors unless they were knowingly parties to the fraudulent or reckless activity. 40. The liquidator is entitled to bring the application in respect of any officers against whom they can make a proper case, not all directors, in order to try to establish a case. It is left to be seen if the evidence the DIC has will establish its case against these respondents. But it is no part of that process to say that others should also be brought before the court. The hand-picking, as suggested, cannot affect the viability of these proceedings. Mr Archer s application must also therefore be dismissed on both the points of joining other respondents and dismissing the claim. He must pay the costs of this application to the applicant to be assessed in default of agreement. Ronnie Boodoosingh Judge Page 10 of 10