In a landmark decision handed down today, following a 4-week trial in July 2024, the Commercial Court has dismissed a hard-fought claim brought by Invest Bank under section 423 of the Insolvency Act 1986. The case has given rise to numerous interlocutory disputes since 2021, many concerning important points of law, and the trial judgment of Mr Justice Calver is likely to become a leading authority on various substantive and procedural issues concerning section 423 claims, in particular the law relating to (i) what a claimant must plead and prove under section 423; (ii) the limits of inferential claims under section 423; and (iii) the ability to draw adverse inferences.
The claim was advanced against eight defendants. The Bank’s case was that D1 had transferred various assets to the other defendants in early 2017 for the purpose of prejudicing the Bank and certain other creditors. Following a failed jurisdiction challenge in 2021, D1 ceased to participate but the claim against the other defendants was set down for trial. In November 2023, the Bank sought to prevent D6 from using frozen funds to pay for her living expenses and legal fees (which the Bank lost: see here); in January 2024, the Bank brought a wide-ranging disclosure application which was substantially dismissed in April 2024 (see here and here); on 25 April 2024, it brought a major contested amendment application, which was dismissed by Bryan J at the PTR (see here). The Bank then applied to the Court of Appeal for permission to appeal Bryan J’s order, which was refused by Males LJ on 5 June 2024; and on Day 6 of the trial itself, the Bank applied for relief from sanctions to challenge the authenticity of a document disclosed by D6, which was refused by Calver J (see here).
At trial, the Bank sought to advance a new (and, on Ds’ case, unpleaded) case concerning the solvency of Commodore UAE, one of D1’s companies. In closing, the Bank sought to refine this unpleaded case by contending (on Ds’ case, for the first time, and again without any foundation in the pleadings) that Commodore UAE was suffering from a liquidity crunch in early 2017 even if it was solvent. The defendants contended that it was not open to the Bank to advance this case and that it was unsustainable on the facts even if it was. The Judge accepted those submissions.
As to the law, the Judge held that a claim under section 423 is ordinarily subject to the pleading rules in Three Rivers because the allegation that the transferor acted for the purpose of prejudicing his creditors is an allegation of discreditable conduct. The Judge endorsed the approach of Sir Anthony Mann in DGFI v Bank Frick & Co AG [2022] EWHC 221 (Ch) in this respect, observing that it is supported by the fact that the iniquity exception to privilege is engaged by section 423: see paras 23-26. But the Judge also explained that, irrespective of the debate about Bank Frick (which in reply the Bank argued was wrongly decided), where particular elements of a cause of action are said to be established by inference (as here), the ‘primary facts relied upon should, out of fairness to the defendant, be identified’: see para 39. Since the Bank had not pleaded the relevant primary facts, it was not open to it to advance the case it sought to advance at trial. The Judge also concluded that, even if it were open to the Bank to advance that case, it was unsustainable on the facts.
The Judge also rejected the Bank’s contention that adverse inferences should be drawn from D1’s failure to participate or give disclosure: see para 118 and following, which contains valuable guidance on the law in this area.
Accordingly, each claim pursued against each defendant at trial was dismissed: para 483.
Niranjan Venkatesan and Constantine Fraser acted for the successful defendants, instructed by Debenhams Ottaway LLP.
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