The High Court has dismissed a strike out application in respect of a claim brought under section 423 of the Insolvency Act 1986 (“IA 1986”) in respect of an alleged transaction defrauding creditors, holding that it is not necessary to prove a freestanding connection between the defendant and England, separate from the litigation itself, in order to obtain relief: Suppipat v Narongdej  EWHC 3191 (Comm).
In this case, the defendant’s involvement as a necessary and proper party in litigation which would continue in England, even if the s.423 claim was struck out, provided at least an arguable case that there was a sufficient connection to mean that it would be just and proper to make an order under s.423 despite the foreign elements of the claim. The claim would therefore go to trial. At that stage, the defendant could rely on all of the circumstances of the case to argue that relief should not be granted.
The decision will be welcomed by claimants, particularly insolvency officeholders, for whom the availability of relief under s.423 against foreign defendants was previously less certain where one of the connecting factors deriving from earlier authorities (such as domicile or the conduct of business within the jurisdiction) was not present. In common with the provisions of IA 1986 dealing with transactions at an undervalue and preferences, extra-territorial factors can be relevant to a claim under s.423 not only in relation to the court’s jurisdiction to determine a claim, but also whether any relief ought to be granted even if all elements of the claim have been established. Taken together with the Court of Appeal’s decision in Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd  EWCA Civ 1660, which confirmed the extra-territorial application of s.423 as a matter of English law at the jurisdiction stage, the ability of foreign defendants to avoid orders for relief being made against them under the IA 1986 may now be more limited.
The case concerns an alleged fraudulent conspiracy to deprive the claimants of shares said to be worth over US$ 1 billion in a Thai energy company, Renewable Energy Corporation Co Ltd (“REC”), which in turn held shares in Wind Energy Holding Co Ltd (“WEH”). The claimants alleged that the defendants, by making misrepresentations, induced them to transfer their shares in REC to companies owned by one of the defendants. The claimants commenced an arbitration in relation to those alleged misrepresentations. Pending determination of the arbitration, the defendants were alleged to have procured REC to transfer the WEH shares to various individuals and offshore entities so that, even if the claimants succeeded in the arbitration, the WEH shares were beyond the reach of enforcement against the defendants.
The claimants commenced proceedings in the Commercial Court concerning the transfer of the WEH shares by REC. They alleged that the transfer was for no consideration, at an undervalue, in breach of duty and for an unlawful purpose. Various English and Thai law contractual, tortious and equitable claims were made, in addition to a claim under s.423 IA 1986 alleging that the transfer constituted a transaction defrauding creditors. The defendants denied the claims.
Section 423 provides that the court may make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. Accordingly, even if a claimant establishes that there has been a transaction defrauding creditors for the purposes of s.423, the court is given a broad discretion to make such order as it thinks fit for restoring the position, and can choose to make no order at all.
In the present case, the claimants amended the particulars of claim to plead the s.423 claim only after they had obtained permission to serve proceedings on various defendants outside the jurisdiction. The defendants did not seek to challenge the court’s jurisdiction in relation to the new s.423 claim, for example on the grounds that England was not the proper place to determine the claim. However, the tenth defendant applied to strike out the s.423 claim on the basis that the relief sought was not available to the claimants because there was no sufficient connection with England and Wales..
In Re Paramount Airways (No.2)  Ch 223, the Court of Appeal held that, when exercising its discretion under s.423 where a foreign element is involved, it is necessary for the court to satisfy itself that the defendant is sufficiently connected with England for it to be just and proper to make the order against the defendant despite the foreign element. The tenth defendant argued that the s.423 claim lacked any, let alone a sufficient, connection with England such that the court was not permitted to exercise its discretion to grant relief. If there was no realistic prospect of the claimants proving a sufficient connection to England, and therefore the court’s discretion could not be exercised, the claim should be struck out.
The tenth defendant pointed to a number of factors which demonstrated the lack of a connection to England. These included that:
- The tenth defendant was a bank incorporated and operating in Thailand. It did not carry on any banking business in England or Wales.
- The first claimant was a Thai national domiciled in France, and had no connection with England. The other claimants also had no connection to England, as they were companies incorporated in Hong Kong for the purposes of holding shares in REC on behalf of the first claimant.
- The only impugned transaction with which the tenth defendant was alleged to have had any involvement was a transfer of shares in a Thai company to a Thai individual resident in Thailand.
- The tenth defendant was not the subject of any English law cause of action, other than under s.423.
The claimants contended that the real test was whether, in all of the circumstances, it was “fair and just” to grant relief under s.423. They argued that there was no need to prove a sufficient connection with England, as a separate and anterior question. Rather, the question of connection with England was one of the factors for the court to take into account when considering whether to exercise the discretion under the IA 1986. This approach was said to be supported by Jyske Bank (Gibraltar) Ltd v Spjeldnaes  BCC 16.
The claimants also contended that there was nothing unfair or oppressive in granting s.423 relief against the tenth defendant – it was a necessary and proper party to claims made against at least one defendant resident in England and against two other defendants who had submitted to the jurisdiction of the English courts by agreement. Further, the issues in the s.423 claim overlapped almost entirely with issues that would be determined in England anyway.
Butcher J dismissed the tenth defendant’s application to strike out the s.423 claim.
Though the judge accepted that certain of the “standard” factors (which are derived from Paramount Airways) which would connect a defendant with England, such as its domicile or conducting business within the jurisdiction, were not present in this case, those “standard” factors are not intended to be exhaustive.
In this case, the tenth defendant would remain involved in the litigation even if the s.423 claim was struck out. It would still need to answer claims for damages in respect of the transfer of the WEH shares. This provided a connection to England.
Was that connection sufficient? Following Jyske Bank, the involvement of the relevant defendant in English litigation, even in the absence of any other “standard” connecting factor, can (in an appropriate case) mean that there is sufficient connection for the court to exercise its discretion in favour of granting relief. The weight to be given to the defendant’s involvement in English litigation will depend on all of the circumstances of the case, including the ambit of that litigation.
In this case, the judge determined that the tenth defendant’s involvement in the English litigation could have at least some weight, since (even without the s.423 claim) the tenth defendant could still be made liable to the claimants for damages in respect of the transfer of the WEH shares at an alleged undervalue as a result of the claimants’ other claims, if they succeeded.
Because the question arose in the context of a strike out, the judge needed only to consider whether there was a realistic prospect of the claimants establishing at trial that an order should be made against the tenth defendant under s.423 despite the foreign elements of the claim. That hurdle had been cleared. There was at least an arguable case that the English litigation provided a sufficient connection with England. At trial, it would remain open to the tenth defendant to rely on all of the circumstances of the case, including its points as to the lack of any connection between the tenth defendant and the claim with England, when arguing that s.423 relief should not be granted.