Woventex Ltd (In Receivership) v. Benichou (Mauritius) [2007] UKPC 32 (10 May 2007)

Privy Council Appeal No 27 of 2005

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]

1.	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.

2.	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.

3.	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.  

4.	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.  

5.	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.

6.	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.

7.	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.

8.	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.

9.	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.)

10.	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.

11.	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.

12.	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)).

13.	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.

14.	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.

15.	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.

16.	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.

17.	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.