Bilta (UK) Ltd & Ors v Nazir & Ors

The court refused the application by Jetivia S.A. and Mr Urs Brunschweiler to summarily dismiss the claims against them. The key legal conclusions were that (i) the defence of ex turpi causa (public policy defence) did not bar Bilta's claim because Bilta was alleged to be the victim of a conspiracy to divert funds and the directors' statutory duties under section 172 Companies Act 2006 extended to creditors where the company was or might become insolvent; (ii) the decision in Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391 did not dictate dismissal because its ratio concerned a different scope of duty (auditors) and the 'one-man company' situation which is not determinative where directors' duties extend to creditors; and (iii) section 213 of the Insolvency Act 1986 has extra-territorial effect and therefore the liquidators' claim under s.213 could be pursued against overseas participants. The court also held that the present proceedings were not an impermissible attempt to enforce a foreign revenue claim and that comity did not require dismissal.

This is a first-instance hearing of an application by Jetivia S.A. and its director Mr Brunschweiler to summarily dismiss claims brought by Bilta (UK) Ltd (in liquidation) and its liquidators. Bilta traded in European Emissions Trading Scheme allowances (EUAs) between April and July 2009 and later faced unpaid VAT assessments of some £38m. The amended particulars alleged a conspiracy to defraud Bilta by diverting sale proceeds offshore, breaches of fiduciary and statutory duties by Bilta's directors, and claims in dishonest assistance and knowing receipt against third parties, including Jetivia. The liquidators joined claims under section 213 Insolvency Act 1986.

The application raised three principal issues:

• Whether Bilta's claim was barred by the maxim ex turpi causa non oritur actio, in particular in light of Stone & Rolls v Moore Stephens;
• Whether section 213 Insolvency Act 1986 has extra-territorial effect;
• Whether the claim impermissibly sought to enforce a foreign revenue debt or otherwise required dismissal on comity grounds.

The Chancellor analysed Stone & Rolls in detail, including the majority and dissenting speeches. He concluded that Stone's ratio concerned the limited scope of auditors' duties and the 'one-man company' context and does not apply where directors' duties (here, under s.172 Companies Act 2006) extend to creditors because a company is or may become insolvent. The court found the amended particulars sufficiently pleaded that Bilta was the victim of a scheme designed to denude it of funds and that the directors owed duties to present and future creditors; accordingly the ex turpi defence did not bar Bilta's claims or the liquidators' s.213 claim.

On extra-territoriality the court followed authorities such as Re Paramount Airways and Re International Tin Council to conclude that s.213 can have extra-territorial effect, permitting proceedings against persons outside the United Kingdom who were knowingly parties to carrying on business with intent to defraud creditors. On the revenue/comity point the court held the claim sought compensation for the conspiracy to create a fund for creditors (including HM Revenue & Customs) and was not an attempt to enforce the revenue laws of a foreign state; there was no basis for dismissal on comity grounds. The application to summarily dismiss was therefore dismissed.

The application by Jetivia S.A. and Mr Brunschweiler to summarily dismiss the claims against them is dismissed. The court held that (1) the defence of ex turpi causa is unavailable because Bilta is pleaded to be the victim of a conspiracy and the directors' duties under section 172 Companies Act 2006 extended to creditors in the relevant circumstances; (2) the House of Lords decision in Stone & Rolls is distinguishable and not governing here; (3) section 213 Insolvency Act 1986 has extra-territorial effect and thus applies to the defendants' overseas activities; and (4) the claim does not improperly seek to enforce a foreign revenue debt or require dismissal on comity grounds.