Vendort Traders Inc v Evrostroy Grupp LLC

A statutory demand may be set aside for a substantial dispute only where the debtor can raise a triable issue, applying the summary-judgment test. Fresh evidence said to show that an arbitral award was procured by fraud must at least be potentially decisive of the debtor’s liability. Evidence concerning later frauds or common control does not meet that threshold where the underlying contract remains binding and there is no evidence of variation or release. An arbitral award creates an enforceable debt when issued. An order under the Arbitration Ordinance provides procedural enforcement facilities but is not the source of enforceability.

The respondent served a statutory demand on Vendort Traders Inc for a debt arising from a final arbitration award concerning the unpaid balance of a share purchase price. The appellant applied to set aside the demand, alleging that the award was procured by fraud and that the debt was not enforceable without an order under section 28 of the Arbitration Ordinance.

Bannister J (Ag) dismissed the application, and the Court of Appeal of the Eastern Caribbean Supreme Court upheld that decision. The appeal concerned whether the fresh evidence raised a substantial dispute about the debt and whether the award was enforceable without a section 28 order.

1. Disposition. The Board, in a judgment delivered by Lord Sumption and recording concurrence of opinion, advised Her Majesty that the appeal should be dismissed.
2. Statutory demand. Under the combined effect of sections 8 and 155 of the Insolvency Act 2003, a company is deemed insolvent and liable to be wound up where a statutory demand for a debt is served and is neither set aside nor complied with within 21 days. Section 157 permits the demand to be set aside where there is a substantial dispute about whether the debt is owing or due. The applicable test is whether the debtor can raise a triable issue, as on an application for summary judgment.
3. Fresh evidence and fraud. The Board assumed, without deciding, that evidence unavailable during an arbitration which discredits evidence given to the arbitrator may make an award unenforceable. Such evidence must at least concern an issue potentially decisive of the outcome, here the appellant’s liability to pay the balance of the price. The evidence concerning common control and Mr Kozlov’s later frauds did not meet that threshold. The share purchase agreement remained binding, its validity was not challenged, and the alleged improper transactions occurred after it was made. The evidence did not show that the agreement had been varied or that the debt had been released.
4. Enforceability of the award. The award created an enforceable debt when issued and was conclusive evidence between the parties that the debt was due. An order under section 28 of the Arbitration Ordinance merely made the court’s procedural facilities available. It recognised enforceability but was not its source, which was the contract.
5. New point on appeal. The appellant’s suggestion that the respondent had dishonestly assisted Mr Kozlov was not properly before the Board. It had not been taken clearly below or included in the Printed Case. The appellant was confined to the points argued below and in the Printed Case, particularly since the respondent had not participated in the appeal and could not answer the new allegation.

• Privy Council: dismissed the appeal from the decision of the Court of Appeal.
• Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands): upheld the dismissal of the application to set aside the statutory demand.
• Bannister J (Ag): dismissed the application to set aside the statutory demand.