Bhatti & Sons Inc. v Wight

• Jurisdiction: Cayman Islands
• Judge: (Kellock, Ag. J.)
• Judgment Date: 08 April 2003
• Court: Grand Court (Cayman Islands)
• Date: 08 April 2003

Grand Court

(Kellock, Ag. J.)

BHATTI AND SONS INCORPORATED and LIBPAK INCORPORATED

and

WIGHT, PILLING and MACKEY (Liquidators of BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LTD. (in liquidation))

P.S.L. Simon for the applicants;

R. McMillan for the respondents.

Cases cited:

(1) Anklesaria v. Bank of Credit & Commerce Intl. (Overseas) Ltd., 1999 CILR 274, dicta of Murphy J. considered.

(2) Kentwood Constrs. Ltd., In re, [1960] 1 W.L.R. 646; [1960] 2 All E.R. 655n., dicta of Buckley J. considered.

(3) Van Laun, In re, [1907] 2 K.B. 23, dicta of Cozens-Hardy, M.R. distinguished.

Legislation construed:

Grand Court Rules, 1995 (Revised), O.41, r.5:

‘(1) Subject to Order 14, rules 2(2) and 4(2), to Order 86, rule 2(1), to paragraph (2) of this rule and to any order made under Order 38, rule 3, an affidavit may contain only such facts as the deponent is able of his own knowledge to prove.

(2) An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.’

O.102, r.17: ‘Unless and until any rules are made under Section 174 of the Law, all applications to the Court made pursuant to Sections 49, 79 and Part V of the Law and all proceedings concerning or arising out of the liquidation of any company shall, so far as practicable, be made in accordance with The Insolvency Rules 1986 (SI 1986/1925), insofar as such rules are not inconsistent with the Law or such other rules as may be applied to the proceeding in question.’

Insolvency Rules 1986 (S.I. 1986/1925), r.4.83(1):

‘If a creditor is dissatisfied with the liquidator”s decision with respect to his proof … he may apply to the court for the decision to be reversed or varied.’

Companies-compulsory winding up-creditors-proof of debt-creditor not responsible for condition of bank”s deposit register or quality of bank”s record-keeping-liquidator not entitled to rely on incomplete deposit register to reject proof of debt, especially if contains ‘collective entries’ not identifying individual creditors

Companies-compulsory winding up-proof of debt-creditor to satisfy civil standard of proof-liquidator not entitled to require ‘impeccable evidence’-creditor not obliged to provide further evidence such as additional bank records or witness to deposit-if suspicion of fraud, duty to investigate and cannot simply refuse to accept bona fides of claim

The applicants appealed to the Grand Court against the liquidators” rejection of their proofs of debt.

BCCI Overseas went into receivership and the respondents were appointed as the official liquidators. The applicants filed proofs of debt in relation to accounts held at the Monrovia branch of BCCI Overseas, claiming to have made large deposits into those accounts around the time the Liberian civil war reached Monrovia. The banks in Monrovia were authorized to suspend business operations, because of the hostilities, but the parties disagreed as to when BCCI Overseas actually ceased operating. The liquidators believed the closure had predated some of the deposits which the applicants claimed to have made, and were therefore suspicious of the proofs of debt. The applicants supported their proofs with deposit slips, each apparently stamped by BCCI Overseas, and also official letters from the Liberian National Bank, acknowledging the accounts containing the amounts claimed. The account numbers which the applicants used to prepare their proofs (namely, those provided in the letters from the National Bank) did not, however, appear on the branch”s deposit register.

The liquidators did not investigate the applicants” credibility, nor require cross-examination on their applications. They rejected the proofs of debt primarily on the evidence of the deposit register, claiming that the proofs were not substantiated by sufficient evidence and that the circumstances surrounding the deposits were suspicious.

On appeal under the Insolvency Rules 1986, r.4.83, the applicants submitted that (a) they only needed to satisfy the liquidators as to the proofs of debt on the civil standard of proof (the balance of probabilities) and were not obliged to adduce any further corroborating evidence; (b) the liquidators were not entitled to reject their proofs of debt as being fraudulent without conducting an investigation into that allegation, and could not reject them merely on suspicion; and (c) furthermore, the deposit register was not a satisfactory basis for the liquidators” rejection of their proofs of debt because it was unreliable and incomplete.

The liquidators submitted in reply that (a) the applicants had to satisfy a higher standard of proof than the civil balance of probabilities and thus had to adduce corroborating evidence either in the form of bank records or of witnesses to the deposit transactions, which they had failed to do; (b) as liquidators they were entitled to reject suspicious proofs of debt without further action and it was not necessary for them to allege fraud; and (c) moreover, the deposit register, being fundamental to the business of banking, could be expected to constitute a complete record and be acceptable evidence for the rejection of the proofs of debt, and, as the applicants were not listed therein, the proofs should be rejected.

Held, allowing the appeals:

(1) The applicants” proofs of debt had been improperly rejected. They needed to establish their proofs of debt on the balance of probabilities, i.e. the civil standard of proof, which they had done. The liquidators” claim that the applicants had to adduce ‘impeccable evidence’ before their proofs of debt would be acceptable therefore failed. Although there were instances in which common sense and experience required that applicants discharge some special standard of proof by ‘impeccable evidence,’ this case did not fall into such a category. The liquidators” claim that the proofs of debt must be substantiated by other bank documents (e.g. the deposit register) or by witnesses to the deposit transaction, was unreasonable (para. 28; paras. 35–38).

(2) If the liquidators suspected that the applicants” proofs of debt were fraudulent, they were entitled, if not obliged, to investigate, and to require the applicants” cooperation. They were not entitled, however, simply to sit back and refuse to be satisfied as to the bona fides of the claims. They had taken the position, early on, that the applicants” claims were suspicious, had not taken any steps to verify their suspicion and had ignored all evidence to the contrary. If they believed that the proofs of debt were fictitious, i.e. fraudulent, the burden was on them to prove it, which they had not done (para. 29; paras. 39–40).

(3) The liquidators” reliance on the deposit register to reject the proofs of debt was flawed because the register was incomplete and unreliable. In rejecting the proofs, the liquidators had treated the register as if it were a complete record, when in fact it was fragmentary. It also contained ‘collective entries,’ in which several deposits were grouped together and

classified as ‘miscellaneous,’ making it misleading to say that the applicants” names did not appear on the register. The applicants could not be expected to take responsibility for the content of the register, nor whether it had been properly kept, and the liquidators could not therefore reject the proofs of debt based on the register evidence (paras. 26–27).

1 KELLOCK, Ag. J.:

The application

The applicants, M.S. Bhatti & Sons Inc. and Libpak Inc., apply to the Grand Court of the Cayman Islands pursuant to the Grand Court Rules O.102, r.17 and the Insolvency Rules 1986, r.4.83, for a reversal of the rejection of their proofs of debt by the respondents on November 9th,

2000. The Bank of Credit and Commerce International (Overseas) Limited (hereinafter ‘BCCI Overseas’), having its registered office in the Cayman Islands, opened a branch in Monrovia, Liberia in 1979.

2 According to the affidavit of M.S. Bhatti sworn in Liberia on October 29th, 2001, the first applicant M.S. Bhatti & Sons Inc., a company incorporated pursuant to the Business Corporation Act of Liberia, was engaged in the business of the retail sale of petrol and the transportation of poultry and other consumables in Liberia, and had a place of business in the Liberian capital, Monrovia.

3 Libpak Inc. is also a Liberian company operating out of the same location as M.S. Bhatti & Sons Inc., and is engaged in the business of ‘renovating and refurbishing the vessel MN Kona.’ M.S. Bhatti is the president of both companies (which I will call ‘Bhatti & Sons’ and ‘Libpak’) and both companies were, in June 1990, customers of BCCI Overseas, with accounts at the bank”s branch in Monrovia.

4 Because a civil war was waging at that time in Liberia, all banks operating in the country were authorized by the Liberian Central Bank (The National Bank of Liberia) to suspend...