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You are here: BAILII >> Databases >> The Dubai International Financial Centre >> Diwan Capital Limited (in liquidation) v Diwan Capital AG [2010] DIFC CFI 018 (23 February 2011) URL: http://www.bailii.org/ae/cases/DIFC/2011/cfi_018.html Cite as: [2010] DIFC CFI 018, [2010] DIFC CFI 18

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Diwan Capital Limited (in liquidation) v Diwan Capital AG [2010] DIFC CFI 018

February 23, 2011 Court of First Instance -Judgments

Claim No: CFI 018/2010

THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler

Ruler

of Dubai

IN THE COURT

Court

OF FIRST INSTANCE

BEFORE DEPUTY CHIEF JUSTICE

Chief Justice

SIR ANTHONY COLMAN

Between

DIWAN CAPITAL LIMITED

(in liquidation)

Appellant

and

DIWAN CAPITAL AG

Respondent

Counsels: Mr. Kaashif Basit of KBH Kaanuun appeared for the Appellant

Mr. Benoit Demeulemeester represented the Respondent

---

REASONS FOR JUDGMENT GIVEN ON 14^THFEBRUARY 2011

BY DEPUTY CHIEF JUSTICE SIR ANTHONY COLMAN

---

Summary of Judgment

The issue was whether following a resolution at an extraordinary general meeting resolving that a company shall be put into members' voluntary liquidation and that the former CEO should for the time being be authorised to get in the assets of the company and discharge its liabilities prior to the appointment of a liquidator, the former CEO had effectively filed an appeal against a judgment in the Small Claims Tribunal Tribunal in the absence of a liquidator. Held: that it was open to the liquidator subsequently appointed to ratify the act of the former CEO in filing the appeal:Alexander Ward & Co v Samyang Navigation Co. Ltd.[1975] 1 WLR 673 applied. Quaere: Whether, absent ratification, the former CEO could effectively be authorised to file the appeal, notwithstanding the liquidation resolution.

Introduction

1. These are the reasons for my decision given on 14^thFebruary 2011 which determined that the appeal of Diwan Capital Ltd (in these reasons "Limited") from the judgment of H.E. Justice Ali Al Madhani given in the Small Claims Tribunal ("the SCT") on 13^thJune 2010 had been effectively commenced when notice of appeal was filed on 27th June 2010.

2. The issue as to the validity of the filing of that notice of appeal arises out of the following facts.

3. On 30^thMarch 2010 it was resolved by the shareholders of Limited that the company should be wound up. However, no liquidator was then appointed. It was, however, resolved by the members of the company that Richard Bushman, the Chief Executive Officer of Limited, would, for the time being, continue to exercise the powers to dispose of the company's assets and to satisfy its liabilities.

4. Efforts to identify a suitable person to act as liquidator were not immediately successful and, the Respondent having issued its claim in the SCT on 16 April 2010, Mr Bushman represented Limited. On 13^thJune 2010, H E Justice Ali Al Madhani gave judgment against Limited in the sum of AED 91,800. The time for filing a notice of appeal expired on 27^thJune 2010 and on that day, no liquidator having yet been appointed, Mr Bushman filed a notice of appeal against that judgment.

5. In the meantime, Justice Sir John Chadwick had on 23^rdJune 2010 directed that a liquidator should be nominated if possible within 14 days, that is before the first convenient date on or after 4^thJuly 2010, whereupon the person so nominated could be approved by the Court

Court

and thereby appointed liquidator. In accordance within this order the Court made a further order on 5^thJuly 2010 appointing as liquidator Sajjad Haider Chartered Accountants LLP as liquidator.

6. However, the Respondent then challenged the validity of the notice of appeal. It contended that on 27^thJune 2010, prior to the appointment of the liquidator, it was not open to Mr Bushman to file that notice because, following the decision to wind up the company, he had no authority to represent it and, specifically, no authority to act on its behalf in commencing an appeal. Accordingly, no appeal had been effectively begun within 14 days from the date of the judgment.

7. Since the apparent appeal in this matter could not proceed until that issue was determined, on 30^thSeptember 2010 I directed that there should be a hearing before me at which submissions could be made. That hearing took place by video conference on 14^thFebruary 2011.

8. At that hearing Limited relied on a witness statement dated 11^thJanuary 2011 of Mr Sajjad Haider, the Liquidator, in which he stated:

"I can confirm that I am satisfied that pursuing the present Appeal is in the best interests of the Company. To that end, I intended to, and continue to intend, to fully adopt (on behalf of the Company) all of the steps taken by Mr Bushman in the present proceedings including the filing of an Appellant's Notice. For the avoidance of doubt, I intend to vigorously pursue this appeal on behalf of the Company and will take all necessary steps so as to ensure that the appeal proceeds effectively."

9. On behalf of Limited it has been submitted by Mr Kaashif Basit that the filing of the appeal by Mr Bushman was effective because he was fully authorised by the resolution of 30^thMarch 2010 to take that course in protection of the company's assets. In the alternative, it is submitted that the liquidator has by his witness statement ratified on behalf of the company the conduct of Mr Bushman in commencing this appeal.

10. In the further alternative Mr Basit submitted that the Respondent was estopped from asserting that Mr Bushman's conduct in commencing this appeal was unauthorised. The estoppel relied on is based on the submission that the Respondent, having commenced the claim in the SCT, was then put on notice that the company had been wound up by the words in the defence served on 11^thJuly 2010 in those proceedings

"The shareholders have now agreed to close the company in a members' voluntary liquidation."

and

"As of this writing Richard Bushman is responsible for closing down the company."

It is argued that, by pursuing the claim to trial in the face of that pleading, the Respondent impliedly represented that it accepted that Mr Bushman had authority to defend the proceedings that Limited relied on that representation and continued to defend the proceedings without appointing a liquidator.

11. Finally, if that is wrong, Limited applies for an extension of time to file a notice of appeal.

12. In support of both his primary submission and the alternative Submission that the conduct of Mr Bushman in filing the notice of appeal has been ratified by the liquidator and has thereby been retrospectively made effective Mr Basit has relied on the decision of the House of Lords in the Scottish appealAlexander Ward & Co v Samyang Navigation Co. Ltd.[1975] 1 WLR 673. In that case the claimants' vessel was arrested pursuant to proceedings commenced by two managers of the respondent Hong Kong company whose articles provided that the business of the company was to be managed by its directors. However, at the relevant time the company had no directors and there was therefore no one who could conduct the company's business in accordance with the articles. Although it had been unsuccessfully argued in the court below that the two managers could act on behalf of the company, the only issue before the House of Lords was whether it was open to a liquidator appointed after the arrest to adopt the proceedings and thereby ratify what had been done on behalf of the company. It was held that the liquidator could ratify the commencement of proceedings on behalf of the company. Mr Basit submitted that this decision was determinative of the issue.

13. On behalf of the Respondent Mr Benoit Demeulemeester, a shareholder of the Respondent who has represented it, submitted that (i) Mr Bushman could not be authorised by the company once it had been resolved to wind it up and (ii) it was not open to the liquidator to ratify the commencement of the appeal because the conduct of the company in purporting to clothe Mr Bushman with authority to get in the assets while deliberately abstaining from appointing a liquidator was unlawful. Mr Demeulemeester based that submission on Article 33 of the DIFC

DIFC

Insolvency Law which provides as follows:

"33. Appointment of Liquidator(1) In a members' voluntary winding up, the Company in general meeting shall appoint one or more liquidators for the purpose of winding up the Company's affairs and distributing its assets. (2) On the appointment of a liquidator all the powers of the directors cease, except so far as the Company in general meeting or the liquidator sanctions their continuance."

He argued that the effect of that provision is that immediately upon passing the resolution to wind up the company in general meeting the shareholders ought to have appointed a liquidator and that, having deliberately abstained from doing so, they acted unlawfully to the effect that the liquidator cannot now adopt so as to ratify their unlawful conduct in purporting to clothe Mr Bushman with authority to carry on in any way the business of the company with and in particular the commencement of the appeal.

14. Mr Demeluemeester supports this argument by the submission that if a company were permitted both to pass a winding up resolution and abstain from the appointment of a liquidator, while authorising individuals to enter into transactions involving its assets and liabilities, that could be an engine for a fraud on minority shareholders.

15. He further submits that there can be no estoppel because the company acted unlawfully in clothing Mr Bushman with authority and his conduct as represented was therefore unlawful and cannot give rise to an estoppel.

Discussion

16. The first question which arises is whether it was open to Limited by the 30th March 2010 resolution both to wind up the company and to omit to appoint a liquidator and yet to authorise Mr Bushman to act on its behalf.

17. Some support for the proposition that Mr Bushman was thereby given actual authority to commence the appeal is to be derived from a passage in the speech of Lord Kilbrandon inAlexander Ward & Co. Ltd. v. Samyang Navigation Co. Ltd., supra, in which, with reference to an article of the pursuers' articles of association which stated:

"The business of the company shall be managed by the directors, who ... may exercise all such powers of the company as are not by the [Hong Kong] Ordinance or by these articles required to be exercised by the company in general meeting."

His Lordship expressed the view at page 682–683:

"My Lords, I must say that I have the gravest doubts as to the soundness of the proposition pleaded. I am not all convinced that, the management of a company having been confided to the directors, and the instructing of actions at law being an act of management, then, if the company has for the time no directors, it cannot during that time take steps to recover its debts. I think the article probably means no more than this, that the directors, and no on else, are responsible for the management of the company, except in the matters specifically allotted to the company in general meeting. This is a term of the contract between the shareholders and the company. But it does not mean that no act of management, such as instructing the company's solicitor, can validly be performed without the personal and explicit authority of the directors themselves. In any case I have even graver doubts whether the validity of the company's act, resting as it must on a construction f the contract with the shareholders, can in such a matter be challenged by someone whose only relationship with the company is one of indebtedness."

In this passage Lord Kilbrandon did not express a concluded view on the issue and acknowledged that the point had not been argued in the House of Lords or in the lower court. None of the other members of the House of Lords referred to it.

18. For my part, I would doubt whether any different conclusion would be reached in a case such as the present where, following the winding up resolution there was an express resolution of the members authorizing a manager to get in the assets. This would seem to be a stronger factual basis for concluding that Mr Bushman was specifically and actually authorized to act on behalf of the company in liquidation.

19. However, I conclude that there is a surer and better-founded basis for concluding that the company gave authority to Mr Bushman to act as he did. That basis is the subsequent ratification of his conduct by the liquidator. In particular, I am unable to accept the Respondent's submission that with regard to ratification this case can be distinguished fromAlexander Ward & Co. Ltd v Samyang Navigation, supra, on the grounds that there was a deliberate abstinence by the members from the immediate appointment of a liquidator whereas in that case the appointment was impossible because there were no directors of the company nor had there been a general meeting which would have granted authority to act to the managers. As I see it, on the hypothesis that in this case the resolution of the company to clothe Mr Bushman with authority was invalid, inbothcases the managers concerned must be assumed to have lacked actual authority to commence proceedings on behalf of the company to the effect that, if it stood alone, their act in so doing would not be effective to commence proceedings.

20. Mr Demeulemeester's submission based on Limited's unlawfulness in omitting to appoint a liquidator, in my judgment, fails on two grounds.

21. Firstly, Article 33(1) of the DIFC Insolvency Law does not in terms require a liquidator to be appointed at the same general meeting as that which passes the winding up resolution. Indeed, there might well be circumstances in which that course proved impossible. It not infrequently happens thatnominationof a liquidator takes place after the winding up resolution has been passed and that no appointment can be made until whoever is nominated indicates a willingness to accept the appointment. It must follow from Article 32(2) that unless and until the person nominated has accepted and has been appointed, the powers of the directors continue. Indeed, the whole pre-winding up management structure must continue unless the company resolves otherwise. If that were not so, the company would not be able to take any decisions until a liquidator had been appointed. Although, as recognised by Justice Sir John Chadwick in this case, it is important that, having passed a winding up resolution, the appointment of a liquidator should not be left outstanding for longer than reasonably necessary even if, as here, the members have expressly authorised an interim management structure, the omission to appoint a liquidator without delay is not of itself an unlawful act under the Insolvency Law. Specifically there is nothing in that Law which imposes on the company any penalty for non-compliance, even if the members' meeting deliberately abstains from such an appointment.

22. It follows that the argument that the principle of ratification as exemplified inWardcannot apply in this case because of the unlawful basis of the resolution which purported to clothe Mr Bushman with authority is defective. In my judgment, ratification was therefore as available in the present case as inWard. The effect of the Liquidator's witness statement was ratification by Limited of the conduct of Mr Bushman in commencing the appeal in these proceedings.

23. In view of my conclusion on the ratification point it is unnecessary to express any concluded view on the estoppel argument. However, my provisional view is that Limited's submissions are well-founded.

Conclusion

24. The Appellant, having by its liquidator ratified the conduct of Mr Bushman in filing a notice of appeal, this is a competent appeal against the judgment in the SCT and can proceed to a hearing. The Appellant's alternative application for an extension of time to appeal therefore does not arise.

25. The Respondent must pay on a standard basis the Appellant's costs of preparation for this hearing and for attendance at this hearing.

26. The Appellant's Costs of attending the hearing on 18 Jan 2011 are to be excluded from the costs for which the Respondent is liable. These costs were incurred because, due to administrative errors by the Court, the Appellant was caused to prepare for and attend a hearing on 18 Jan 2011 of which the Appellant had notice but the Respondent had been given no notice and which the Respondent did not attend. Neither party was at fault. The Appellant should inform the Registrar

Registrar

of the amount of those costs relating to that hearing. I recommend that the Appellant should be reimbursed such reasonably incurred costs in full out of the Court's funds.

Sir Anthony Colman

Deputy Chief Justice

Chief Justice

Date of Issue: 23 February 2011