Home Information Cases British Arab Commercial Bank Plc & 7 Ors v Ahmad Hamad Algosaibi & Brothers Co & Ors (2011)

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British Arab Commercial Bank Plc & 7 Ors v Ahmad Hamad Algosaibi & Brothers Co & Ors (2011)

Summary

Where the statutory insolvency or bankruptcy regimes did not apply, the historic "first past the post" rule applied and the first creditor to obtain a charging order took priority. The court retained a limited discretion in such a case to decline to make an interim charging order final where the creditor's conduct or other exceptional circumstance justified a departure from the general rule of first past the post.

Facts

The court was required to determine the priority between the claimant banks in the event that certain charging orders were made final. The fifth and sixth claimants (H) and some of the other claimant banks had issued separate claims against the defendants (D) claiming substantial sums under various loan facilities. The claims were ordered to be heard together. The claimants cooperated in the presentation and preparation of their case for trial. At trial liability was admitted. Judgment was entered in favour of the claimants and D were required to provide details of their assets. Some weeks later H obtained interim charging orders over various properties on the grounds that D were beneficially interested in those assets. H were aware of those assets from a detailed study of the documents disclosed by D in the proceedings, from information received from a private bank in the same group and from independent research by H and its legal advisers. The interim charging orders were served on the other claimants which then obtained interim charging orders over the same assets and opposed the making of final orders in favour of H, seeking instead a pari passu distribution. A trial was ordered on the issue of whether D were beneficially interested in the properties. In the meantime the court was asked to decide whether H would have priority over the other claimants in the event that its charging orders were made final. It was common ground that, although D were insolvent, the English statutory insolvency and bankruptcy regime had no application, because they were not domiciled or incorporated within the jurisdiction. H submitted that where no statutory regime of insolvency or bankruptcy applied, which required apportionment, the historic "first past the post" rule applied and the first creditor to obtain a charging order took priority. The other claimants submitted that the court had a discretion in an unusual and exceptional case to refuse to make charging orders final, if it considered it fair and just to do so and, given the conduct of H, the court was justified in exercising that discretion in favour of all the claimant banks.

Held

(1) Where there was no compulsory statutory regime of insolvency or bankruptcy, the general rule was the principle of "first past the post", FG Hemisphere Associates LLC v Democratic Republic of Congo (2005) EWHC 3103 (QB), Times, February 27, 2006 applied. However, that was only a general rule, and there might be exceptional cases where it was appropriate to conclude that someone in the position of H should not have the benefit of a final charging order and to exercise the discretion accordingly. Both the Charging Orders Act 1979 s.1 and the terms of CPR r.73.8 recognised a discretion as to whether to make an order final. That discretion was not at large. Rather, s.1(5)(b) referred to any other creditor being "unduly prejudiced" by the making of the charging order. That provision was not only intended to inure to the benefit of the general body of creditors, since it referred in terms to "any other creditor" as opposed to "all other creditors". The expression "unduly prejudiced" recognised that a charging order in favour of one creditor would almost certainly, in one sense, prejudice other creditors, because it gave that creditor security against which to enforce his judgment which the other creditors did not have, but it was only where that prejudice was "undue" that the court should consider not making a final charging order. The prejudice to other creditors could only be "undue" if there was something about the judgment creditor's conduct which would cause undue prejudice if there were a final charging order or if there were some other exceptional circumstances which meant that other creditors would suffer some prejudice over and above the prejudice they would inevitably suffer if an order were made in favour of the judgment creditor, Burston Finance Ltd (In Liquidation) v Godfrey (1976) 1 WLR 719 CA (Civ Div) considered (see paras 53-56 of judgment). (2) H's conduct was not such that they had obtained an unfair advantage over the other banks. Their conduct did not make it inequitable that the general rule should apply that the charging orders should be made final (paras 57-70). The fact that the other banks might well not recover anything was not an exceptional aspect. Further, although the other banks were seeking to share pari passu with H, that did not cover the position of other creditors who might be seeking to enforce against assets within the jurisdiction. There was no other exceptional aspect which would justify departing from the general rule. Therefore H should have priority in the event that the interim charging orders were made final (paras 71-79).

Judgment accordingly

Queen's Bench Division
Flaux J
Judgment date
29 September 2011
References

​LTL 3/10/2011 : [2011] EWHC 2444 (Comm)