Moorgate Industries UK Ltd v Mittal

This is the hearing of a petition dated 26 November 2019 presented by Moorgate Industries (UK) Limited (“Moorgate”) against Mr Mittal, an Indian citizen and prominent businessman. The Petition was preceded by a statutory demand and served personally on Mr Mittal on 2 December 2019.

The Petition is in relation to a debt in the sum of £139,786,656.43 plus interest which continues to accrue. The debt arose following an award made in favour of the Petitioner on 31 July 2017 by the London Court of International Arbitration (“LCIA Award”) against a company called Global Ispat Koksna Inustrija d.o.o. Lukavac

In the Petition, Moorgate deducted from the Judgment Debt, $18,053,066.01 in respect of payments which it has received in respect of principal and interest as well as a further sum of £66,000. This amount refers to a costs order made by ICC Judge Barber on 15 October 2019 when Moorgate withdrew an earlier petition (the “First Petition”) and agreed to pay Mr Mittal’s costs of £66,000 within 14 days (the “Costs Award”). The Petition states that Moorgate has set the Costs Award off against the Judgment Debt.

This is the third hearing of the Petition. The second hearing, originally listed with a time estimate of half a day fell on 30 March 2020, just a week after the Prime Minister announced a lock-down to prevent the spread of the Covid-19 coronavirus. The question arose as to whether the hearing could take place remotely. The Court directed that the hearing should proceed remotely, but for directions only.

At the hearing, I made directions for the parties, if so advised, to file further evidence and adjourned the Petition to the first available date after six weeks. I considered this to be sufficient time to give Mr Mittal a reasonable opportunity to instruct his lawyers, make arrangements to be able to attend the hearing remotely and prepare for the hearing - in each case, bearing in mind the constraints upon him as a result of his personal need to be shielded as a particularly vulnerable individual during the pandemic.

Earlier today I considered and dismissed an application by Mr Mittal for a further 12week adjournment.

Mr Mittal opposes the petition on the following grounds:

Mr Mittal’s Notice of Opposition refers to an earlier, proposed settlement agreement to which GSHL was also a party. Moorgate contends that it did not enter into that agreement. Mr Ryan was, in any event, content simply to rely on the Settlement Agreement which was in substantially the same terms. Mr Mittal claims that as Moorgate has not exercised its right to terminate the Settlement Agreement, it remains bound by its terms and in particular:

Mr Ryan submitted that the purpose of the Settlement Agreement was to provide a basis for Mr Mittal to pay the Settlement Sum, (which would drop to $56 million in the circumstances set out under clause 3.2, which circumstances have not in fact arisen) and to impose an obligation on Moorgate to continue to try to obtain payments from the primary debtor, GIKIL. He said that it followed that if Moorgate intended to proceed against Mr Mittal for the entire debt, it was obliged first to terminate the Settlement Agreement and only upon doing so would it be free of its obligation under clause 3.5 to obtain payments from GIKIL.

I do not accept this interpretation of the Settlement Agreement. By clause 3.1, the debt due from Mr Mittal to Moorgate was indeed limited to $60 million. Clause 3.1.2 set out a series of multi-million dollar instalment payments to be made by Mr Mittal on or before five specific dates between 30 June 2018 and 20 January 2020. Clause 4, “Default” provides that subject to a mechanism set out in Clause 4.1 (whereby Mr Mittal could extend the dates for payment of the instalments):

“Moorgate shall have the right to claim the full amount of the Judgment and/or the Award less any payments already made under this Agreement and to pursue all and every proceedings against Mr Mittal and/or GIKIL to recover this sum in the event that:

a)

Mr Mittal fails to make any payment in full in accordance with Clause 3.1 as reduced (as the case may be) by the provisions of Clause 3.2 by the dates due for such payments; and/or

b)

Moorgate terminates this Agreement in accordance with Clause 11”.

Clause 11, “Termination” provides: “Without affecting any other right or remedy available to it, Moorgate may terminate this Agreement with immediate effect by giving written notice to Mr

It was not in dispute that the instalment payments provided for at Clause 3.1 have not been made. In my judgment, the “and/or” connector between sub-clauses (a) and (b) of Clause 4 makes it clear that this payment default, alone, entitled Moorgate to pursue Mr Mittal for the full amount of the Judgment Debt. It is not obliged, in addition, to exercise its rights under Clause 11 to terminate the Settlement Agreement before being entitled to do so.

Having not terminated the Settlement Agreement, Moorgate remains bound by Clause 3.5 which provides that until the Settlement Sum is paid in full or the agreement is otherwise terminated:

“Moorgate at its sole and absolute discretion agrees:

(a)

to continue the existing steps Moorgate is taking to obtain payments from GIKIL, including, but not limited to, monitoring and communicating with GIKIL in relation to GIKIL’s cash flow;

(b)

to take steps Moorgate deems appropriate, including, but not limited to, giving notice to GIKIL of an intention to enforce the Award, to obtain payments from GIKIL if Mr Mittal can provide evidence to the satisfaction

of Moorgate that GIKIL has a monthly surplus cash flow in excess of $100,000 to make payments to Moorgate; and

(c)

to consider in good faith any other requests for assistance made by Mr Mittal to obtain payments from GIKIL either through:

(i)

Claim no. 166934 and Claim no, 166950 against GIKIL in the Municipal Court of Lukavac, Bosnia and Herzegovina; or

(ii)

any other reasonable enforcement method”.

Mr Mittal’s Notice of Opposition refers to a letter dated 17 September 2019 in which GIKIL explained that in May and June 2019 GIKIL paid Moorgate $1.7 million, which was a far larger sum than the amount it was required to pay during the same period by $100,000 monthly instalments. The letter asks Moorgate to take this into account and thereby postpone the next monthly payment until 20 May 2020. Moorgate replied seeking further information.

The latest information in the court bundle was a further letter from GIKIL dated 15 May 2020 to which was attached an excerpt from GIKIL’s business plan and cash flow forecast. This letter states that GIKIL has been facing a series of challenges as a result of the Covid-19 pandemic, the loss of its environmental permit and delays in significant sale contracts, the last in particular resulting in it not being in a position to resume the agreed monthly payments of US$100,000. The letter concludes that if the market begins to improve in the second half of the year, it may be possible for GIKIL to resume the monthly payments in October 2020. The attached annual business plan shows an anticipated loss for the year of US$1.6 million.

In my judgment, the steps taken by Moorgate and the replies it has recently received from GIKIL demonstrate that Moorgate has sufficiently complied with its obligations under Clause 3.5. Those obligations are far from onerous: Moorgate is merely required to take such steps “as it deems appropriate” to obtain payments from GIKIL and to consider in good faith any other requests for assistance made by Mr Mittal to obtain payments from GIKIL. GIKIL has clearly stated that it is not currently in a position to discharge any of the debt which it owes to Moorgate.

In summary, this ground of opposition is without merit. Following Mr Mittal’s failure to meet his obligations under Clause 3.1.2 of the Settlement Agreement, Moorgate was entitled to pursue him for the full amount of the Judgment Debt, taking into account (as it has done in the Petition) payments received from GIKIL and taking such steps as it deems appropriate (as I have found it has done) to obtain further payments from GIKIL.

I identified five elements to this claim:

Set-off has been widely acknowledged to be a complicated area of the law (see for example the Court of Appeal’s judgment in Axel Johnson Petroleum AB v MG Mineral Group [1992] 1 WLR 270). Practitioners often conveniently divide set-off into various types of ‘solvent set-off’ on one hand and so-called ‘insolvency set-off’ on the other. Insolvency set-off rights are creatures of statute (Rule 14.24 and 14.25 of the Insolvency (England and Wales) Rules 2016 and section 323 of the Insolvency Act 1986) and arise only in the context of formal insolvency proceedings. The issues before the Court concerning Moorgate’s petition for Mr Mittal’s bankruptcy do not arise as a result of either Moorgate or Mr Mittal having already entered formal insolvency proceedings. Consequently, insolvency set-off does not apply.

Set-off outside of insolvency proceedings can take a variety of different forms:

Both parties referred to Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667 where the Court of Appeal undertook a detailed analysis of the authorities concerning equitable set-off and concluded that the relevant test requires:

“cross-claims…so closely connected with [the plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”.

As summarised at paragraph 18(iii) above, Mr Ryan referred to the Claim and Cross Claim being insufficiently mutual and referred to Ince Hall Rolling Mills Co Ltd v The Douglas Forge Co (1882) 8 Q.B.D. 179 to demonstrate the importance the court places on “mutuality”.

In Ince Hall, a company being wound up by the Court sought to recover the price of goods which it supplied to the defendant after the commencement of the winding up but in performance of a contract entered into before such commencement. The Court held that the defendant was not entitled to set off the price of the goods supplied after liquidation against debts due to it by the company before liquidation. The postliquidation delivery of goods “gave rise to a debt due to them in a new capacity and interest, and that such a debt is not liable to a set off of a debt incurred by nominally the same company when it was carrying on its business independently and for its own benefit”.

Mr Ryan submitted that this demonstrates how strict and narrow is the Court’s requirement for mutuality. This is undoubtedly correct, but the case and the requirement for mutuality arose in the context of a company’s liquidation. The rationale behind insolvency set-off was summarised in the Court’s decision in Ince Hall: if the Court had allowed set-off, it would have resulted, in effect, in one creditor being paid in full out of the company’s assets in preference to the company’s other creditors. That offends the pari passu principle.

The correct test in relation to equitable set-off is as set out in Geldof. In relation to this test, Mr Ryan submitted that for the reasons summarised at paragraphs 18(iii) and (iv) above, the Claim and Cross-Claim were not so closely connected that it would be manifestly unjust for the Claim to proceed without taking the Cross-Claim into account. Mr Mittal incurred significant costs in defending the First Petition and it was not until the eve of its hearing (eight months after the First Petition was presented), still facing arguments concerning defective service, that Moorgate sought to withdraw it. Moorgate made no mention, when it agreed to pay the Costs Award, that it intended to set it off against the costs elements of the Judgment Debt. Mr Ryan submitted that against this background, it would be manifestly unjust to allow the setoff.

Ms Rogers contended that contrary to Mr Ryan’s submissions summarised at paragraph 18(iii) above, the Claim and Cross-Claim both arose as part of the enforcement of the Arbitration Award in the context of Moorgate seeking to enforce the Arbitration Award, inter alia by claiming under Mr Mittal’s personal guarantee. The presentation of the Petition is a later stage of the same enforcement process. Both the Claim and Cross-Claim are in respect of costs orders and it would be manifestly unjust to require Moorgate to pay £66,000 to Mr Mittal at a time when he owes Moorgate c.£140 million.

Paragraph 2 of the Commercial Court Order provides:

“The Defendants shall pay the Claimant the sum of £2,139,201.20 in respect of the Claimant's legal costs in the Arbitration, payable on the date of this Order”.

Paragraph 5 provides for the Defendants to pay £160,733.39 for the costs of the Commercial Court proceedings, within 14 days of the date of the order.

The fact that paragraph 2 of the Commercial Court Order refers to costs of the Arbitration proceedings to which Mr Mittal was not a party, is of no relevance. His liability to pay them arises, as does his liability to pay the costs at paragraph 5, pursuant to the Commercial Court Order. Mr Ryan provided me with no authority to support his contention that the joint nature of Mr Mittal’s liability under the Commercial Court Order rendered it ineligible to be the subject of equitable set-off against the Cross Claim.

In my judgment:

Mr Ryan did not advance before me Mr Mittal’s argument that Moorgate expressly or impliedly agreed that the sums could not be set off against each other. There are a number of authorities in which the Court has held that clear and unambiguous language is required if set-off is to be excluded (see for example the Court of Appeal’s review of the authorities in BOC Group plc v Centeon LLC and another [1999] 1 All ER (Comm) 970). No such language was discussed or agreed between the parties and it clearly did not form part of the Court order under which the Costs Award arose.

I find, therefore, that Moorgate was entitled to set the Costs Award off against the costs elements of the Judgment Debt.

Furthermore, even if Moorgate was not entitled to exercise a right of set-off:

In summary, in my judgment, even if I had decided that set-off does not apply, as I have not been provided with any authority in which the Court has held that a second petition may not be presented, when a costs order made on withdrawal of an earlier petition remains unpaid, Moorgate’s failure to pay the Costs Award does not, in my judgment, justify the exercise of the Court’s discretion under section 266 of the Insolvency Act 1986 to stay the petition until such costs are paid.

Rule 10.9(1) and (2) of the Insolvency (England and Wales) Rules 2016 provide:

Mr Ryan submits that as a result of the following errors, the Petition requires amendment, re-verification and re-service:

I see no reason why the Petition should have referred to the Settlement Agreement. Following Mr Mittal’s failure to make the instalment payments, he became liable once again to pay the full amount of the Judgment Debt. I am satisfied that it was sufficient, in these circumstances, for the Petition only to refer to the Judgment Debt.

The general practice of the Insolvency and Companies Court suggests that the Petition should not have included interest accruing after the date of the Statutory Demand. Ms Rogers’ argued that Moorgate was entitled to claim additional interest in the Petition because the Statutory Demand expressly claimed the principal debt plus interest which continued to accrue. Rule 10.9(1)(e) and paragraph 12.2.2 of the Insolvency Practice Direction state that the amount or rate must, in the case of a petition based on a statutory demand, be limited to that claimed in the demand. The form of petition used by Moorgate repeats this in the side notes for users. Whilst it is arguable that the

No authority was cited to me in relation to this point and consequently I consider that insofar as the Petition claimed additional interest which accrued after the date of the Statutory Demand, it was defective.

Rule 12.64 provides:

“No insolvency proceedings will be invalidated by any formal defect or any irregularity unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court”.

Mr Ryan does not seek to argue that the proceedings are invalidated by the error; merely that the Petition should be amended, re-verified and re-served. Ms Rogers says this is not necessary: the Court can simply waive defects provided no prejudice has been caused and the error can be cured. She relies on the overall lowering of the debt as a result of the exchange rate changes to say that there has been no prejudice to Mr Mittal.

I accept that no prejudice has been caused to Mr Mittal but not for the reasons given by Ms Rogers. The debt claimed in the Petition, which is in a form that expressly relies on Mr Mittal’s failure to comply with the Statutory Demand, should not have exceeded the SD Debt. There is no statutory requirement to convert the Judgment Debt which is in a foreign currency, in either the Statutory Demand or the Petition. In Re A Debtor (No. 51-SD-1991) [1992] 1 WLR 1294, Morritt J (as he was) held that the definitions of “bankruptcy debt” and “creditor” in sections 382(1) and (2) and 383 of the Act showed that the debt referred to in sections 267(2) and 268(1) included a debt payable in foreign currency and that neither the Act nor the Insolvency Rules imposed any requirement for a statutory demand or petition to convert the debt claimed into sterling. In that case, the learned judge was considering an application to set aside a statutory demand. He said:

“Counsel for the debtor emphasised the difficulties which could arise with debts payable in a foreign currency which is not freely convertible. Not only is that not this case, but it seems to me that the discretion of the court conferred by rule 6.5(4)(d) is more than adequate to deal with any difficulty which might arise in practice. If the debtor makes genuine attempts to satisfy the demand by paying what reasonably appears to be the sterling equivalent at the time of payment, that will probably be regarded as compounding the debt in a manner which the creditor cannot reasonably refuse (see section 271(3)) and a good reason to set aside the statutory demand under rule 6.5(4)(d ), if the creditor declines to accept such alternative performance. Both points would also arise with a debt payable in a freely convertible currency if the debtor paid a sum in sterling equal at the rate of exchange prevailing at the date of payment to the debt payable in a foreign currency”.

The only currency conversion provisions in the Insolvency Rules (Rule 14.21) requires that a proof for a debt incurred or payable in a foreign currency must state the

The fact that the exchange rate has moved in Mr Mittal’s favour between the date of the Statutory Demand and the Petition does not alter the fact that the Petitioner has claimed more than £1 million in respect of additional interest that has accrued since the date of the Statutory Demand. If Mr Mittal had been in a position to discharge the Petition Debt, applying what I have always understood to be the practice of this Court (which requires the petition debt not to exceed the amount claimed in the statutory demand) that could have caused him prejudice. However it is clear that he was not in such a position and there is no evidence that the error as to the amount due, or the misleading features of the calculation, have resulted in him being prejudiced in any way. In my judgment it is appropriate for the Court to remedy the defect by directing that the amount claimed in the Petition shall be reduced to the amount claimed in the Statutory Demand.

Mr Mittal submits that even if the Court dismisses his grounds of opposition (as I have done) there are several bases upon which the Court can be satisfied that there is a real prospect of the debt due to Moorgate being discharged within a reasonable time.

Mr Mittal claims to be subrogated to the claim of a company called STC India in GSHL’s liquidation in respect of a sworn proof of debt dated 23 December 2019 for US$315,404,602. Furthermore, GSHL is jointly liable with Mr Mittal for the Judgment Debt. Any realisations paid out to Moorgate as a creditor in GSHL’s liquidation will correspondingly reduce Mr Mittal’s liability.

The parties have differing views of the likelihood of a distribution being paid to creditors by the liquidators of GSHL. The liquidators’ most recent correspondence states that they are not presently aware of assets that would enable such a distribution to be made. Mr Ryan emphasised that the word “presently” suggests that the situation could change and Mr Mittal contends that the liquidators’ assessment fails to take into account the very real prospects of a payment being made to both GSHL and himself as a result of a mediation in Nigeria.

Mr Mittal’s witness statement sets out the background to a substantial claim which a Nigerian company, “GN” is pursuing in Nigeria. 75% of the Nigerian company is owned by a Mittal family trust, 22.38% by GSHL and the remaining 2.62% by Mr Mittal and other individuals. Arbitration proceedings were commenced in 2008 but recently new impetus has been given to resolution of the dispute. Mr Mittal’s witness statement refers to an “ICC mediation” but in a more recent email to Moorgate dated 15 May 2020 he refers to an arbitration. The email explains that the other side’s counsel “has full authority to commence the process to guide the negotiations for the buyout of [GN’s] interest" and that the “parties to the arbitration have indicated the following steps by these key dates”. He then sets out a number of steps including a settlement agreement being signed on or before 15 July 2020 with appropriate ratification by the Nigerian Government.

Mr Mittal’s evidence is that GN has agreed to make a settlement payment to Moorgate out of whatever money it receives from the mediation provided (i) Mr Mittal has by then not been made bankrupt; and (ii) Moorgate agrees to accept the sum in full and final settlement of the Petition debt, its claim in the liquidation of GSHL, interest, the costs of the Petition and all other claims it may have against Mr Mittal. He continues:

“Even if Moorgate rejects [GN’s] offer, there is a reasonable prospect that the mediation may (if settlement is concluded – a matter on which I do not express any opinion) result in payment of the Petition debt in full through (i) the receipt of funds by GSHL, whether by way of a dividend from [GN] or directly, which will enable GSHL to make payments to Moorgate and me (upon my claim being admitted), (ii) the receipt of funds by [a company owned by the Mittal Family Trust] by way of dividend from [GN] which I am told by its directors it would be willing to pay to Moorgate on my behalf and/or (iii) payments by [GN] to Moorgate on my behalf”.

Mr Ryan referred to evidence demonstrating that Moorgate was invited to sign a confidentiality agreement as a prerequisite to receiving more information about the mediation. Moorgate failed to respond and yet claims that it has insufficient information to be satisfied that the mediation could result in payment of the Judgment Debt. They cannot have it both ways, he says.

He also referred to Chief Insolvency and Companies Court Judge Briggs’ recent decision in State Bank of India v Mallya [2020] EWHC 96 (Ch)where, at paragraph 52 of his judgment the Chief Judge summarised the law surrounding the exercise of the Court’s discretion to adjourn a petition under section 266(3) of the Act.

“[52] The discretion has long been available. The first statute that formalised the discretion was the Bankruptcy Act 1914. Section 5(3) of the 1914 Act gave discretion to dismiss a petition where the Court was not satisfied that there had been an act of bankruptcy or not satisfied as to proper service. Judicial consideration of the discretion introduced by section 5(3) of the 1914 Act shows that there were few limits other than it had to be exercised judicially. In Re A Debtor [1920] KB 432 McCardie J (sitting as part of a two-man Court) said that a judge appears to "possess the widest discretion in respect of granting adjournments" and that the limits imposed on the judge are that he "should exercise a judicial discretion". Mr. Justice Peter Smith said that the discretion remained "quite unfettered": Re Micklethwait [2003] BPIR 101, 102. There is some doubt whether it is completely unfettered but Mr. Justice Peter Smith was merely explaining that the discretion was wide. In Re A Debtor [1920] KB 432 the Court identified at least three circumstances where an adjournment may be sought. First to remedy technicalities; secondly "to enable the evidence on either side to be fully heard and thirdly to enable the debtor in the event of his being able to do so, to satisfy [the Court] of his power to pay his or her debts in full."

Applying the principles to the billion Euro bankruptcy petition before him which, he said, was “by any measure extraordinary”, the Chief ICC Judge concluded that a reasonable period of time to adjourn the petition was 6 months. The circumstances which he considered to weigh heavily in favour of the adjournment included allowing a period of time for petitions before the Supreme Court in India and a settlement proposal before the Karnataka High Court to be determined. Neither were guaranteed

Mr Ryan submitted that Mallya underlines the wide scope of the Court’s discretion. There, the Court adjourned the petition against Dr Mallya for 6 months. Mr Mittal merely asks for an additional 14 to 16 weeks in order to be able to conclude the mediation plus a short amount of time thereafter to allow for the payments to be made – perhaps therefore 17 to 18 weeks.

Moorgate vehemently opposes any further adjournment.

Distilling the principles set out in the judgment in Mallya:

In my judgment, in this case, none of the criteria is satisfied:

This is only the second hearing of the petition. There is no doubt that the Court retains a discretion not to make a bankruptcy order, even where the petition debt has been clearly established and any grounds of opposition have been dismissed.

However, for the reasons set out above, Mr Mittal’s evidence does not persuade me that there is a reasonable prospect of the petition debt being paid in full within a reasonable period of time and upon handing down this judgment, I shall make a