Gulf International Bank v Al Ittefaq Steel Products Co & Ors

MR JUSTICE FIELD: This is the hearing of two applications by the Claimant for judgment on admissions and two cross-applications by the Defendants that they should have until 1 January 2011 to pay the sum sued for, liability in respect of those sums being admitted.

The Claimant is a company incorporated in the Kingdom of Bahrain. It is registered as a conventional wholesale bank with the Central Bank of Bahrain.

The first of the two claims on which the Claimant seeks judgment I shall call the “ISPC claim”. The first Defendant ("ISPC") is a company incorporated under the laws of Saudi Arabia. Dr Hilal, the second Defendant, is a Saudi national and the majority shareholder in Al Tuwairqi Holding Company ("ATHC"), the parent company of ISPC, which is also incorporated under the laws of the Kingdom of Saudi Arabia. The ISPC claim is for repayment of two advances made to ISPC pursuant to the terms of a facility agreement concluded between the parties on 11 January 2007 and amended on 9 October 2008. Dr Hilal is sued as guarantor of all ISPC’s obligations under the ISPC facility agreement.

The Claimant issued the ISPC claim on 5 May 2010. By a consent order dated 22 June 2010, the Particulars of Claim were amended to delete claims for payment under two promissory notes. The parties agreed that the deadline for service of the Defendant’s Defences should be 25 June 2010. When no Defence was served, the Claimant issued an application dated 15 July 2010 for default judgment on the ISPC claim. The Defendants then served an admission of the entirety of the ISPC claim on 25 August 2010 but sought time to pay. The admitted sums due are US$ 16,176,905.28 and SAR 32,000,000.

The second claim in which the Claimant seeks judgment I shall call the “ATHC claim”. The first Defendant in this claim, ATHC, is a company incorporated under the laws of the Kingdom of Saudi Arabia. The ATHC claim is also a claim for repayment of a loan, in this case a loan made under a bridge loan facility agreement concluded on 29 July 2007.

In July 2010, the Claimant issued the claim for repayment of the loan, together with default commission. On 11 August 2010, the principal claim for US$ 100 million and the commission claim for US$ 2,248,170 was admitted with a request for time to pay.

A Standstill Agreement dated 13 May 2009 was concluded between the Claimant, together with other creditors of the Defendants defined in that agreement as the “financiers”, and the Defendants (the “Standstill Agreement”). It provided for a standstill date of 25 January 2009. Clause 4 of the Standstill Agreement provided that the Financiers would not demand or enforce payment of certain liabilities of the Defendants. Pursuant to clause 5.5, the parties undertook to use their best endeavours to agree a restructuring within 90 days. That period commenced on 16 September 2009, but no restructuring was concluded within the 90 day period. Thereafter, the Claimant ceased to participate in the restructuring negotiations and the Standstill Agreement terminated as between it and the Defendants. A short time subsequently, the Claimant demanded repayment of the sums owed to it by the Defendants and commenced these proceedings.

Rescheduling negotiations have continued between the Defendants and the other Financiers and the standstill has been amended and extended as between those parties on the same terms since December 2009.

The total debt of the ATHC group, excluding UK and European operations, is SAR 8,479,080,000 (approximately £1,549,502,800 or US$ 2,260,828,762). Twenty eight financial institutions, excluding the Financiers of Thamesteel Ltd (UK) and other European entities, have exposure to the group and are directly or indirectly involved in the Standstill Agreement, the Standstill Amendment and Extension Agreement and the proposed restructuring agreement.

While the Defendants are keen to progress the restructuring as fast as possible, it would seem that the restructuring is not likely to be in place until the end of 2010 or the beginning of 2011.

On behalf of the Defendants, Mr Parker submits that the court should extend the time by when the admitted sums must be paid to 1 January 2011, for the following reasons.

Mr Parker accepted that it was a sine qua non to the success of his application that the court was satisfied that there was a real prospect of the Claimant signing up to a rescheduling agreement before 1 January 2011.

The Defendants' application for an extension of time is made under CPR 14.9 and 14.10. Rule 14.9 reads:

“(1)

A Defendant who makes an admission under rules 14.4, 14.5 or 14.7 (admission relating to a claim for a specified amount of money or offering to pay a specified amount of money) may make a request for time to pay.

(2)

A request for time to pay is a proposal about the date of payment or a proposal to pay by instalments at the times and rate specified in the request.

(3)

The Defendant’s request for time to pay must be served or filed (as the case may be) with his admission.

(4)

If the Claimant accepts the Defendant’s request, he may obtain judgment by filing a request in the relevant practice form.

(5)

On receipt of the request for judgment, the court will enter judgment.

(6)

Judgment will be (a) where rule 14.4 applies, for the amount of the claim (less any payments made) and costs; (b) where rule 14.5 applies, for the amount admitted (less any payments made) and costs; or (c) where rule 14.7 applies, for the amount offered by the Defendant (less any payments made) and costs; and (in all cases) will be for payment at the time and rate specified in the Defendant’s request for time to pay.

(Rule 14.10 sets out the procedure to be followed if the Claimant does not accept the Defendant’s request for time to pay.)”

Rule 14.10 reads:

“(1)

This rule applies where the Defendant makes a request for time to pay under rule 14.9.

(2)

If the Claimant does not accept the Defendant’s proposals for payment, he must file a notice in the relevant practice form.

(3)

Where the Defendant’s admission was served direct on the Claimant, a copy of the admission and the request for time to pay must be filed with the Claimant’s notice.

(4)

When the court receives the Claimant’s notice, it will enter judgment for the amount admitted (less any payments made) to be paid at the time and rate of payment determined by the court.”

These are not the only provisions in the CPR that confer a power on the court to postpone payment of sums in respect of which the creditor is entitled to judgment. CPR 40.11 provides:

“A party must comply with a judgment or order for the payment of an amount of money (including costs) within 14 days of the date of the judgment or order, unless (a) the judgment or order specifies a different date for compliance (including specifying payment by instalments); (b) any of these rules specifies a different date for compliance; or (c) the court has stayed the proceedings or judgment.

(Parts 12 and 14 specify different dates for complying with certain default judgments and judgments on admissions.)”

There also exists power to give time to pay as part of the execution process by which judgments are enforced (see, eg RSC Rule 47.1).

There would appear to be no cases dealing with how the discretion conferred by CPR 14.10 is to be exercised, but a number of decisions of Akenhead J dealing with applications under CPR 40.11 were cited to me, two of which I have found helpful in these applications.

In Gipping Construction Ltd v Eaves Ltd [2008] EWHC (TCC) 3134, a case where the Claimant sought summary judgment for the purpose of enforcing an adjudicator’s award in the total sum of £70,852-odd and the Defendant sought an extension of time in which to pay, Akenhead J said (at paragraph 11):

“Therefore the normal rule is that judgment sums should be paid within 14 days unless the judge otherwise orders. The judge has an absolute discretion. It seems to me that the following principles or practice can and should apply. First, if a party wishes to persuade the court that a period greater than 14 days should be allowed for payment, it is necessary that that application is supported by proper evidence. Secondly, it is much better generally that, if there is a genuine problem about the Defendant paying, or being able to pay, that that is a matter first fully discussed on a ‘without prejudice’ or even open basis between the parties. Ultimately, of course, the court can be asked to rule upon it, but it is much better if commercial parties meet and discuss the issue between themselves and it would only be if they were unable to agree that the court should consider an alternative longer period. It is unlikely that mere inability to pay will suffice to justify the extension of the normal fourteen day period; usually, inability to pay is no defence and an insolvent debtor must take the usual consequences of its insolvency.”

In Amsalem (t/a MRE Building Contractors) v Raivid & Raivid [2008] EWHC (TCC) 3226, Akenhead J said (at paragraphs 5 to 13):

“5.

It is clear that the court does have some discretion ... to change the normal 14-day period to another one ...

6.

But one then turns to the provisions in the Rules of the High Court about enforcement of judgments and orders. The introductory notes to CPR Part 70 say this: ‘It is a feature of civil justice that the court does not automatically enforce its judgments, nor even decide how they should be enforced. It is up to the judgment creditor.’ In broad terms, that does reflect the law and the practice. Part 70, and those provisions of the Rules of the Supreme Court which were retained by that Part, give a wide variety of different methods to a successful party to litigation for enforcing judgments. That can include the appointment of a Receiver, third party debt orders, charging orders, stop orders, stop notices, and other writs of execution such as a writ of fieri facias. There are provisions to seek to attach earnings as well. So there is a wide variety of recourses open to the successful party to enforce any given judgment. In addition, there is a statutory option available to a judgment creditor to initiate proceedings for bankruptcy or, in the case of a company, liquidation of the debtor.

7.

Parliament has given a successful judgment creditor those rights and it should be an exceptional case, it seems to me, where the court interferes with those rights given by Parliament.

8.

It is clear, however, that when those provisions for alternatives to enforcement are considered, the court, which may be dealing with the different methods of enforcement, is given a discretion. I have considered, for instance, RSC 46, which deals with writs of execution, and those provisions relating to fieri facias writs. In certain circumstances, where there is a realistic prospect of payment being achieved by interim payments, then the court is sometimes prepared to consider making such an order.9. I consider that the court, at this stage - that is the court which has given the judgment - can take into account similar factors to those which a court handling enforcement can take into account ...

10.

The problem that this court faces, however, is that there is no realistic prospect, on the figures and on the information that has been put forward, of the Defendants being able to pay ...

13.

Therefore, the position is that, unfortunately, the court has no grounds upon which to exercise its discretion here. I would have been prepared seriously to consider extending the 14-day period if there was a realistic prospect that substantial sums could be paid, and could be offered, within the next few weeks and months. But nothing can be offered ...”

Short extensions of a week or so for the payment of incidental sums awarded by the court, for example costs awarded on interlocutory applications, are not uncommonly made in the Commercial Court. However, in my experience, apart from stay applications pending appeal or trial of a counterclaim pre-execution applications of the sort now before the court are virtually unheard of. For certain, if such applications have been made in this court, they will have been made extremely rarely.

When exercising the discretion under CPR 14.10, this court is bound to have regard to the interests of the relevant parties. These will inevitably include the interests of the judgment creditor whose claim will be vindicated by a judgment and the interests of the judgment debtor who invariably will be a business entity, usually a corporation. The court will also bear in mind that where enforcement of the judgment can take place within the jurisdiction, the judgment creditor will be free to choose from the available methods of enforcement, including a petition to secure the bankruptcy or the winding-up of the debtor, as the case may be, as to which there is a statutory right providing that the preconditions of the making of such an order are met.

In my opinion, Akenhead J’s observation that inability to pay will usually not justify a pre-execution extension of time, with an insolvent debtor having to take the usual consequences of his or its insolvency, applies a fortiori where the parties are business entities.

Where the debtor is in a parlous financial situation, the interests of other creditors of the debtor and possibly those of the debtor’s workforce and suppliers will be engaged. But since this country’s bankruptcy and winding-up regimes are designed to take account of these interests and are supervised by specialist courts, these third party interests will, in my opinion, only very rarely, if at all, be a justification for an extension of time under CPR 14.10 or 40.11 where the debtor is liable to be wound up or made bankrupt within the jurisdiction. This approach will also likely be adopted when a debtor is liable to be wound up or made insolvent under a foreign insolvency regime, the protection of third party interests being a matter for that regime rather than this court.

It follows that, in the ordinary way, this court will only exceptionally extend time under CPR 14.10 and 40.11 and then only where the judgment debtor is solvent and for relatively short periods of time and after which the whole judgment debt will become payable. Further, in reaching its decision, the court will give careful consideration as to whether some provision in respect of interest ought to be made in light of the fact that the judgment debtor will be being kept out of his money for the period of the extension.

The Defendants rely on two witness statements of Ms Emily Keim, a solicitor with the London firm of Baker & McKenzie LLP. Almost the entirety of these statements is based on information provided to Ms Keim by colleagues who are working with the Defendants on the draft restructuring proposal out of Baker & McKenzie’s Bahrain and Riyadh offices. In these witness statements, Ms Keim says virtually nothing about an insolvency regime in Saudi Arabia. All she says is:

“I am also told that if the Claimant were to refuse to agree to the restructuring, its only alternative course of action [is] to obtain some of the amounts due under the Facility Agreement would be to force the First Defendant into insolvency or the Second Defendant into bankruptcy. I am informed that even then it could only ever hope to get back a small proportion of its debt, in the region of 5 to 10 per cent.” (Paragraph 22, 1st witness statement).

While this evidence allows for the inference that there is some sort of insolvency regime in Saudi Arabia, I am left unclear as to the extent, if any, that the regime confers protection for third party creditors. Mr Parker invited me to proceed on the basis that the situation in Saudi Arabia is essentially the same as that in this jurisdiction. Adopting this suggestion, I assume that if the Defendants are put into insolvency, the creditors would share rateably in the Defendant’s assets.

Proceeding on this basis, I do not think that the interests of the third party creditor financiers justifies the extension sought. They are all commercial lenders who must be taken to have advanced the sums they now seek to recover in full knowledge of the relevant legal regime in Saudi Arabia. In my judgment, they should be left to obtain such protection as they can secure under that regime, rather than have the benefit of an extension of time granted by this court.

Nor, looking at the matter from the point of view of the Defendants, do I think that an extension of time is justified. If, as is undoubtedly the position, the Defendants are unable to pay more than about 10 per cent of the sum due to the Claimant, the Defendants must take the consequences of their insolvency under Saudi Arabian law.

Further, and in any event, I am not satisfied that there is a real prospect that the Claimant will sign up to a restructuring agreement before 1 January 2011. It pulled out of the restructuring negotiations and issued the ISPC and ATHC claims in May and July 2010 respectively, and has declined to come back into the fold, notwithstanding being sent up-to-date term sheets by the other creditors. I am not blind to the possibility that the Claimant might arguably be better off under a restructuring deal and that, by obtaining judgment, it is attempting to improve its negotiating position with the other creditors and the Defendants. But whether the Claimant signs up to a deal will depend on its terms. On the very thin information put before me, I decline to conclude that there is a sufficient prospect that a deal acceptable to the Claimant, the other creditors and the Defendants will be reached by 1 January 2011 to justify the extension sought.

I am also not satisfied that there is a real prospect that a restructuring deal will not be reached by the third party creditors and the Defendants if no extension to 1 January 2011 is granted. In paragraph 25 of her first witness statement, Ms Keim says:

“I am also told that if the Court were to order that the Defendants’ judgment debt is payable immediately, this could have a significant effect on the restructuring discussions. Such an order could constitute a Standstill Termination Event under the Standstill Agreement and might disrupt, delay or derail the entire restructuring process. I am told that termination of the Standstill Agreement and/or the failure of the proposed restructuring could lead to the insolvency of the First Defendant.”

In my judgment, this evidence is insufficient to justify the finding Mr Parker invites me to make. It may be that a judgment enforceable within 14 days would amount to a Standstill Termination Event under the Standstill Agreement, but it does not follow that the third party creditors would treat it as such and/or that the entire restructuring process would be disrupted, delayed or derailed. These consequences may eventuate, but I decline to find on the very insubstantial evidence put before the court that there is a real prospect that these consequences will occur.

In the result, for the reasons I have given, I grant the Claimant’s applications and refuse those made by the Defendants.