High Court rejects late attack on liquidators in $1.2 billion fraud trial

The High Court has rejected an attempt to introduce allegations that liquidators were appointed through a corrupt inducement, breached their duties because of conflicts of interest and participated in an unlawful conspiracy. Mrs Justice Joanna Smith ruled that the allegations were “weak at best”, inadequately pleaded and brought too late in a complex fraud trial for the liquidators and affected third parties to respond fairly.

The proceedings were brought by six companies in liquidation and their liquidators, Colin Diss and Nick Wood of Grant Thornton, against members of the Mehta family and related parties. The claimants allege that the defendants participated in a $1.2 billion fraud involving gold bullion loans made to Indian companies Winsome and Forever Precious.

The defendants deny involvement in the alleged fraud. They sought to amend their defence after the trial had begun to allege that arrangements involving the liquidators, a creditor bank and a litigation funder amounted to corrupt inducements under section 164 of the Insolvency Act 1986.

The defendants relied on an engagement letter under which the creditor bank retained advisers to investigate recovery options, and a later funding agreement that contemplated restoring companies to the register, placing them into liquidation and appointing the liquidators.

Justice Smith found that neither document was manifestly illegal. The engagement letter did not require the creditor bank to support the appointment of the liquidators, while the advisers were not parties to the later funding agreement.

The proposed pleading also failed to identify clearly which person or entity was alleged to have committed the offence or whose knowledge and intention were to be attributed to the corporate parties.

The judge said the allegation concerning the engagement letter had no real prospect of success, while any possible case under the funding agreement was weak and had not been properly pleaded.

She also rejected allegations that the liquidators had conducted the proceedings in breach of duty because of financial interests connected with the funding arrangements. The defendants had known the essential elements of those arrangements and alleged conflicts for several years but had not pleaded the case earlier.

Allowing the amendments would have required further evidence about the liquidators’ appointments, the commerciality of the funding arrangements and insolvency litigation funding practices. It could also have drawn additional parties into the proceedings. Justice Smith said this would derail a trial already in its closing stages and cause substantial unfairness to the liquidators.

The Court therefore refused permission to introduce the corrupt inducement allegation, the conspiracy counterclaim and the conflict allegations.

Read the decision here.

Christopher Parker KC of Maitland Chambers, Ian Wilson KC of Three Verulam Buildings, James Davies of New Square Chambers, James McWilliams of Three Verulam Buildings, & Zachary Kell of Radcliffe Chambers (instructed by Gateley) acted for the companies in liquidation and their liquidators, Colin Diss and Nick Wood of Grant Thornton.

Jasbir Dhillon KC of Brick Court Chambers, Jonathan Dawid of Brick Court Chambers, Stephen Ryan of 4 New Square Chambers & Helena Spector of 4 New Square Chambers (instructed by Gardner Leader) acted for the defendants.