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Claim No: CFI 054/2018

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

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

IN THE COURT OF FIRST INSTANCE

BETWEEN

SBM BANK (MAURITIUS) LTD

Applicant/Claimant

and

(1) RENISH PETROCHEM FZE
(2) MR HITESHKUMAR CHINUBHAI MEHTA

Respondents/Defendants

(3) PRIME ENERGY FZE

Third Defendant

JUDGMENT OF H.E. JUSTICE ALI Al MADHANI

UPON the Claimant’s Claim Form dated 2 August 2018 and amended on 6 August 2018

AND UPON the freezing order of the Court issued on 2 August 2018 (the “Freezing Order”)

AND UPON the order of the Court issued on 7 August 2018 continuing the Freezing Order

AND UPON the Claimant’s Particulars of Claim dated 25 February 2020

AND UPON the Claimant’s Application Notice dated 12 August 2020 seeking immediate judgment against the First Defendant and the Second Defendant (the “Immediate Judgment Application”)

IT IS HEREBY ORDERED THAT:

1. The Immediate Judgment Application is granted.

2. Judgment for the Claimant against the First Defendant and the Second Defendant who are jointly and severally liable for USD 31,245,932.94 (as at 9 September 2020), with interest continuing to accrue from that date.

3. The First Defendant and the Second Defendant shall pay the Claimant its costs of the Immediate Judgment Application on the indemnity basis, to be assessed by a registrar if not agreed.

Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of issue: 27 September 2020
Time: 1pm

JUDGMENT

1. The Claimant in this matter (“SBM”), which is the second largest bank in Mauritius, says that it is the victim of a substantial fraud which was perpetrated against it in the first half of 2018 and by which it was induced to advance trade finance under a finance agreement dated 12 November 2017 (the “Facility Agreement”) to the First Defendant (“Renish”), whose liabilities to repay were guaranteed by the Second Defendant (“Mr Mehta”) under a personal guarantee of the same date (the “Personal Guarantee”).

2. SBM submits that the fraud arose from representations made to SBM that the relevant advances under the Facility Agreement were required to finance back-to-back contracts by which fuel oil would be purchased from the Third Defendant (“Prime”), to whom the loan monies would be paid, and sold on to a Sri Lankan oil company, Lanka IOC Plc (“Lanka”).

3. It is SBM’s case that each of Renish, Mr Mehta and Prime was a knowing participant in the alleged fraud and is jointly and severally liable to compensate SBM for its losses and/or account for the sums they have received.

4. On 12 August 20202, SBM issued an application to the Court for immediate judgment against Renish and Mr Mehta (the “Immediate Judgment Application” or the “Application”). For the reasons which follow, SBM’s Application is granted.

Background

5. On 12 November 2017, SBM concluded the Facility Agreement with Renish having previously had no business relationship with it. The Facility Agreement enabled Renish to obtain credit up to an aggregate sum of USD 30 million together with an Uncommitted Forex Line of USD 10 million. The Facility Agreement was backed up by the Personal Guarantee of Mr Mehta, also concluded on 12 November 2017.

6. At the time of the conclusion of the above agreements, Renish purported to carry on a business buying and selling oil products, the sole shareholder of Renish was Mr Mehta and the Chief Executive of Renish was a Mr Ayaz Ahmed (“Mr Ahmed”).

7. All dealings with SBM on behalf of Renish took place through Mr Ahmed and Mr Mehta. In the course of their dealings, Messrs Ahmed and Mehta represented that funds were required for legitimate business transactions in which Renish was involved, including transactions purportedly entered into between Prime, as the purported supplier, and Lanka, as the purported ultimate purchaser. This was important because, as SBM had made clear in its initial offer letter, it wished to finance oil trading in which the suppliers could include “local buyers” such as Prime and the ultimate purchasers were major “state organisations” such as Lanka. It is now common ground between SBM and Prime that the latter never agreed or intended to supply oil to Lanka. Lanka itself has declined to confirm that it ever received any oil consistently with the purported trade documents.

8. In the period between January and June 2018, Renish made six requests for payment from SBM under the Facility Agreement into an NBK bank account held by Prime with an account number known to the Court (the “Prime Account”). For present purposes, the following four payments are relevant:

9. Following repayments in May and June 2018, the total balance outstanding in June 2018 was around USD 9 million. As a result of an Acceleration Notice served on 1 August 2018, which rendered the last two payments above payable immediately, the total sum then outstanding was increased to over USD 30 million. It should be noted that, even without the relevant acceleration, the last two payments would have fallen due and owing.

10. Having repeatedly acknowledged that payment was due, and having given assurances that payment would be made in June or July 2018, from mid-July 2018, Mr Mehta ceased all communications with SBM and has not been contactable since. Moreover, Renish’s offices were abandoned by late July 2018 and SBM has been unable to make contact with anyone who had acted or purports to act on behalf of Renish.

11. Prime has since confirmed that it never intended or agreed to supply oil to Lanka, as had been represented to SBM on behalf of Renish. Against that background, it is SBM’s case that it was induced to make the Facility Agreement and thereafter make transfers into the Prime Account by fraudulent misrepresentations on the part of Mr Mehta and Mr Ahmed.

12. In the circumstances, SBM applied for, and on 2 August 2018 obtained, a freezing order against each of Renish, Mr Mehta and Prime (the “Freezing Order”). The Freezing Order was served both by email and by delivery to all of the addresses held by SBM for the Defendants, albeit that documents served on Prime’s offices were returned undelivered. Notwithstanding that a penal notice was attached and that deadlines were set for the provision of information and disclosure, none of Renish, Mr Mehta or Prime responded to the Freezing Order.

13. The Freezing Order was maintained at a return date on 7 August 2018 at which the Court also ordered the joinder of NBK so that claims could be made against NBK to monies in the Prime Account and for disclosure of relevant documents. Following protracted correspondence and a ruling of the Joint Judicial Committee, NBK ultimately gave disclosure of bank statements relating to the Prime Account. It is SBM’s case that the pattern of payments within those bank accounts were characteristic of fraudulent activity. In particular, SBM highlights the following.

14. Firstly, following receipt of payment from SBM into the Prime Account, those monies were dissipated within a very short period, namely between 1 and 3 days: “This is consistent with an intention to empty the account before effective injunctive relief could be obtained,” SBM submits.

15. Secondly, the above sums were dissipated through payments of substantial round-figure sums: “This is consistent with dissipation pursuant to a fraud rather than for the purpose of legitimate business activity.”

16. Thirdly, certain of the transfers were made to other accounts held by Prime and back to Renish, on whose behalf as borrower the trade finance had been initially provided to Prime: “The circular nature of those payments is, again, characteristic of fraudulent activity.”

17. Fourthly, substantial payments were made from the Prime Account to Petro Hub Energy FZE (“Petro Hub”), an entity connected to Mr Ahmed, Renish’s CEO: “These matters are not disputed by Prime, and are therefore deemed to have admitted them.”

18. Fifthly, each of the accounts held by Prime with NBK, including the Prime Account, has virtually been emptied: “this is a classic feature of a fraud.”

19. SBM also highlights that, according to Prime’s own Defence, “Prime ceased operations” following the matters giving rise to SBM’s claim. Accordingly, the cessation of Prime’s business activities appears to have coincided with the alleged perpetration of the fraud against SBM.

20. Notwithstanding that Prime’s account with NBK was frozen, Prime apparently failed to take any steps to investigate or address the cause of its account being frozen. Indeed, it was not until October 2019 that Prime, through its solicitors, Eversheds Sutherland (International) LLP (“Eversheds”), first contacted SBM, indicating an intention to contest the claim against it.

21. On 12 August 2020, SBM issued its Immediate Judgment Application.

22. On the same day, Prime issued an application to vary the Freezing Order (the “Variation Application”).

23. The Immediate Judgment Application and the Variation Application were listed to be heard on 9 September 2020 along with arguments on certain case management directions not agreed by SBM and Prime (the “Case Management Directions”). The Variation Application will be determined and the Case Management Directions given separately.

The Immediate Judgment Application

24. As a preliminary remark, the Immediate Judgment Application is solely a matter between SBM on the one hand and Renish and Mr Mehta on the other. The primary claims against those Defendants arise from their contractual obligations under the Facility Agreement and the Personal Guarantee. Prime has no interest in the subject matter of the Application and has accordingly filed no evidence in opposition to it. As stated above, however, it appears to be common ground between SBM and Prime that Renish and Mr Mehta have perpetrated a large-scale fraud. The only issue between SBM and Prime is whether Prime was also a party to that fraud and/or knew of it.

25. SBM submits that the evidence which demonstrates the fraud committed by Renish and Mr Mehta is “overwhelming and unanswerable” and it says that it is no doubt for that reason that, rather than seek to engage in these proceedings, they have ignored them and, in the case of Mr Mehta, “fled the jurisdiction.” SBM says that the circumstances, SBM is entitled to an order for immediate judgment against Renish and Mr Mehta so that it may proceed to take steps to enforce against Renish and/or Mr Mehta and/or their assets to the extent that they are identified.

The Legal Framework

26. The Court’s jurisdiction to give immediate judgment is conferred by RDC Part 24.1 which provides, as material, as follows:

27. Guidance on the applicable principles was set out in the judgment of Justice Roger Giles in GFH Capital Ltd v Haigh [2014] DIFC CFI 020 (10 November 2016) – approved by the court of Appeal in IGPL v Standard Chartered Bank [2018] DIFC CA 002 (17 July 2018) [57] – by reference to English case law under the analogous “summary judgment” jurisdiction. The question in those authorities is whether a defendant has a “realistic” prospect of success, being one that “carries some degree of conviction” in being more than merely arguable. The DIFC Court of Appeal has found that while an applicant for immediate judgment has the legal burden of proof, the respondent has the evidential burden of proving that it has a real prospect of successfully defending the claim: IGPL [58]-[59].

SBM’s Submissions

28. SBM has made a series of propositions which it has invited the Court to find. If the Court accepts the propositions as each being correct, immediate judgment will have been demonstrated to be appropriate. These propositions – which are eight in number and which will be italicised in order to be distinguished from my discussion and finding with respect to each of them – are as follows.

29. (1) SBM concluded the Facility Agreement with Renish on 12 November 2017. This proposition has never been disputed. A signed copy of the Facility Agreement has been shown to the Court. This proposition is accepted.

30. (2) SBM concluded the Personal Guarantee with Mr Mehta on 12 November 2017. This proposition has never been disputed. A signed copy of the Personal Guarantee has been shown to the Court. This proposition is accepted.

31. (3) SBM transferred the sums referred to at §13 of the Particulars of Claim to the Prime Account pursuant to the Facility Agreement. These payments are shown on bank statements and cannot realistically be disputed. Indeed, Prime admits receipt of those funds in its defence. The evidence that those payments were made pursuant to requests from, or on behalf of, Renish is set out inter alia in the first affidavit of Mr Matthew Showler dated 1 August 2018 and the first witness statement of Mr Dipesh Jhowry dated 26 August 2020. There is no reason why the Court should not accept that evidence. This proposition is accepted.

32. (4) An Acceleration Notice was served by SBM on Renish on 1 August 2018 pursuant to clause 17.1(s) of the Facility Agreement. A copy of the Acceleration Notice has been shown to the Court. The service of the Acceleration Notice is confirmed in the second affidavit of Matthew Showler dated 2 August 2018. There is no reason why the Court should not accept that evidence. This proposition is accepted.

33. (5) Renish was/is in breach of the terms of the Facility Agreement for having failed to repay the sums advanced on its instructions. Under clause 17.1(a) of the Facility Agreement, the non-payment of any sum which the Borrower (i.e. Renish) is obliged to pay constitutes an event of default, entitling SBM to accelerate the liabilities of Renish to make repayment. The deadlines for the repayment of the sums advanced by SBM (which were acknowledged by Renish) are set out in §14 of the Particulars of Claim. The promissory notes, by which Renish acknowledged the deadlines for payment, have been shown to the Court. In circumstances where Renish had failed to repay the first and second payments referred to in §13(a)&(b) of the Particulars of Claim, Renish was entitled to serve the Acceleration Notice. Its effect, pursuant to clause 17.1(s) of the Facility Agreement, was to make all sums advanced by SBM under the Facility Agreement immediately payable by Renish. In my view, in the absence of any defence or evidence, Renish has no prospect of defending the claim against it under the Facility Agreement. Proposition 5 is accepted.

34. (6) Renish is indebted to SBM in the sum of USD 31,245,932.94. Payments made by SBM pursuant to the Facility Agreement, repayments made by Renish to SBM, the applicable rates of interest and the application of those rates to the sums owing are set out at §12-28 of the Particulars of Claim. SBM has given credit for the sum of USD 3,090,217.30 over which SBM exercised a right of set-off on 9 March 2020. As at 9 September 2020, and as explained in a schedule of interest calculations attached to SBM’s skeleton argument for this Application, Renish was indebted to SBM in the sum of USD 31,245,932.94. Proposition 6 is accepted.

35. (7) Mr Mehta is also indebted to SBM in the sum of USD 31,245,932.94. Mr Mehta’s liabilities to SBM in relation to Renish’s debt flow automatically from terms of the Personal Guarantee. As pleaded at §30 of the Particulars of Claim, Mr Mehta irrevocably and unconditionally guaranteed the performance of Renish’s obligations under the Facility Agreement pursuant to clause 3 of the Personal Guarantee. In the circumstances, Mr Mehta has no real prospect of defending a claim against him for the above sums. This proposition is accepted.

36. (8) Renish and Mr Mehta conspired to defraud SBM. SBM invites the Court to make an express finding of fraud against each of Renish and Mr Mehta. It says that such a finding is required in order to assist SBM in pursuing enforcement procedures against Renish and Mr Mehta. For example, a foreign court is liable to be more receptive to an application for post-judgment injunctive relief in circumstances where a finding of fraud or dishonesty has been made.

37. The evidence showing that a fraud has been committed in this case, as is almost always the case, depends upon inferences to be drawn from primary facts. On the undisputed evidence before the Court in this case, the inference of fraud against Renish and Mr Mehta is overwhelming. The following points in particular are important in this regard.

38. First, it is common ground between Prime and SBM that the purported transaction for which at least a substantial part of the sums advanced by SBM to Prime – the purported supply of oil by Prime to Lanka – was never intended or agreed by Prime. Accordingly, the irresistible inference is that Mr Ahmed and Mr Mehta knowingly deceived SBM when it was represented to SBM that monies were required pursuant to a contract with Lanka. It can similarly be inferred that trade documents provided to SBM, including the relevant back-to-back contracts made by Renish with each of Prime as supplier and Lanka as end purchaser on the relevant headed paper were forged.

39. Second, Renish’s partial repayment of the first payment can be inferred to have been calculated to induce SBM to release further sums to Renish under the Facility Agreement. As a result of that initial repayment, Renish was ultimately able to procure payments up to its credit limit before then failing to repay any sums. When all the facts of the case are considered together, I think this inference should certainly be made.

40. Third, the cessation of all communication by Mr Mehta and/or Renish to SBM, in circumstances where they knew that SBM was owed money and had repeatedly demanded repayment of the sums it was owed, is fundamentally inconsistent with honest business conduct and is correspondingly indicative of fraudulent conduct.

41. Fourth, the abandonment of Renish’s offices by its officers and/or employees at around the time demands for payment had been made by SBM is further indicative of fraudulent conduct suggests Renish was not merely unable to keep up with its debts. An honest business would have made arrangements for an orderly liquidation or administration for the benefit of its creditors.

42. Fifth, the apparent flight of Mr Mehta, Renish’s sole shareholder, from the UAE is a further powerful indication of his bad faith and/or involvement in the fraud. As is explained in the first affidavit of Mr Showler and the first witness statement of Mr Jhowry, Mr Mehta appeared to have abandoned his residential property in Dubai and to have closed down another business associated with him, Alaska International FZE. The abandonment by Mr Mehta of residential/business premises in concert with the abandonment of Renish’s offices at around the same time leads to an obvious inference that this was coordinated action intended to obstruct the pursuit of investigations and/or proceedings against them.

43. Sixth, the failure by Renish and/or Mr Mehta to respond in any way to the Freezing Order and related asset disclosure order – to which a penal notice was clearly attached – is a further demonstration of bad faith and dishonesty on their part. The Freezing Order was sent to the email address which Mr Mehta had previously used for correspondence.

44. Seventh, the pattern of payments following the transfers from SBM into the Prime Account bears a number of hallmarks of a sophisticated fraud.

45. For these reasons, the Court has no hesitation in finding that Renish and Mr Mehta conspired to defraud SBM. Proposition 8 is, therefore, accepted.

46. I do not see that Renish and Mr Mehta have a real prospect of successfully defending the claim against them or indeed any issue raised therein. Needless to say, nor do I see some other compelling reason why the case against them should be disposed of at trial. SBM has amply discharged its legal burden in its Immediate Judgment Application. The Application is accordingly granted and judgment is entered against each of Renish and Mr Mehta.

Costs

47. The general rule under RDC 38.7 is that the unsuccessful party will be ordered to pay the costs of the successful party. SBM is the successful party and, therefore, Renish and Mr Mehta shall pay SBM its costs of the Immediate Judgment Application.

48. SBM has asked for its costs on the indemnity basis. In circumstances where the Court is satisfied that Renish and Mr Mehta have defrauded SBM, where these Defendants have ignored all attempts to contact them by SBM, have made no attempt to engage in this litigation and have committed serious and ongoing breaches of court orders including those to which a penal notice was attached, it is difficult to conceive of a clearer case in which an order for indemnity costs is appropriate. In the terms of the common law tests, the conduct of both Defendants is plainly “away from the norm,” inappropriate or abusive. Accordingly, SBM’s request is granted.

Conclusion

49. For the reasons given above, the Immediate Judgment Application is granted and judgment is entered against each of Renish and Mr Mehta, who are to pay SBM its costs of the Application on the indemnity basis, to be assessed by a registrar if not agreed.

Orders

50. I make the following orders –

Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of issue: 27 September 2020
Time: 1pm