Court of Appeal confirms that polluting sewage discharges are a matter for regulators, not tort claims in Court

The Court of Appeal has handed down judgment in the latest round of the litigation between the Manchester Ship Canal Company and United Utilities Water Ltd about discharges from sewers into the canal. James McCreath, led by Jonathan Karas QC of Falcon Chambers and Richard Moules of Landmark, acted for United Utilities.

The first issue considered by the Court of Appeal was whether polluting discharges, including from combined sewer overflows, could be the subject of a private law right of action. These discharges have been the subject of considerable public attention, including in the recent debate leading to the Environment Act 2021, and a consortium led by the Good Law Project intervened in the appeal. The Court accepted United Utilities’ submission that, save in the case of deliberate or negligent discharges, such discharges were for the industry regulators, OFWAT and the EA to enforce, and it would be inconsistent with the statutory scheme to permit concurrent private law causes of action. The essential reasoning, following the decision of the House of Lords in Thames Water Utilities Ltd v Marcic [2003] UKHL 66, was that preventing such discharges would require the provision of new infrastructure, and Parliament had left questions about the provision of new infrastructure to the regulators, taking into account the wider public interests involved.

The second issue concerned the power of local authorities who were previously sewerage undertakers to enter into agreements permitting the use of sewers on terms that the sewers could be removed on notice. The Court of Appeal, overturning the Judge, held that local authorities could enter into such agreements.

To read the full judgment, please click here.

Supreme Court judgment handed down in high-profile telecoms case

Judgment today has been given in the first ever telecoms case to reach the Supreme Court. Jonathan Seitler KC and John McGhee KC acted for telecoms operators, On Tower and Cornerstone respectively. The court accepted their argument that an operator is not barred from applying for rights under the telecoms code just because it is already in occupation of a site and reversed findings to the contrary in the Upper Tribunal and Court of Appeal. The judgment is a significant boost for operators and will make it much easier for them to secure the agreements required for the roll out of 5G services.

The full judgment can be downloaded here.

Raiffeisen Bank part 2: Cayman Court of Appeal dismisses two jurisdiction challenges, providing guidance as to the Cayman FDA

On 16 March 2022 the Cayman Islands’ Court of Appeal (“CICA”) handed down judgment following a one-day rolled up hearing in November 2021 (as to permission and the substance of the appeal), refusing leave for two of the defendants to appeal orders made by Parker J in May 2020 granting leave that they be served out of the jurisdiction (“D3” in Malta, and “D6” in Canada). The issues before the CICA all went to whether the Judge was right to find that the plaintiff Raiffeisen Bank International AG (“RBI”) had established a serious issue to be tried against each of D3 and D6: (a) in the tort of unlawful means conspiracy and/or (b) under the Cayman Fraudulent Dispositions Act (1996 Revision) (“FDA”) (known until 3 December 2020 as the ‘Fraudulent Dispositions Law’ or ‘FDL’).
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The sole reasoned judgment is given by Moses JA, with whom Birt and Morrison JJA agreed at ¶73-4. A related appeal concerning the two ‘anchor’ defendants (“D1” and “D5”) is summarised here, to which Moses JA cross-refers.
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Although only decided to the strike out standard (¶¶19, 48) the judgment provides helpful guidance (as follows) in a number of respects as to the proper scope of the FDA, on which it is now one of if not the leading case(s):
1. First, when applying the FDA (like the English Insolvency Act 1986, s423) it is open to the Court to treat a series or sequence of transactions as a single “disposition”, especially when those have been planned in advance (¶8-19).
2. Secondly, that once (i) intent to defraud creditor ‘X’ (of debtor ‘A’) and (ii) undervalue have been established as to an initial transaction ‘A’-‘B’, there is no need to establish anything further in order to set aside subsequent transactions ‘B’-‘C’ or ‘C’-‘D’ etc under the FDA, save that s5 of the FDA may afford some protection to (e.g.) C, where (again e.g.) C has not acted in bad faith (¶32-49). The CICA held both parties had reasonable arguments on this point (¶48), D3 having contended the FDA extended only to the initial transfer A-B, with the position thereafter being a matter for Common Law, and seeking to draw an analogy to Skandinaviska v. Conway [2019] UKPC 36.
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Beyond the above, there is limited guidance in the Cayman caselaw as to the proper application of this potentially important piece of legislation. To the authors’ knowledge: (a) the CICA decision mentioned above as to D1 and D5 considers some further points (see at ¶¶60, 112-3, 167-184 and 199-204), in particular as to extent of the relief that can be granted per FDA, s6, albeit similarly only to good arguable case standard; (b) Parker J also considered some further points at first instance against D1 and D5 (and ‘D4’) (see at ¶¶108-115, 120-121, 160, 172-3 and 178-180) as summarised here, again to interlocutory standards; (c) in Johnson v. Cook-Bodden [1999 CILR 399] an FDA claim succeeded at trial before Kellock, Ag. J, and (d) in re Parmalat [2004-05 CILR 22], Henderson J provided some guidance as to the FDA in the context of deciding other issues.
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The judgment of Moses JA also provides helpful guidance as to a number of more familiar aspects of the tort of unlawful means conspiracy, in circumstances in which it is alleged that assets were stripped out of one company by the primary actors and then transferred on, at least in part, to other SPV-corporate defendants within the same group. The case provides a helpful illustration in this respect of (a) what it is and is not necessary to establish to demonstrate that such SPV-defendants joined and/or participated in the conspiracy (¶¶20-23, 55-63); (b) whether and the point in time from which causative loss could be shown to have arisen concerning such defendants (¶50-60); and (c) the ‘directing mind and will’ test for the attribution of knowledge to such defendants, in effect distinguishing the English case of Tsareva v. Ananyev [2019] EWHC 2414 (Comm) (¶24-31).
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Moses JA also repeated and relied upon the well-established guidance that Courts will be reluctant to make findings that in effect strike out what is alleged to be a complex fraud prior to a full trial and cross-examination (¶64-70).

Tim Penny KC, Jamie Holmes and Caspar Bartscherer acted with Ogier and Mishcon de Reya for the respondent RBI. John Wardell KC and Jia Wei Lee acted with Mourant and LK Law for the appellants D3 and D6.

You can download the full judgment here.

The views expressed in this material are those of the individual author(s) and do not necessarily reflect the views of Wilberforce Chambers or its members. This material is provided free of charge by Wilberforce Chambers for general information only and is not intended to provide legal advice. No responsibility for any consequences of relying on this as legal advice is assumed by the author or the publisher; if you are not a solicitor, you are strongly advised to obtain specific advice from a lawyer. The contents of this material must not be reproduced without the consent of the author.

The Privy Council clarifies principles relating to the enforcement of foreign arbitral awards

Introduction

The Privy Council has handed down its much anticipated decision in Gol Linhas Aereas SA (formerly VRG Linhas Aereas SA) (Respondent) v MatlinPatterson Global Opportunities Partners (Cayman) II LP and others (Appellants) (Cayman Islands) [2022] UKPC 21 on the interpretation of Article V of the New York Convention. The Privy Council confirmed that an ICC arbitration award obtained in favour of Gol Linhas Aereas SA (Gol) for R$92,987,672 (the Award) was enforceable in the Cayman Islands and that the grounds upon which the appellants (the MP Funds) sought to challenge the Award had already been raised (and dismissed) before the courts in Brazil giving rise to an issue estoppel.

Thomas Lowe QC successfully acted for Gol with Ogier, and Gol’s Brazilian counsel, Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados.

The decision addresses important questions with respect to enforcement of foreign arbitral awards which are the subject of robust challenge before the courts of a supervisory jurisdiction and will be of interest to all practitioners, especially those in common law jurisdictions who seek to enforce arbitral awards obtained in civil law jurisdictions.

Background Facts

A detailed summary of the background to these proceedings is set out in our briefing summarising the Court of Appeal decision[1]. In short, the first and second appellants (the MP Funds) are a Cayman Islands exempted limited partnership and a Delaware limited partnership respectively, which together conduct business as a private equity investment fund, specialising in ‘distressed investing’. The third appellant is the general partner (“General Partner”) of the two limited partnerships. Gol is a company in a Brazilian airline group that conducts business under the name of Gol Airlines.

A dispute arose between Gol and the MP Funds under a Share Purchase and Sale Agreement dated 28 March 2007 (PSA) for the sale of shares in the company which operated Gol Airlines. The MP Funds were not named as parties and did not sign the PSA but were signatories to an addendum which supplemented its terms. The PSA contained an arbitration agreement which provided that all disputes arising from or related to the PSA were to be resolved by arbitration, that the language of the arbitration shall be in Portuguese and that the place of arbitration will be the city of São Paulo. The arbitration agreement was also governed by the laws of Brazil.

Gol commenced an arbitration against not only the sellers under the PSA but also against the MP Funds, premised on inter alia a fraudulent manipulation of figures for working capital on which the purchase price under the PSA was based.

The MP Funds disputed the jurisdiction of the arbitral tribunal over them in circumstances where they were not parties to the PSA itself. This was rejected by the tribunal who in a preliminary decision held that the MP Funds had in effect added themselves as parties by agreeing to a non-compete covenant. The MP Funds contended that any submission to the arbitration could only relate to the non-compete covenant. Gol had argued that the MP Funds were liable for misusing the corporate veil.

In September 2010 the tribunal issued its final Award and in doing so found the MP Funds liable on the basis of the tort of third party malice pursuant to Article 148 of the Brazilian Civil Code. Neither the parties nor the tribunal had mentioned third party malice. The tribunal nevertheless made the finding under the civil law doctrine of “iura novit curia“, a fundamental and well-known doctrine of Brazilian practice, which means that a court (as opposed to the parties) is charged with characterising the facts and applying the law to the facts.

The MP Funds challenged the Award before the supervisory court in Brazil on a number of grounds under the Brazilian Arbitration Act, arguing that there was no arbitration agreement, the Award was outside the scope of the arbitration agreement to which they were parties (i.e., the non-compete clause) and the terms of reference. They also argued that there was a lack of due process as a result of the tribunal’s reliance on Article 148. These grounds were equivalent to those which were later used under Article V of the New York Convention, as the Privy Council observed. The MP Funds were unsuccessful at first instance and in their appeal to the São Paulo Court of Appeals. Their subsequent applications for leave to appeal to the Brazilian Supreme Court and Constitutional Courts were finally dismissed after 10 years.

First Instance and Cayman Islands Court of Appeal proceedings

Gol sought and obtained, on an ex-parte basis, leave to enforce the Award against the MP Funds and the General Partner in the Cayman Islands. However, the order was subsequently set aside by Justice Mangatal at the inter-partes stage.

The MP Funds challenged the enforcement of the Award before Justice Mangatal on various grounds, including that they were not parties to the arbitration agreement under the PSA and that the arbitral tribunal had decided the case on a legal basis (i.e., Article 148) that had never been pleaded or argued, such that it offends the principle of natural justice. Gol argued that the MP Funds were bound by issue estoppel based on the Brazilian court decisions. At first instance the judge upheld all the grounds of challenge and refused enforcement of the Award, setting aside the ex parte order. The Cayman Court of Appeal (“CICA“) allowed Gol’s appeal on all grounds, finding among other things that the MP Funds were estopped from challenging the Brazilian court decisions handed down on the arbitrators’ jurisdiction.

Decision of the Privy Council

The MP Funds filed an appeal to the Privy Council seeking again to challenge the enforcement of the Award. The issues considered by the Privy Council on the appeal were: (i) whether the CICA was wrong to find that the MP Funds were precluded by issue estoppel from resisting enforcement pursuant to Article V(1)(a) of the New York Convention on the ground that there was no arbitration agreement; (ii) whether the CICA was wrong to reject the natural justice argument under Article V(1)(b) and/or Article V(2)(b); (iii) whether the CICA was wrong to find that the award was not outside the terms of reference under Article V(1)(c) of the New York Convention.

First issue: validity of the arbitration agreement and the doctrine of issue estoppel

As referred to above, the MP Funds resisted enforcement of the Award on the basis that they purportedly never agreed to arbitration of the dispute because they were not party to the arbitration agreement. Gol submitted that this issue had already been decided adversely to the MP Funds by the Brazilian courts and that the decisions of the Brazilian courts were conclusive for the purposes of these proceedings as it falls within the doctrine of issue estoppel.

The Privy Council noted that the doctrine of issue estoppel supports the important public policy of finality in litigation and ensures that the same parties should not have to litigate the same issue twice, relying on Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853 for the proposition that issue estoppel can arise on the basis of a foreign judgment. To give rise to such an issue estoppel, three requirements must be satisfied with respect to the judgment: Firstly, the judgment must be (a) given by a court of a foreign country with jurisdiction to give it, and (b) final and conclusive on the merits. Second, the parties in the two actions must be the same. Third, the issue decided by the foreign court must be the same as the issue in the domestic proceedings.

The Privy Council noted that a foreign judgment which satisfies the requirements for recognition at common law cannot be impeached for any error either of fact or law: it is therefore irrelevant whether the domestic court would regard the reasoning of the foreign judgment as open to criticism or even as “manifestly wrong”.

With respect to the above requirements, the Privy Council concluded that:

The Brazilian Courts had jurisdiction to rule on the matter (consistent with the parties’ agreement under the arbitration agreement). Whether the domestic court would regard the reasoning of the foreign judgment as open to criticism is irrelevant. Nor is it relevant that a foreign court system applies different rules of evidence or has a different procedure from the Cayman courts, unless this deprives the judicial process of the quality of substantial justice;
The decision of the Brazilian Court was ‘final and conclusive’ given that the MP Funds’ appeal was dismissed by the Supreme Federal Court in August 2020 and the MP Funds have had no further right of appeal in the Brazilian courts against the refusal of their application to set aside the Award;
The parties were the same; and
It is clear that the grounds under the Brazilian Arbitration Act invoked by the MP Funds before the Brazilian court were the same as those under Article V even though expressed slightly differently. The issue in Brazil as under Article V(a) was whether or not the MP Funds were parties to an arbitration agreement. The Privy Council also held that this issue had been determined independently or de novo by the Brazilian court rather than as a form of review of the Tribunal’s preliminary decision. Since this was a question of law there was no reason to leave out of account the reasoning of the Arbitrators in the preliminary award and it was not a question of undue deference.

Second issue: due process

The second ground on which enforcement of the Award was resisted was on the basis that the tribunal’s decision to adopt a legal basis for the Award which was not raised by Gol throughout the arbitration amounted to a serious breach of natural justice or lack of due process, such that MP Funds were “unable to present [their] case” under Article V(1)(b) of the New York Convention and section 7(2)(c) of the Foreign Arbitral Awards Enforcement Act 1975 (1997 Revision) (1975 Act) on the ground that it would be contrary to the public policy of the Cayman Islands to enforce the Award in such circumstances. Although Mangatal J agreed, the Court of Appeal rejected the challenge.

The Privy Council essentially devised an international standard of due process which could be developed and applied by any jurisdiction. It noted that before determining this issue, it was necessary to identify the system of law and the standard which the court should apply in answering this question. The Privy Council undertook an analysis and comparison of the standards of procedural due process to which foreign arbitral awards are subject in various jurisdictions (noting that there was little authority on the question in England and Wales). It reasoned that:

Although the law which the court must apply when a party seeks to challenge enforcement of an arbitral award made in the territory of another state under the local equivalent of Article V(1)(b) is a question of the local law (as decided in Cukurova Holding AS v Sonera Holding BV [2014] UKPC 15), here that of the Cayman Islands, that is not the end of the matter.
The question is not to be answered by applying local standards (i.e., Cayman standards) of what constitutes a fair procedure. In interpreting and applying Article V(1)(b) of the New York Convention, as transposed into English or Cayman law, the court should regard the domestic statutory provision as imposing a standard of due process capable of application to any international arbitration whatever the procedural law applicable and the nationality of the participants.
This does not mean that the court should be seeking to identify the lowest common denominator of standards required by different national systems. But it does mean that the court should be seeking to identify and apply basic minimum requirements which would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing (i.e., to treat Article V(1)(b) as infringed only if there has been a serious violation of fundamental and generally accepted requirements of due process).

In the context of the proceedings, the Privy Council accepted that to decide a case on the basis of a significant factual allegation or evidence of which a party has not been informed and given an opportunity to answer is fundamentally unfair. However, whether the same approach should be applied to the legal basis on which a tribunal based its decision was not straightforward. The question had to be looked at in context. Here the case was commenced in Brazil, a civil law jurisdiction where the courts and tribunals take a more proactive approach in applying the law, reflected in the doctrines of “iura novit curia” (the court knows the law) and “da mihi facta, dabo tibi ius” (give me the facts and I will give you the law). Although under the Brazilian approach, courts and arbitrators could not go beyond the allegations of fact made and relief claimed by the parties they were entitled to adopt a different legal basis from those argued by the parties.

The Privy Council was not persuaded that the failure of the tribunal to invite the MP Funds to comment on whether the facts alleged by Gol fell within Article 148 of the Civil Code amounted to so serious a denial of procedural fairness as to justify refusal to enforce the Award:

This is not a case where the tribunal reached its decision on a factual as well as legal basis which either had not been asserted at all or of which the defendant was never notified and which the defendant was therefore never able to address.
The extent to which a court or tribunal is expected to inform the parties if it proposes to adopt legal reasoning and apply legal sources different from those invoked by the parties, so as to give them an opportunity to comment, is a subject on which internationally there is a range of views.
Brazilian law was chosen as the procedural law of the arbitration and the parties were represented by Brazilian counsel. In these circumstances expectations of how the arbitration would be conducted and of the latitude afforded to the tribunal to develop its own independent legal reasoning would reasonably be influenced by Brazilian procedural law and practice. It was also significant that the Brazilian court found that there was no violation of due process in a decision upheld at the highest level of the Brazilian court system.
The central factual allegation made and proved in this case was one of fraud and, more specifically, fraudulent manipulation and misrepresentation of the key accounting information on which the purchase price of the airline company’s shares was based. Therefore, even if the particular legal reasoning adopted by the tribunal was not anticipated, it can hardly have come as a complete surprise to the MP Funds that, in the event that the tribunal found the allegations of fraud proved, they were held liable to pay the amount of the adjustment to the price required as a result.

With respect to whether enforcement of the Award was contrary to Cayman Islands public policy, the Privy Council held that it would be a very strong thing for an English or Cayman court to find it contrary to the public policy of the forum to enforce an award which has been upheld by the courts with primary responsibility for ensuring the integrity of the arbitral process.

Third issue: scope of the submission to arbitration

The MP Funds also made two arguments under Article V(1)(c) of the New York Convention. First, they argued that the subject matter of the Award was necessarily beyond the scope of the submission to arbitration which was limited to the non-compete covenant. The Privy Council held that this issue had already been determined by the Brazilian courts, creating an issue estoppel. Second, they also argued that the award was outside the scope of the submission to arbitration as defined by the terms of reference for the arbitration. This was a matter which had not been decided by the Brazilian Courts, but the Privy Council found that the terms of reference drawn up at the outset of the arbitration cannot properly be read as tying either the parties or the tribunal to particular legal arguments, let alone limiting them to the legal sources on which they could rely. The terms of reference were therefore given a liberal construction in keeping with the purpose of arbitration to provide a flexible and effective means of resolving disputes and providing redress.

Conclusion

In conclusion, the Privy Council found that the CICA was correct to conclude that none of the grounds relied on by the MP Funds justifies refusal to enforce the Award under section 7 of the 1975 Act.

This article was written by Thomas Lowe KC and Ogier.

[1] Cayman Islands Court of Appeal enforces foreign arbitral award in favour of Brazilian airline | Ogier

Raiffeisen Bank part 1: Cayman Court of Appeal upholds €153m worldwide freezing injunctions

On 30 December 2021 the Cayman Islands’ Court of Appeal (“CICA”) handed down judgment following a two-day appeal heard in September 2021 concerning two worldwide freezing and notification injunctions granted by Parker J in May 2020. The two appellants, Scully Royalty Limited and one of its subsidiaries, appealed on seven grounds, including as to whether a good arguable case had been established against them by the respondent Raiffeisen Bank International AG (“RBI”), whether a real risk of dissipation had been established, and whether the injunctions (which had been granted by Parker J in unlimited form) should have been ‘capped’ at a maximum sum.
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The background to the judgment below, RBI’s claims and the causes of action upon which it relies under the Cayman Islands’ Fraudulent Dispositions Act (“FDA”) and in conspiracy are set out here.
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The sole reasoned judgment of the CICA was given by Birt JA, with whom Morrison and Moses JJA agreed at paragraphs 213-4. The 80-page judgment can be found in full here. Perhaps the most notable findings are as follows:
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First, the CICA tightened the approach for fresh evidence on appeal. The CICA overturned its previous decision in Columbraria v. Beteta [2000] CILR Note 2 as to the approach where a party seeks to rely on fresh evidence in an appeal of an interlocutory matter (such as a freezing injunction). Going forwards, the principles set out in Ladd v. Marshall [1954] 1 W.L.R. 1489 at 1491, whilst not a jurisdictional gateway, should be considered by the CICA when any such application is made in an appeal following trial or of an interlocutory matter. This is considered across paragraphs 27 to 45 and see esp. paragraphs 32 to 42.
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Second, the CICA gave guidance as to when it would be appropriate to include no maximum sum, and (relatedly, on the facts of this appeal, as to the amount of the maximum sum) as to the proper interpretation of the FDA, s6. Parker J held below that the circumstances of the case were sufficiently exceptional, by analogy to the decision of the English Court of Appeal in London & Quadrant v. Prestige [2013] EWCA Civ 130, to justify a departure from the usual practice that a freezing order should be capped. The CICA accepted that an uncapped order could be justified on rare occasions where there were exceptional reasons but ultimately overturned the Judge and imposed a €153m cap; distinguishing the present case from the facts in London & Quadrant. In setting the cap at €153m, the CICA accepted that RBI had established at least a good arguable case that its claim under the FDA was not limited to the sums owed to it, but to those owed to all creditors: see paragraphs 197 to 212, esp. 199 to 204.
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Third, the CICA clarified the requirement for a cause of action. As Ground 6 of the appeal, the CICA considered whether it could be said that RBI had a cause of action against the appellants in circumstances in which both of the causes of action on which RBI relied turned on a matter that was the subject of a foreign arbitration. The CICA determined the point primarily from first principles, holding this did not affect that RBI had causes of action against both appellants under the FDA and in conspiracy (paragraphs 167-181). The point also involved an early application of the recent decision of the majority of the Privy Council in Broad Idea v. Convoy [2021] UKPC 24; handed down shortly after the oral hearing. The CICA held that had it felt unable to distinguish the authority on which the appellants relied, it would have followed the reasoning in Broad Idea to the effect that those authorities (namely Steamship Mutual v. Thakur [1986] 2 Lloyd’s Rep 439 and The Veracruz 1 [1992] 1 Lloyd’s Rep 353) should no longer be followed on this point (paragraphs 182-184).
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The judgment also considered and contains a helpful summary of the principles (following a number of recent English decisions) as to the threshold to establish a good arguable case on the merits (paragraphs 47-57) and a real risk of dissipation (paragraphs 153-162), and as to how each of those is to be approached on an appeal (see the same respective references). In both instances the CICA held this was a case in which it should reconsider the matter and exercise its own judgment as to whether the respective threshold had been met, although the appeal was ultimately dismissed on all of these grounds (paragraphs 59 to 152 and 163 to 166).

Tim Penny KC, Jamie Holmes and Caspar Bartscherer acted with Ogier and Mishcon de Reya for RBI. John Wardell KC and Jia Wei Lee acted with Mourant and LK Law for the appellants.

In the Matter of Olalekan Akinyanmi v Lekoil Ltd – FSD 382 OF 2021(IKJ)

This case shows the Cayman Islands Grand Court applying the rules of natural justice to require an applicant for ex parte relief to share with the other party all documents shown to the judge. It is also a useful illustration of the court evaluating the balance of convenience and refusing an injunction to restrain a party from implementing a challenged contract for the allotment of shares, which would have the effect of diluting existing shareholdings.

Clare Stanley QC acted for the successful defendant in setting aside the ex parte injunction. Clare worked with a great team at Walkers, instructed by Barnaby Gowrie and Brett Basdeo.

To download and read the full judgment, click here.

Abu Dhabi Commercial Bank PJSC v Shetty & others [2022] EWHC 529 (Comm)

On 1 April 2022, the Commercial Court handed down judgment as between the claimant Bank and the first to fourth defendants on the jurisdiction and WFO applications in this US$1 Billion damages claim, following a 4 day hearing at the end of November 2021.

The Court concluded that it should stay the proceedings in this jurisdiction on grounds of forum non conveniens, and made orders for the discharge of the WFO granted against the defendants in December 2020.

The claim arises out of the collapse of NMC PLC, a former FTSE 100 company, and its operating subsidiaries in the UAE, all of which are now in administration in England and Wales and the UAE. The claimant is an Abu Dhabi-based bank, and the first to third defendants are the former private shareholders in NMC PLC. The Bank alleged that the defendants are responsible, with others, for a serious fraud that appears to have taken place within the NMC Group of companies. The defendants all deny involvement in the fraud.

By these proceedings, the Bank alleged that it had been induced by fraudulent misrepresentations made by or with the knowledge and encouragement of these defendants into lending in excess of $1 Billion to NMC PLC, which sums remained unpaid when the NMC Group collapsed into administration.

Giving judgment for the first to fourth defendants on their jurisdiction and discharge applications, the Judge held that the claim should not continue in this jurisdiction against these defendants because the proper forum was the onshore courts of Abu Dhabi and that as a consequence the claim should be stayed and the WFO discharged. The Court also held that the Bank had breached its obligations of full and frank disclosure at the without notice hearing.

Among other things, the judgment on proper forum is of interest because the court concluded that the applicable law of the tort was UAE law under Rome II (and the bank’s submission that the applicable law might be English law was unarguable), and that it was more appropriate for the UAE courts to be deciding issues of UAE law. Additionally, the Court rejected the Bank’s submission that the adversarial nature of proceedings in this jurisdiction made the Commercial Court a more suitable court than the UAE Court to try a complex fraud claim.

Another interesting aspect of the judgment is its detailed consideration of the potential impact of s.6 of the Statute of Frauds (Amendments) Act 1828 to a complex fraud claim.

Tim Penny KC acted for the second and third defendants, leading James Sheehan of Essex Court Chambers, Sam Goodman of 20 Essex Street and Fred Alliott of 7 KBW, instructed by Trevor Mascarenhas of PCB Byrne.

The full judgment can be accessed here.

Counsel General for Wales & Ors v Gareth Allen (as Official Receiver) & Ors [2022] EWHC 647 (Ch)

On Monday last week, the High Court handed down judgment in Counsel General for Wales & Ors v Gareth Allen (as Official Receiver) & Ors [2022] EWHC 647 (Ch).

The case is the first occasion on which the courts have considered whether a liquidator’s power under s.167(1) and Sch.4, para.5 of the Insolvency Act 1986 to “to carry on the business of the company so far as may be necessary for its beneficial winding up” can include consideration of environmental and other public interest factors. It also provides useful clarification on the approach to applications under s.168(5) of the Insolvency Act.

The facts were stark. The Official Receiver had been appointed as the liquidator of a defunct power station in South Wales. In preparation for disclaiming the Site, the Official Receiver formulated a ‘make safe plan’ which included disconnecting a private wire network running across the Site from the National Grid. The Private Wire Network was the sole source of power to numerous properties situated in the Baglan Energy Park. These included a number of waste-water treatment plants and pumping stations operated by the local council (Neath Port Talbot) and Welsh Water which, collectively, form an integral part of the flood defences for the local area. The unchallenged evidence before the court was that an alternative connection to the National Grid would not be in place until Spring 2022 at the earliest, and that if these assets were to lose power during the intervening storm season, there would be a significant risk of both major flooding and of foul sewage being discharged into the shellfish waters at Swansea Bay.

The Official Receiver’s position was that, on the true construction of Sch.4, para. 5, a liquidator’s power only permits the continuation of a company’s business for the purpose of ensuring the realisation and distribution of the company’s assets to its creditors. Accordingly, the Official Receiver contended, it was legally disabled from taking the potential for environmental catastrophe into account when deciding when to disconnect the Private Wire Network.

Norris J rejected this construction of the Act. It was held that, while the exercise of the power to carry on the business of a company must have as its ultimate objective the company’s winding up, the ‘beneficial winding up’ of the company may not always be confined to exclusively financial considerations. So, on the facts of the case, the appointment of special managers for the purpose of decommissioning the plant safely, and the fact that there was no anticipated return to creditors (the liquidation being funded by an indemnity from the Department for BEIS), indicated that the purpose of the winding up included safeguarding the health and wellbeing of those living in the local area. As such, the liquidator would not be acting ultra vires in continuing the Company’s business for that purpose.

Norris J also answered the “difficult question” of whether the Official Receiver could take into account broader environmental factors when deciding whether to continue the supply of power in the affirmative. He noted that the Court of Appeal’s decision in Re Rhondda Waste Disposal Ltd [2001] Ch 57 and the remarks of Neuberger J in Re Mineral Resources Ltd [1999] BCC 422 at 431 both illustrated other parts of the insolvency regime affording prominence to such concerns. Given the nature and purpose of the liquidation, it would not “accord with the standards of right-thinking people” by which liquidators are expected to act (as per David Richards LJ in Lehman Brothers Australia Limited v MacNamara [2020] EWCA Civ 321 at [35]) for the Official Receiver to act as the author of a major environmental risk.

While Norris J’s remarks were confined to the almost unprecedented facts before him, they show that – in appropriate cases – the insolvency regime can respond to public interest concerns. In particular, with the proliferation of environmental regulation and the growing public concern with environmental protection, this area is likely to be ripe for development in the coming years. It remains to be worked out in subsequent cases how far these matters may take precedence where, unlike here, there would be significant detriment to the interests of creditors.

The decision will also be of wider interest to insolvency practitioners for its discussion of the applicable test to applications under s.168(5).

As is well-known, s.168(5) provides that “If any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the actual decision complained of and make such order in the case as it thinks just”.

It was accepted that, while in most cases only a creditor or contributory of the insolvent company would have standing as a ‘person aggrieved’, on the unusual facts of the case the Applicants came within the narrow classes of persons described in Re Hans Place [1992] BCC 737 and Mohammed v Morris [2001] BCC 233 as being directly affected by a power exercised within the liquidation which they would otherwise have no opportunity to challenge.

Applicants under s.168(5) are normally required to show that the act or decision under challenge was either taken in bad faith or ‘perverse’: Re Edennote Ltd [1996] BCC 718 at 722. However, Norris J held that this was not the only test. While bad faith or perversity was the appropriate standard of review in cases involving genuine exercises of discretion or commercial decisions taken by office-holders, in cases concerning the scope of an office-holder’s vires, authorities such as Re Buckingham International Plc [1998] BCC 943 showed that a lower threshold applies. In other words, where an office-holder is operating under a mistaken apprehension as to the legal scope of his powers, the court will intervene more readily on an application by an affected party. This is a welcome clarification, which also accords with the law’s approach to reviewing the acts of other public and private decision-makers.

Finally, the Applicants also argued in the alternative that the Official Receiver’s proposed construction of Sch.4, para.5 was incompatible with Art.2 and Art.8 of the European Convention on Human Rights. Norris J rejected this novel argument, but permission has been granted to appeal to the Court of Appeal on it; the Respondents have also been granted permission to cross-appeal.

Thomas Robinson, Francesca Mitchell and Daniel Petrides acted for the successful Third and Fourth Applicants.

Daniel Scott acted for the Fifth Applicant.

A copy of the judgment can be found here.

Lucas v Gilbert [2022] 2 WLUK 177

Judgment has been handed down in Lucas v Gilbert [2022] 2 WLUK 177.

A solicitor and his client entered into a joint venture in respect of the development of a property, by which the solicitor provided the purchase costs and the client agreed to develop the property. The parties agreed to mutually share in the profit generated. The agreement was not reduced to writing. The parties subsequently fell into dispute as what was agreed, and whether the agreement was vitiated by alleged breaches of fiduciary duties or alleged undue influence.

These were the basic facts. The trial took place before HHJ Saggerson. The Judge held that that the Claimants’ case on the agreement was correct; the parties had agreed that the solicitor would be entitled to a 50% shareholding in the property-owning company. In so holding, the Judge referred to and applied the well-known guidance in Gestmin [2013] EHHC 3560 (Comm) and Natwest Markets Plc v Bilta (UK) Ltd (In Liquidation) [2021] EWCA Civ 680 as to the correct approach to witness evidence, in particular where there are gaps in the documentary evidence.

Of more general interest were the Judge’s observations as to whether the agreement was vitiated by alleged breaches of fiduciary duty and alleged undue influence. The basis of these arguments was that the agreement was unenforceable by reason of the solicitor’s fiduciary position, which, it was said: (a) prevented him from profiting under the agreement; and/or (b) meant that the agreement had been entered into by reason of undue influence.

The Judge robustly rejected the Defendants’ argument as to fiduciary duties, citing academic and case-law authority for the (principled) proposition that the scope of fiduciary duties is moulded according to the nature of the relationship and the facts of the case, and the court must be careful not to distort the contractual agreement arrived at between commercially contracting parties by superimposing (strict) fiduciary obligations inconsistent with the contractual bargain. On the facts, the agreement was outside the scope of any fiduciary relationship between the solicitor and client.

The Judge also dismissed the suggestion that the agreement was entered into by any undue influence, no presumption of which arose because the transaction could readily be accounted for by the ordinary motives of the parties.

There was therefore judgment for the Claimants, and the Court ordered specific performance of the agreement (on the usual basis that the agreement was for the transfer of shares in a private company).

The decision is therefore a salient exemplar of the application of principles applicable whenever a fiduciary and his principal enter into a contractual relationship.

James Goodwin was instructed by IBB Law on behalf of the Claimants.

Click here to view the judgment.

Punter Southall Governance Services Ltd v Benge [2022] EWHC 193 (Ch)

Judgment has been handed down in Punter Southall Governance Services Ltd v Benge [2022] EWHC 193 (Ch).

This decision of Chief Master Shuman concerns the circumstances in which the Court might refuse to bless a decision of pension scheme trustees, with particular reference to the meaning of “necessaries of life”, the conflicted position of member-trustees, and the relevance of disputed matters of fact. It will be important both for those considering the payment of discretionary benefits from pension schemes, including the interrelationship of scheme rules and the authorised payments regime under the Finance Act 2004, as well as more generally in relation to the robust approach the Court should take to beneficiaries seeking to oppose the blessing of trustee decisions.

Following the death of Mr Thomas Benge, Punter Southall Governance Services Ltd, the independent trustee of the BST Group Pension Scheme, decided to exercise its discretion to pay a death benefit to Mrs Barrett, a member and trustee of the scheme, as a dependant of Mr Benge. This was vehemently opposed by Mr Benge’s son, Mr Nigel Benge, and consequently the trustee sought the Court’s blessing under the Public Trustee v Cooper jurisdiction. Giving judgment for the trustee, the Chief Master addressed three points of wider relevance.

First, the trustee’s power to pay the death benefit to Mrs Barrett was contingent upon her qualifying under a provision of the trust deed as a person “who in the opinion of the Trustees is (or was at the date of his death) dependent or interdependent on [Mr Benge] for all or any of the necessaries of life”. In announcing their decision to members, the trustee had referred not to the provision in the trust deed, but to the HMRC definition of dependant in schedule 28 paragraph 15 of the Finance Act 2004: a person is a dependant of a member “if, in the opinion of the scheme administrator, at the date of the member’s death (a) the person was financially dependant on the member, (b) the person’s financial relationship with the member was one of mutual dependence, or (c) the person was dependant on the member because of physical or mental impairment.” It was argued for Mr Nigel Benge that this test was different, and the trustee had been wrong to apply the HMRC test rather than the test in the trust deed.

The Chief Master considered the Court of Appeal’s decision in Simmons v White Brothers [1899] 1 QB 1005, where Romer LJ held (at 1008) that a “dependant” is someone who is dependent on another “for the ordinary necessaries of life, having regard to his class and position in life.” She considered the term “necessaries” to be fact sensitive in relation to “class and position in life” and that being dependant on someone for the necessaries of life, as required by the trust deed, was “materially the same” as the definition of dependant under the FA 2004. As a result, there is helpfully no difference between what is permitted by the trust deed, and the authorised payments regime under the FA 2004.

Second, there was clearly a potential conflict owing to Mrs Barrett’s position as trustee, member, and potential object of the trustee’s discretion in relation to the death benefit. This was managed by the appointment of the claimant as trustee, and the complete exclusion of Mrs Barrett from any decision-making in relation to the death benefit. It was nevertheless complained that this exclusion meant that she had failed “to perform the duty of a trustee to ensure that all information required for the making of a properly informed decision is available” and that the Court should apply the more onerous test set out by Briggs J in Jones v Firkin-Flood [2008] EWHC 2417 that where there is a conflict the trustee must prove that the transaction was “fair and reasonable”. The Chief Master rejected this, considering that Jones v Firkin-Flood was concerned with a conflict which had not been managed – it was only revealed in the course of evidence at trial. Mrs Barrett could not be “’Schrödinger’s’ trustee”, criticised both for acting as trustee and for not so acting.

Third, Mr Nigel Benge repeatedly made serious but unsubstantiated factual allegations against Mrs Barrett, extending to dishonesty and other criminal conduct, and complained that the trustee had not taken this material into account when he latterly produced documents which were alleged to support these allegations. The Chief Master held that if Mr Nigel Benge had wished to pursue such allegations he could have done so in Part 7 proceedings, before the Pensions Ombudsman, or elsewhere. In circumstances where the trustee confirmed that it had considered this new material but remained of its prior view that the death benefit be paid to Mrs Barrett, there was no basis to refuse blessing, the Chief Master re-stating the Public Trustee v Cooper orthodoxy that “[t]he court does not forensically examine from the start of the process but rather looks at the end result, the decision, and asks itself whether there is a sufficiency of evidence to support this. I am satisfied that the claimant, and Dentons before, have taken account of only relevant matters and reached the decision which is squarely within the range of decisions which a reasonable trustee could make on the basis of this evidence.”

Following the handing down of her judgment, the Chief Master ordered both the trustee’s and Mrs Barrett’s costs to be paid by Mr Benge, on the footing that his hostile approach to Mrs Barrett in particular had taken this case out of the ordinary case of a trustee blessing (where all parties’ costs are normally paid from the fund) and had given it the character of hostile litigation (where the loser pays the winner’s costs).

Paul Newman QC was instructed on behalf of the successful trustee. Michael Ashdown was instructed on behalf of Mrs Barrett.

The full judgment can be found here.