LIFE Services Ltd and The Learning Centre (Romford) Ltd v Commissioners for HM Revenue and Customs [2020] EWCA Civ 452

Court of Appeal makes important ruling on EU principle of fiscal neutrality 

Jonathan Davey QC has been successful before the Court of Appeal in two important charity / EU / tax cases regarding whether UK legislation providing an exemption from VAT for certain welfare services infringes the EU principle of fiscal neutrality. The Court of Appeal (Floyd, Newey and Arnold LJJ) upheld two decisions of the Upper Tribunal (Mann J and Judge Timothy Herrington ([2017] UKUT 484 (TCC)); Nugee J and Judge Timothy Herrington ([2019] UKUT 2 (TCC))), which had overturned two decisions of the First-tier Tribunal (Judge Barbara Mosedale ([2017] UKFTT 0492 (TC)); Judge Charles Hellier and William Haarer ([2016] UKFTT 444 (TC))), in holding that provisions of the Value Added Tax Act 1994 did not infringe the relevant EU law jurisprudence. The factual context of the cases was that of the provision of day care services to adults with learning disabilities by private operators providing such services for profit. The key issue in dispute was that of whether or not any differential treatment of providers of day care services, whether as between: (i) charities on the one hand and private operators on the other; or (ii) private operators in England and Wales on the one hand and private operators in Scotland and Northern Ireland on the other, was impermissible. The Court of Appeal found that it was not. Jonathan Davey QC acts for HMRC with Natasha Barnes (1 Crown Office Row). Jonathan Bremner QC (One Essex Court) and Hogan Lovells act for LIFE Services Ltd. Eamon McNicholas (Westwood Chambers) acts for The Learning Centre (Romford) Ltd.

The full judgment can be downloaded here.

Kensell v Khoury [2020] EWHC 567 (Ch)

Article written by Martin Hutchings QC

 

1) Introduction

Is it possible to resist an application to amend on the grounds that the new case could and should have been advanced earlier in the same proceedings?

There is no mention of the relationship in CPR Part 17 (‘Amendments to Statements of Case’) between the Court’s wide discretionary power to allow amendments, and the abuse of process rule of law embodied in Henderson v Henderson [1843] 67 ER 313. Nor does the White Book address the point. The leading textbook on Res Judicata[1] also makes no mention of whether Henderson abuse can apply within the same set of proceedings. How if at all do they interrelate?

The point of principle was considered recently in Kensell v Khoury [2020] EWHC 567 (Ch)[2]. In the final section of this article I set out the implications of the decision.  Before explaining the conclusions of Zacaroli J in that case, it is worth remembering the basic principles.

 

2) Henderson v Henderson

In Henderson v Henderson (1843) Wigram VC famously laid down the rule that:

‘…The plea of res judicata applies, except in special cases, not only to points which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward.’

Henderson v Henderson was a case in which all relevant matters in a new (English) action had been previously litigated in Canada. That case and almost all subsequent cases relying on the ‘extended’ res judicata doctrine exemplified in it, are cases in which the issue was whether a new set of proceedings was an abuse of process in light of a determination in earlier proceedings.

The mischief to which the Henderson rule is therefore primarily directed is the bringing of a second action, not the making of an application to amend the first. Thus in Greenhalgh v Mallard[3] the Court of Appeal characterised the Henderson rule as applying to: ‘issues or facts which….clearly could have been raised [such] that it would be an abuse of the process to allow … new proceedings to be started….’. The most recent authoritative case on the Henderson rule (Johnson v Gore Wood & Co (no 1)[4]) was also concerned with the question whether the claim or defence ‘should have been raised in the earlier proceedings if it was to be raised at all’. Lord Bingham’s statements of principle in that case, including that ‘…..there will rarely be a finding of abuse unless the later proceedings involves what the Court regards as unjust harassment of a party’, seem also to confine the rule to circumstances where a second set of proceedings has been issued following the determination of the first. This is also apparent from Bingham MR’s earlier statement of principle in Barrow v Bankside Members Agency Ltd[5]:

‘The [Henderson] rule is…..a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed.’ (Emphasis supplied)

One could therefore be forgiven for concluding that the danger that the rule in Henderson is designed to meet is the re-litigation of matters in fresh litigation, rather than attempts to amend statements of case to bring forward matters which might have been pleaded earlier in the same proceedings.

Amendments are allowed as a matter of principle because of the Courts’ willingness to ensure that all relevant arguments/claims are before the Court at one time during one set of proceedings. The application of the Henderson rule to amendments, by barring a party from bringing forward in one claim all relevant matters, even late in the day, might be said to call into question the justification for the rule’s original application, whilst also being inconsistent with the Court’s wide discretionary power to allow amendments under CPR Part 17.  Furthermore, the Henderson rule is a rule of law. There is no discretion for a Judge to exercise once s/he has decided that Henderson abuse will occur. Thus once it is determined, applying a ‘broad merits-based judgment[6]’, that the rule in Henderson is engaged, the claim/issue must be struck out. This fact might be said strongly to militate against a requirement that applications to amend statements of case must also be shown not to offend the Henderson abuse rule. The Court’s powers to allow amendment at any stage of proceedings – even after judgment – should not be trammelled by the additional need also to consider whether the Henderson rule is engaged.

Indeed, the idea that Henderson can apply to applications to amend a first set of proceedings could be argued to run contrary to the well-established practice, in strike out applications, that where, having heard argument, the Court is of the view that an application to strike out a statement of case as disclosing no arguable claim/defence is likely to succeed, the respondent should be given an opportunity to file a draft amended statement of case to attempt to cure the defects, before the pleading is struck out. The White Book, affirms the principle in note 3.4.2 which states: ‘Where a statement of case is found to be defective, the Court should consider whether that defect might be cured by amendment and, if it might be, the Court should refrain from striking it out without first giving the party concerned an opportunity to amend (Soo Kim v Young)[7]….’.  Thus if it were right that it could be a Henderson abuse of process to apply to amend defective pleadings at the point of strike out, it might be said that the general practice exemplified in Soo Kim on strike out / summary judgment applications, should not exist. On the other hand, that practice can be said to be entirely consistent with the Henderson rule, in that it encourages parties to bring forward all of their potential claims and arguments in one set of proceedings, rather than dragging matters out and wasting court time by the hearing of abuse applications in a second set of proceedings.

 

3) Ruttle Plant Hire Ltd v The Secretary of State for the Environment, Food and Rural Affairs [2007]

In the only High Court case before Khoury v Kensell to deal ‘head on’ with the relationship between the CPR’s amendment principles and Henderson abuse, Rupert Jackson J (later, Jackson LJ of CPR Reforms fame) found that the Henderson rule did not, as a matter of principle, apply to applications to amend statements of case to plead new causes of action, even after there had been a preliminary issue trial. In Ruttle Plant Hire Ltd v The Secretary of State for the Environment, Food and Rural Affairs [2007][8] the question before the Judge was: ‘  …….whether the rule in Henderson v Henderson can be invoked as a ground for opposing amendments in existing litigation’.

In Ruttle, there had been a lengthy trial of preliminary issues and a considerable amount of the Court’s and the parties’ time and resources had already been consumed. Over 5 months after the determination of those issues by Jackson J, the partially unsuccessful claimant applied to re-re-amend its PofC to plead new matters. The matters could have been pleaded at the outset. The application was opposed, partly on the basis that: ‘16.  …..a party cannot return to Court and advance arguments, claims or defences which that party could have put forward for decision on the first occasion but failed to raise’. Jackson J found that Henderson did not apply, and he gave four reasons why this was the case:

’36. Having considered the competing submissions of counsel, I have come to the conclusion that the rule in Henderson v Henderson cannot be invoked in order to prevent a party from pleading at a late stage in litigation issues which might have been pleaded earlier. I reach this conclusion for four reasons.

      1. The rule in Henderson v Henderson, both as formulated by Sir James Wigram VC, and as recast by other judges over the last two centuries, is a rule focused upon re-litigation.
      2. The mischief against which the rule is directed is the bringing of a second action, when the first action should have sufficed.
      3. In all of the cases cited by counsel or unearthed by my own researches in which the Henderson rule has been applied, there have been at least two separate actions. So far as I can see, the Henderson rule has never been invoked as a ground for opposing amendment in the original action.
      4. There is no need to extend the rule in Henderson v Henderson to the sphere of amendment applications. The powers of the Court to allow or disallow amendments are clearly set out in the Civil Procedure Rules. There already exists an established body of judicial authority to guide first instance judges who are faced with applications to amend. See White Book volume 1 paragraph 17.3.5. It is inappropriate to transplant into this field the Henderson line of cases which are focused upon a different juridical problem.’

In Kensell v Khoury [2020] Zacaroli J reached the opposite conclusion, finding that, as a matter of principle at least, the Henderson rule could be engaged on an application to amend a first set of proceedings.

 

4) Tannu v Moosajee [2003] and the post-Ruttle cases

Zacaroli J felt able to depart from Jackson J’s conclusions in Ruttle because (he reasoned) that an earlier Court of Appeal decision Tannu v Moosajee [2003][9] had not been cited in Ruttle (nor had Jackson J apparently found Tannu from his own, no doubt diligent, researches). In Tannu, two of the three Court of Appeal judges had tentatively accepted that, at least as a matter of principle, it was possible that the Henderson rule could apply in relation to ‘separate stages’ of the same litigation, although on the facts of the particular case, it was found to be inapplicable.

In Tannu, a Queen’s Bench claim had been brought for the repayment of an alleged loan of £110,000. The defendant denied there was a relationship of creditor/debtor, claiming there was a partnership. The Judge found there was no loan, declaring that there was a partnership at will. He ordered the taking of an account in the Chancery Division. In the account proceedings the claimant claimed that the £110,000 was a capital contribution to the partnership. One question for the Court of Appeal was whether the Henderson principle could apply to prevent the claimant advancing its capital contribution case in the account phase of the trial, on the basis that this ought to have been raised at the Queen’s Bench trial. Whilst rejecting the application of Henderson on the facts, at least two of the CA judges expressly accepted the possibility that the Henderson rule might apply in the same set of proceedings to separate stages of those proceedings; although one of the two, Arden LJ, went no further than saying that it was ‘not conceptually impossible’ for Henderson to apply to those different stages.

A few, more recent first instance cases, including a Commercial Court case (Tobias Gruber v AIG Management France SA [2019])[10] appeared to accept that Henderson might apply to applications for amendment to pleadings in existing claims, but each of those cases were ones in which there had been a trial of a preliminary issue and the unsuccessful party sought to amend at the next stage of the proceedings. Furthermore in none of those cases had the Courts apparently grappled, as a matter of principle, with whether and how Henderson could apply to a first set of proceedings. In none of those cases was Ruttle apparently cited. The obiter remarks in Tannu seemed a slender basis on which to find that the Henderson rule could be extended so as to apply within the same proceedings. Furthermore, it is to be borne in mind that in Tannu the status of the £110,000 payment had been determined in the first trial, before the account was taken in the second –  so there was arguably a much stronger rationale on the facts, for applying the Henderson doctrine in those circumstances, as compared to the subsequent cases that had referred to Tannu.

 

5) The decision in Kensell v Khoury

The facts: In Kensell v Khoury the claimants (the Khourys), alleged inter alia breaches of restrictive covenants by their neighbour, relying on a building scheme. Mrs Kensell secured summary judgment against the Khourys on the basis that there was no arguable case for the existence of a building scheme. The claim was not struck out altogether however, because the Khourys also advanced a separate, common law claim in nuisance. After instructing new counsel, the Khourys sought to amend their particulars of claim to advance a case to enforce the covenants based on s.56(1) of the Law of Property Act 1925. Mrs Kensell objected, including on the basis that the amendments would amount to a Henderson abuse. Mrs Kensell complained that she had already seen off the covenant claim by her successful summary judgment application and should not be vexed with it again.

The Khourys argued that: (i) Jackson J in Ruttle was correct to find as a matter of principle, that Henderson could not apply to amendments to pleadings in existing proceedings; (ii) on any basis the Henderson principle could not apply to a new case advanced after a successful summary judgment application (as opposed to a trial of a preliminary issue – where the Court had in effect decided to conduct the proceedings in distinct stages); and (iii) alternatively to (i) and (ii), it would be wrong, on the facts, to apply Henderson, because applying the merits-based test, no abuse of process was shown and, as a matter of discretion under CPR 17, it was right to allow the amendments, particularly as no trial date was imperilled.

Zacaroli J (on appeal from the County Court Judge) rejected (i) and (ii) above and found in the Khourys’ favour only on (iii).

In relation to (i) and (ii), Zacaroli J found that the authority of Ruttle was diminished because Tannu had not been considered. He felt free therefore to decide as a matter of principle whether Jackson J’s conclusion had been correct in light of Tannu and the post-Ruttle first instance decisions; noting however that Henderson had never been considered in the context of a case where an amendment was sought in existing proceedings, following a successful summary judgment application. Disagreeing with Jackson J the Judge found that there was no reason to preclude the application of the Henderson principle in the context of amendments; nor even as a matter of principle, where the earlier judgment had been obtained on a summary basis:  ‘51.  …………. If the bringing of the new claim would constitute unjust harassment…then it is difficult to see why the fact that the earlier summary judgment did not dispose of the whole action should make any difference.’ He did however hold that whilst the Henderson principle was capable of being engaged on an application to amend after strike-out of the original claim in the same proceedings: ‘63….It is likely to be appropriate to apply it in more limited circumstances than if the earlier judgment was given after a trial (for example on a preliminary issue) at an earlier stage in the same proceedings’.

However, on the facts, Zacaroli J declined to find that the application to amend to plead s.56(1) was an abuse of process, and he further found, although for somewhat different reasons, that the Judge below had been correct to exercise his discretion under CPR 17 to allow the amendment.

 

6) Is Kensell v Khoury right?

So, we know that Henderson can apply to the same set of proceedings. Statements such as those in Ruttle that ‘The mischief against which the [Henderson] rule is directed is the bringing of a second action, when the first action should have sufficed’ now require qualification. But this extension to the Henderson rule can be questioned.

First, it is unclear why the Courts should need to apply Henderson in this context when it has ample discretionary powers to refuse amendments, as explained in the well-developed jurisprudence under CPR Part 17. Secondly, as was pointed out in Ruttle, the jurisprudence is different, and designed to deal with ‘different juridical problem(s)’. It could also be said to be inappropriate to confuse or elide the discretion under CPR 17 with the Henderson principle, which is a rule of law. With Henderson, once abuse is found, there is no discretion not to strike out/refuse the amendment application. Should Judges therefore first consider the broad, merits-based test applied in the Henderson rule and only then (assuming the Henderson challenge fails) go on to consider how the CPR Part 17 discretion should be exercised? This could be said to be a recipe for confusion. Thus for example, we are told that the merits-based test for the purposes of Henderson abuse should invariably not include any assessment of the merits of the new claim that is being challenged[11]. Yet when considering whether to allow amendments under CPR Part 17 the position is more flexible: in certain circumstances, a Court is entitled to take at least some note of the underlying merits of proposed amendments. The Court’s different treatment (in relation to questions of delay and a failure to use reasonable diligence) where abuse of process is alleged, as compared to when it is considering late applications to amend,  is also worth noting. One might conclude that some applications to amend are likely now to become more complicated and time consuming.

 

7) Lessons from Kensell v Khoury

Despite the powerful reasoning in Ruttle it would seem that Courts nowadays will be prepared to consider whether an application to amend following a strike out of part of a claim, or summary judgment, amounts to an abuse of process engaging the Henderson rule.

It is as yet unclear to what extent the Henderson rule can be used successfully to oppose an application to amend.  Clearly the abuse allegation will have more weight if the application to amend follows a preliminary issue trial rather than an ‘interlocutory’ order to strike out, or for summary judgment. But more than ever it now behoves a party to ensure that all of its potential claims and every possible way of advancing those claims are set out at the outset, because parties seeking to amend are now more likely to be met with Henderson abuse arguments. Those arguments can be expected to be deployed tactically by those seeking to oppose amendments. The other point that emerges from the above cases including Kensell is the importance of the party who is seeking to amend (and avoid an abuse finding) making every effort to inform the other side as soon as possible that it intends to raise the new claim or issue.

Whether this might also impact the practice on strike out applications exemplified in Soo Kim (above), or even the amendment of other documents such as grounds of appeal, remains to be seen.

 

Martin Hutchings QC represented the successful Respondents in Kensell v Khoury, you can read the full judgment (handed down on 13th March 2020) from this case here.

 

[1] Res Judicata: Spencer Bower and Handley (5th edition) 2019

[2] Also reported at [2020] 3 WLUK 434

[3]  [1947] 2 All ER 255

[4] [2002] 2 AC 1

[5] [1996] 1 WLR 257 per Bingham MR @ 260

[6] As explained by Lord Bingham in Johnson v Gore Wood (above)

[7] [2011] EWHC 1781 (QB))

[8] [2007] EWHC 1773 (TCC)

[9] [2003] EWCA Civ 815

[10] [2019] EWHC 1676 (Comm)

[11] Stuart v Goldberg [2008] 1 WLR 823 @ para 57 per Lloyd LJ

Re Tariq Halal Meat (Ilford) Ltd [2020] EWHC 734 (Ch)

Chief Insolvency and Companies Court Judge Briggs handed down judgment on Friday addressing the circumstances where an insolvency practitioner should be made personally liable for the costs of a challenge to their adjudication on a proof of debt.

Having assessed authorities from Re Silver Valley Mines (1882) LR 21 Ch D 381 to Fielding and another v Hunt [2017] EWHC 406, Chief Judge Briggs stated that although the cases did not “speak with one voice when it comes to nomenclature”, nonetheless a principled approach emerged:

  1. The starting point is Insolvency Rule 14.9(2), providing that an order should not ordinarily be made against an office holder personally.
  2. Something more is required, which “relates to the conduct of the office holder”.
  3. The degree of conduct deserving of a personal costs order will depend on the circumstances of each case. A mere mistake is unlikely to be sufficient. Acting in a neutral manner, on an appeal from a rejection of proof, is unlikely to be sufficient. Acting for a personal advantage in resisting an appeal is very likely to lead to a personal costs order. Such conduct would present a “special case” and a “good reason”, and may be characterised as “irrational conduct”, or “unreasonable conduct”.
  4. Where the conduct complained of relates to a decision made on a proof of debt, the court will take account of the duties imposed upon an office holder to investigate the proof (i.e. to examine every proof, to consider the validity of the debt which is sought to be proved, and to require satisfactory evidence that the debt on which the proof is founded is a real debt, even where the proof is based on a judgment).

On the facts of the case, a personal costs order was not warranted. Thomas Robinson acted for the successful administrator, instructed by Pinsent Masons LLP.

The full judgment can be read here.

Gareth Clark v HM Revenue and Customs [2020] EWCA Civ 204

Court of Appeal pensions/tax decision on meaning of “payment” in context of unauthorised payments charge regime and on nature of “discovery” assessments

Jonathan Davey QC has received judgment from the Court of Appeal (Bean, Henderson and Davies LJJ) in an appeal concerning the meaning of “payment” in the context of the “unauthorised payment charge” regime in relation to registered pension schemes under the Finance Act 2004 (“FA 2004”). The case concerned a scheme entered into by the Appellant the purpose of which was to enable him to liberate his pension monies for personal investment in the London property market without giving rise to a charge to tax. The Court of Appeal upheld the decision of the Upper Tribunal (Tax and Chancery Chamber) (Arnold J and Judge Herrington) that the scheme did not work. The Court of Appeal held that in considering whether the tax charge imposed on unauthorised member payments by virtue of sections 208 to 210 FA 2004 applied, the question of whether a “payment” had been made fell to be answered by looking at “the practical, business reality of the transaction” (at [82]), including any composite transaction of which the payment formed part. Applying that approach, on the facts of the case, a transfer of legal title without beneficial title did constitute a “payment”. In reaching that conclusion the Court of Appeal had regard to the decision of the Court of Appeal (judgment of Chadwick LJ) in Venables v Hornby [2002] EWCA Civ 1277 and the decision of the High Court (judgment of Arden J) in Hillsdown Holdings PLC v Inland Revenue  Commissioners [1999] STC 561. On the procedural point in dispute between the parties of whether the transfer in question was properly to be regarded as part of the subject matter of the “discovery” assessment issued by HMRC, the Court provided important guidance as to the operation of the discovery provisions within section 29 of the Taxes Management Act 1970 including in relation to the question of how the scope of a discovery assessment is to be delimited. Jonathan Davey QC acts for the Respondents (HMRC) with Sam Chandler (5 Stone Buildings). Michael Jones (Gray’s Inn Tax Chambers) acts for the Appellant.

The full judgment can be read here.

Shelford and others v HM Revenue and Customs [2020] UKFTT 53 (TC)

First-tier Tribunal Decision concerning “Home Loan Scheme”, purported sale of house to interest in possession trust and section 2 of the Law of Property (Miscellaneous Provisions) Act 1989

Jonathan Davey QC has received judgment from the First-tier Tribunal (“FTT”) in an appeal concerning the correct inheritance tax analysis applicable in respect of a “Home Loan Scheme” (the “Scheme”) involving the purported sale of a house to an interest in possession trust. The purpose of the Scheme was to remove the value of the house from the estate of a particular individual for the purposes of inheritance tax, whilst enabling the individual to continue to live in the house rent-free for the rest of his life. The FTT held that the Scheme did not work. The FTT found (among other things) that the loan agreement and sale agreement forming part of the Scheme involved “mislabelling”, and that the arrangements did not amount to a valid contract for the sale of land as they did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The FTT therefore found for the Respondents and dismissed the appeal. Jonathan Davey QC acts for the Respondents (HMRC) with Thomas Chacko (Pump Court Tax Chambers). William Massey QC, Emma Chamberlain and Oliver Conolly (Pump Court Tax Chambers) act for the Appellants.

The full judgment can be read here.

Judgment in Filatona Trading Ltd and Ors v Navigator Equities Ltd and Ors [2020] EWCA Civ 109

Judgment was handed down on Thursday by the Court of Appeal in Filatona Trading Ltd and Ors v and Navigator Equities Ltd and Ors [2020] EWCA Civ 109. In the judgment, the Court of Appeal gave authoritative guidance on the factors which determine when a principal is precluded from intervening on a contract made by his or her agent. Iain Pester represented the successful Third Respondent.

You can read the full judgment here.

In the matter of Comet Group Limited (in Liquidation) [2018] EWHC 1378 (Ch) – reporting restrictions lifted on 28 January 2020

This judgment is an important one. It concerned an application by the joint liquidators of Comet (formerly joint administrators) for directions permitting them not to carry out any further investigation into the validity of the fixed and floating charge held by a single purpose vehicle (“HAL”) that had been granted by Comet under a year before it collapsed into administration. The joint liquidators also sought a direction that they be permitted to transfer a further tranche of funds to HAL that had been realised in the administration.

The joint liquidators joined the Institute of Chartered Accountants of England and Wales (“ICAEW”) as a respondent to the application on the ground that the ICAEW had threatened to report the joint liquidators to their licensing body if they transferred further funds to HAL. The joint liquidators were already subject to disciplinary proceedings that had been commenced by ICAEW in 2014 with complaints, inter alia, that when the joint liquidators accepted their appointment originally as joint administrators they had not put in place sufficient safeguards to address conflicts of interest that they had as a result of their prior relationship with HAL and its ultimate owners.

The joint liquidators’ position on the application was that they had obtained two opinions from Freshfields and one opinion from David Allison QC to the effect that the security held by HAL was valid and that, therefore, the joint liquidators were entitled to act pursuant to that advice. In response, the ICAEW obtained an opinion from Lexa Hilliard QC that had concluded that there were a number of issues surrounding the grant of the security to HAL which cried out for investigation and that, in the absence of such investigation, it was well arguable that the security was invalid.

Sir Nicholas Warren held in a judgment handed down on 7 June 2018 that, contrary to the advice that the joint liquidators had received, there were a number of issues surrounding the grant of the security to HAL that deserved investigation and that the joint liquidators, by reason of their perceived lack of independence as a consequence of their prior relationship with HAL, should not carry out those investigations. The Judge went on to hold that the investigations should be carried out by an independent additional liquidator, which the Judge appointed at a subsequent hearing.

In a later judgment handed down on 21 June 2018, the Judge imposed reporting restrictions on the publication of the main judgment in order not to prejudice any investigation that might be carried out by an independent additional liquidator, once appointed. Costs were awarded to ICAEW on the indemnity basis.

This case has been widely reported including by The Times and Financial Times.

The 2018 judgments can be viewed here and here.

By an order dated 7 January 2020, Deputy ICC Judge Frith lifted the reporting restrictions on publication of both judgments.

Terence Mowschenson QC and Lexa Hilliard QC acted for the ICAEW.

National Bank Trust v Ilya Yurov & Ors [2020] EWHC 100 (Comm)

Following an eight week trial in late 2018, the High Court has handed down judgment finding against the former majority shareholders of Russia’s National Bank Trust who were alleged to have misappropriated over $1billion of Bank funds via a sophisticated network of offshore companies.

The case has been widely reported including by the Financial Times and The Wall Street Journal.

The Bank brought a claim against its former majority shareholders, who were also members of the Bank’s Supervisory Board, and their wives in relation to approximately $1billion of loans which they were alleged to have procured over a period of ten years for the benefit of what were said to be their own companies. The Bank’s case was that this money was, in large part, transferred to an offshore network of further companies, also beneficially owned by the shareholders, for the purposes of servicing other loans from the Bank as well as for their own personal benefit.

The defendants’ position was notable insofar as while two of the defendant shareholders, Mr Yurov and Mr Fetisov, accepted that Bank funds had been transferred through a network of companies but maintained that this had been done legitimately and in the best interests of the Bank, the third shareholder Mr Belyaev denied all knowledge of and involvement in any such scheme.

The case, which was brought under Russian law, raised difficult legal questions in respect of which the Russian Courts’ position remains uncertain in many instances. It also involved complex accounting evidence that sought to trace through thousands of transactions involving hundreds of companies over ten years.

Although a fact heavy judgment decided on the basis of Russian law, it nevertheless provides a valuable summary and application of the English law principles governing, for example, what is required to properly plead and prove fraud, including the approach to be taken by the Court in determining inherent probabilities, as well as the role of documentary and circumstantial evidence. This was particularly significant in light of the nature of Mr Belyaev’s defence.

The judgment also provides a useful discussion of:

  1. The application of foreign law by the English Court, including the weight to be attached to foreign judgments;
  2. The circumstances, as set out by the Court of Appeal in Wisniewski v Central Manchester HA [1998] PIQR 324, in which adverse inferences may be drawn from the absence of a witness who might have been expected to have material evidence to give on an issue in the action;
  3. The importance of adequately pleading one’s case, particularly in fraud claims and with reference to Part 16 PD para 8.2; in this case the Judge found that the Bank was not entitled to rely on its allegation that a particular fiduciary lending arrangement  was “inherently dishonest” in circumstances where it had not been positively pleaded and particularised.

Tim Penny QC and Tara Taylor acted for the second and fifth defendants (instructed by Fried Frank Harris Shriver and Jacobson LLP).

You can read the full judgment here.

Re Carlauren Group Companies

The High Court has placed eight companies in the Carlauren Group of luxury hotels and care homes into administration. The matter has been widely reported, including by the BBC and Guardian.

The Group began operations in 2015 and raised some £76 million from investors worldwide. However in 2019 it fell into arrears in paying fixed returns to those investors. Three of its c. 40 companies entered administration in late July 2019.

The Group had brought an application challenging the validity of two of those appointments, while other applications were brought by investors, creditors, and the existing administrators. These sought administration orders in relation to the two companies already in administration (in case the existing appointments were held invalid) and in relation to other parts of the Group.

After a two-day hearing, the High Court decided to place eight companies into administration, including its two holding companies. Thomas Robinson acted for the successful administrators, Carl Jackson and Simon Bonney of Quantuma LLP, instructed by Cathryn Williams and Paul Muscutt of Crowell & Moring LLP.

Dealing with arguments over invalid appointments

The dispute as to validity concerned i) the enforceability of a Qualifying Floating Charge, and ii) which persons held shares in the company in question at the relevant time and whether shareholders could rely on the Duomatic principle to appoint under paragraph 22 of Schedule B1 when the appointment in fact relied only on directors’ powers.

Adopting a approach that may be useful in other cases, the court noted that it had before it applications by creditors to put the same companies into administration with retrospective effect. Doing so avoided the need to decide on the validity of the initial appointment. If the appointments had been valid then paragraph 7 of Schedule B1 would apply to prevent administrators being appointed to a company already in administration. The court addressed this by terminating their appointment, to the extent necessary, under paragraph 79. This follows the approach in Pettit v Bradford Bulls [2017] BCC 50.

Need for investigation

The court recorded, but made no findings on, the allegations made regarding use of investors money. These included its diversion to the Group’s director’s personal bank account, the acquisition of a private jet, yachts, two houses and five luxury cars for the director. They also included allegations of running a collective investment scheme in contravention of s.19 of FSMA 2000 and a practice of paying investors with money from later investors amounting to a Ponzi Scheme. The court concluded simply that there was a “pressing need” for investigation.

Purpose of administration

The Court considered at some length the test at paragraph 11(1)(b) of Schedule B1, and reasons why it was reasonably likely that the purpose of administration would be achieved. It adopted a “holistic” approach to the Group, noting that the administrators may wish to put together packages of subsidiaries for realisation purposes, and address issues such as planning permission and change of use regarding several properties (held in different companies). The court placed weight on the views of the two existing administrators, and rejected certain criticisms of their conduct.

University of London v Cornerstone Telecommunications Infrastructure Limited [2019] EWCA Civ 2075

This case concerns interim and temporary rights under the new Electronic Communications Code in Schedule 3A to the Communications Act 2003, brought in by the Digital Economy Act 2017.

It has answered two massive questions that have been boring holes in the febrile minds of Code Geeks over recent months:

Question 1: Is an ‘MSV’ (multi-skilled visit) – basically a survey by an operator to see if a site is suitable for apparatus – a code right so that it can be sought as an interim right under paragraph 26 of the Code, thereby (i) involving only the lower ‘good arguable case’ test; and (ii) invoking code levels of consideration and compensation (including the ‘no-network assumption’), rather than ransom levels?

Question 2: Can a paragraph 26 interim right be sought alone or has it got to be ‘parasitic’ – on a full-blown paragraph 20 claim, as suggested in Cornerstone v Compton Beauchamp [2019] EWCA Civ 1755 at [68]?

The answers in the Judgment of the Court of Appeal (Etherton MR, Lewison LJ, Arnold LJ) is yes to both questions. It’s a green light to operators when it comes to MSV’s and interim rights.

The basis for the yes answer to the first question is paragraph 3(d) of the Code which creates a code right “to carry out any works on the land for or in connection with the installation of electronic communications apparatus on, under or over the land or elsewhere”.

It is true that surveys do not necessarily involve invasive banging and screwing and hammers and nails and the MSV in this case did not. But ‘works’ is a wide word and hammers and nails are not needed to create charitable ‘works’ nor the ‘works’ of Shakespeare.

Ultimately though, these code rights must be construed in light of the purpose of the code – to facilitate electronic communications apparatus in the public interest. On that basis, the Court of Appeal was satisfied that an MSV fell within 3(d).

The basis of the yes answer to the second question is the difference between the notice under paragraph 26(3) only having to be one which ‘complies’ with paragraph 20(2) (ticks the rather low-level requirements of 20(2)) and the express assumption of extant paragraph 20 proceedings in paragraph 27(3).

That was a difference which the Court of Appeal recognised was not referred to in Compton Beauchamp but it means that properly read the Code means that whilst a paragraph 27 claim for interim rights needs to be accompanied by paragraph 20 proceedings and can be made only when there is already electronic communications apparatus on the land, a paragraph 26 claim for interim rights can be made whether or not apparatus is already on site and without a supportive paragraph 20 claim.

Subject to the supervision of the Upper Tribunal, therefore, many opportunities open up to the operator in using paragraph 26 claims for interim rights. We can expect to see many more.

Jonathan Seitler QC acted for the successful respondent, Cornerstone Telecommunications Infrastructure Limited.