1) Fortress Value Recovery Fund I Llc and Others v Blue Skye Special Opportunites Fund L.P. (A Firm)and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux: |
| Judgment Date | 16 January 2013 |
| Neutral Citation | [2013] EWHC 14 (Comm) |
| Docket Number | Case No: 2011 FOLIO 1565 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 January 2013 |
The Honourable Mr Justice Flaux
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Ewan Mcquater QC, Mr David Quest and Mr Richard Hanke (instructed by Slaughter & May) for the Claimants
Mr Tim Lord QC, Mr Thomas Plewman and Mr Craig Morrison (instructed by Reynolds Porter Chamberlain Llp) for the 2 nd, 3 rd, 5 th, 7 th-12 th, 15 th, 17 th and 21 st Defendants and the 1 st-10 th and 12 th-13 th Part 20 Defendants
Mr Craig Orr QC, Mr Jamie Goldsmith and Mr Alexander Brown (instructed by Dac Beachcroft Llp) for the 4 th Defendant and Part 20 Claimant
Mr John Wardell QC and Mr Edward Sawyer (instructed by Withers Llp) for the 16 th Defendant and 11 th Part 20 Defendant
Hearing dates: 18, 19 and 20 December 2012
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The second, third, fifth to twelfth, fifteenth, seventeenth and twenty first defendants (who are described for convenience hereafter as "the RPC defendants" since, at the time of the hearing, they were represented by Reynolds Porter Chamberlain LLP) and the sixteenth defendant who is separately represented, make applications to strike out certain paragraphs of the Amended Particulars of Claim, alternatively for summary judgment against the Claimants, alternatively they resist the permission to amend the Particulars of Claim which the Claimants seek. The shape of the application as it was pursued at the hearing on 18 to 20 December 2012 was somewhat different from the application as issued, principally because certain claims have been withdrawn by the Claimants and other claims have been the subject of extensive amendment and because the RPC defendants and the sixteenth defendant have abandoned certain grounds of their applications.
Factual Background and the claims advanced
The second and third defendants are the managers of an investment structure in which the claimants and others are investors. The underlying assets of the structure are businesses in Italy ("the Italian assets") which are said by the second and third defendants to have a value in the region of €200 million, although that figure is in issue. As originally set up in December 2008, the investment structure was based around the first defendant, the Blue Skye Fund, an English limited partnership, which held indirectly the whole interest in the Italian assets, through holding all the shares in the sixth defendant, Blue Skye Lux, which was the holding company for the Italian assets.
The principal limited partner in the Fund was the fourth defendant, Stepstone, a Luxembourg registered company which held a 99.999% interest in the Fund. Stepstone was the joint venture vehicle by which the claimants and others invested in the structure. The General Partner was the fifth defendant, Blue Skye GP Ltd, a Guernsey registered company.
Stepstone was itself owned as to 48.95% by the third claimant ("Cypress Way"), also a Luxembourg registered company, 36.7% by DeA Capital Investments SA, an investment vehicle for the De Agostini group, a private investment group in Italy, 9.3% by the thirteenth defendant Omega Skye and 4.9% by the fourteenth defendant, Omega Partners (formerly called IdeA), those last two being entities which were or became ultimately owned by the second and third defendants. The management and administration of the partnership was regulated by a Partnership Deed dated 24 December 2008 between Stepstone, IdeA, the thirteenth defendant and the fifth defendant, which was expressly governed by English law and contained a London arbitration clause.
Stepstone's acquisition of its interest in the Fund was funded by way of a loan of €98.471 million from the second claimant, ("ZBS"), an English limited partnership with its principal place of business in the Cayman Islands, pursuant to a Loan Agreement which was expressly governed by English law and contained an exclusive English jurisdiction clause. The investment was not open-ended, but repayable no later than December 2011 and Stepstone itself was formed for a limited period of time ending in December 2012.
The ZBS loan was secured by a deed of assignment ("the Security Assignment") pursuant to which Stepstone assigned to the first claimant ("Fortress"), all of its rights and interest in the Blue Skye Fund and any rights accruing to, derived from or otherwise connected with those rights and that interest as security for its obligations under the Loan Agreement. The Security Assignment was also expressly governed by English law and contained an exclusive English jurisdiction clause. Fortress, a Delaware corporation, is a global investment manager listed on the New York Stock Exchange and with assets under management exceeding US$40 billion.
Mr McQuater QC on behalf of the claimants summarises the claimants' case in their Skeleton Argument for this hearing in these terms: "The claimants' case in summary is that in the course of 2011 Mr Cerchione and Mr D'Avanzo, acting in concert with the other defendants, designed and implemented a dishonest scheme to reorganise the Blue Skye Fund and its assets. The purpose and effect of the scheme was to diminish or eliminate the claimants' rights and interests in the investment property and underlying Italian assets, to take the control and benefit of the assets for themselves, and to enable them and their associated entities to extract fees and other value from the assets without reference to or oversight from the claimants."
The detailed allegations concerning this allegedly dishonest scheme ("the Scheme") are set out in section 4 of the Amended Particulars of Claim [86–135] and at Section C [27–149] of Stepstone's Part 20 Particulars of Claim. It is necessary to set out some of the detail in order to put in context the applications currently being made by the RPC defendants and the sixteenth defendant. In doing so, I have adapted the extremely helpful Appendix to Stepstone's Skeleton Argument provided by Mr Craig Orr QC and Mr Goldsmith and Mr Brown, his juniors, although it is important to emphasise at the outset that in doing so I am merely using a convenient means of summarising the claims and allegations made by the claimants and Stepstone, not in any sense prejudging the issues or making any findings of fact.
It is alleged that the Scheme had nine or ten main elements or phases. The first phase involved the acquisition by Omega Skye, the thirteenth defendant, of IdeA on 31 January 2011 and the use of IdeA's shareholding in Stepstone to procure the appointment of the sixteenth defendant, Mr Padula, to the board of Stepstone to act at the direction of the second and third defendants. It is said that those defendants thereby gained control of the Stepstone board.
The second phase is said to have involved the re-organisation of intermediate entities in the investment structure between 7 and 16 March 2011, including:
(1) The acquisition by BenLomond, the seventh defendant, then a subsidiary of Blue Skye Lux, the sixth defendant, of Blue Skye FH, the twelfth defendant, to which BenLomond then contributed its shareholding in Alfa Skye (comprising part of the Italian assets);
(2) The transfer by Blue Skye Lux of the remainder of the Italian assets to Blue Skye FH in return for the allotment to Blue Skye Lux of Convertible Preferred Equity Certificates ("CPECs") issued by Blue Skye FH;
(3) The transfer by Blue Skye Lux of the Blue Skye FH CPECs to its subsidiary, BenLomond, in return for the allotment to Blue Skye Lux of CPECs issued by BenLomond. Those CPECs were subsequently contributed by Blue Skye Lux, together with the shares held by Blue Skye Lux in BenLomond, to the Blue Skye Fund on 10 May 2011, following which Blue Skye Lux was removed from the structure altogether;
(4) The incorporation of Greentea and Blue Skye SCS, respectively the eleventh and tenth defendants, at the direction of the second and third defendants.
The third phase involved the approval on 22 March 2011 by the board of Stepstone, by the fifteenth and sixteenth defendants, Mr Lichy (the claimants' appointee) dissenting, of the proposed restructuring of the Blue Skye group. It is alleged that this facilitated the...
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