Franek Jan Sodzawiczny v Andrew Joseph Ruhan
| Jurisdiction | England & Wales |
| Judge | Mr Justice Popplewell |
| Judgment Date | 26 July 2018 |
| Neutral Citation | [2018] EWHC 1908 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000328 |
| Date | 26 July 2018 |
[2018] EWHC 1908 (Comm)
THE HON. Mr Justice Popplewell
Case No: CL-2018-000328
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN PRIVATE
Royal Courts of Justice
7 Rolls Building
Fetter Lane, London, EC4A 1NL
David Caplan (instructed by Charles Russell Speechlys LLP) for the Claimant
Philip Edey QC and Bajul Shah (instructed by Jones Day) for the Fourth and Fifth Defendants
Hearing dates: 9, 10 and 11 July 2018
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.
THE HON. Mr Justice Popplewell
Introduction
On 22 May 2018, on a without notice application by Mr Sodzawiczny, I granted a worldwide freezing order against the Second to Fifth Defendants, Dr Smith, Ms Stickler, Mr Cooper and Mr McNally respectively. On the resumed return date there are the following applications before the Court:
(1) an application by Mr Sodzawiczny to continue the freezing order (“the continuation application”);
(2) an application by Mr Cooper and Mr McNally to stay the proceedings under section 9 of the Arbitration Act 1996 (“the Act”) and/or the Court's inherent jurisdiction (“the stay application”);
(3) an application by Mr Cooper and Mr McNally to discharge the freezing order as against them (“the discharge application”);
(4) a contingent application by Mr Sodzawiczny to continue the freezing order, alternatively for a fresh order in equivalent terms, under section 44 of the Act (“the contingent continuation application”).
Dr Smith and Ms Stickler did not appear before me and were not represented. However they each sent letters to the Court in which, amongst other things, they supported the stay application and submitted that the appropriate place for the claim against them as well as Mr Cooper and Mr McNally was in arbitration.
The parties and background
Mr Sodzawiczny's claim in these proceedings arises against the background of events stretching back to 2003 which have given rise to extensive and complex litigation in this court. The main litigation was initially between those associated with Dr Smith on the one hand, and on the other Mr Ruhan and those associated with him. In the Ruhan camp, apart from Mr Ruhan himself who is a businessman with wide ranging business interests, there are (or were) Mr Cooper and Mr McNally, solicitors practising in the Isle of Man and at the time close personal friends of Mr Ruhan, who through various vehicles were responsible for managing assets on behalf of Mr Ruhan in a complex group of companies (“the Arena Group”) held within an Isle of Man trust structure known as the Arena Settlement. The Arena Group assets within the Arena Settlement were transferred by Messrs Cooper and McNally to those in Dr Smith's camp in 2013 and 2014 during the course of the main litigation in what has been called “the Isle of Man Agreement”, together with other assets which were outside the Arena Settlement.
In the other camp are Dr Smith himself, who was convicted of fraud, sentenced to eight years imprisonment and subjected to a confiscation order in favour of the Serious Fraud Office; although not a party to the main proceedings he was the driving force behind them; his former wife, Dr Cochrane, a GP practising in Jersey; Orb a.r.l, a Jersey company used as a vehicle to hold Dr Smith's family's financial interests; Pro Vinci Ltd (now in liquidation), a company described as providing “family services” to Dr Cochrane, which was heavily involved in managing assets within the Arena Settlement and outside it following the Isle of Man Agreement; Ms Dawna Stickler, who was the managing director and sole shareholder of Pro Vinci and the principal individual engaged in carrying out those functions; and SMA Investment Holdings Limited (“SMA”), a Marshall Islands company owned by Dr Cochrane which became the holding company of the Arena and non-Arena Settlement assets as a result of the Isle of Man Agreement.
The events prior to the settlement of the main litigation are set out in a little detail in one of my judgments in those proceedings at [2016] EWHC 850 (Comm) at paragraphs [7] to [19]. It is sufficient for the purposes of this application merely to record that the transfer of assets by Messrs Cooper and McNally to Dr Smith's camp pursuant to the Isle of Man Agreement appeared to be a betrayal of trust towards Mr Ruhan with whom Dr Smith was locked in very hard fought litigation, in what was a form of self-help for Dr Smith to redress what he asserted were the wrongs done to him by Mr Ruhan. It has been described as “ extraordinary” by Cooke J and as an “ appropriation by Dr Smith” by Mostyn J. It involved Messrs Cooper and McNally purporting to deal with the assets – worth hundreds of millions of pounds – as if they were their own, and, it appears, being promised a reward for doing so.
Following the settlement of the main litigation there have emerged numerous further claims, both in relation to the settlement and in relation to assets of those in the Dr Smith camp including the Arena and non-Arena assets. Amongst the claimants are the SFO; the Viscount of Jersey who has succeeded to the title of Dr Cochrane who is in “en désastre” (a form of bankruptcy in Jersey); liquidators of various BVI companies which sat at the head of structures within the Arena Settlement below SMA, including Glen Moar Properties Ltd (“Glen Moar”); beneficiaries of the settlement of the main action; various litigation funders; Stewarts Law, Orb's former solicitors in the main litigation; and a number of others. I have been managing those various actions together, which were described before me as “the Popplewell proceedings”, and have ordered a trial of a number of issues in relation to proprietary claims to certain of the assets, which is not due to be heard until 2020. One of the many issues in those proceedings is the validity of the Isle of Man Agreement and its effect on prior proprietary claims.
Mr Sodzawiczny is an engineer by trade, with a particular expertise in developing, building and running digital data centres. In 2005, Mr Sodzawiczny began working with Mr Ruhan to develop a group of digital data centres which were held within the Arena Group in companies bearing the brand Sentrum (“the Sentrum Group”).
The claim
Mr Sodzawiczny's case in these proceedings is as follows. He and Mr Ruhan entered into an oral agreement pursuant to which Mr Sodzawiczny would assist the Arena Group in creating data centres in return for a 15% profit. Mr Sodzawiczny was not aware of the details of the Arena Group but understood that it was a complex corporate structure through which Mr Ruhan managed his affairs and assets with the assistance of Messrs Cooper and McNally. Mr Sodzawiczny was instrumental in the success of the Sentrum Group. From 2005–2012, he dedicated his whole professional life to it. In 2012 parts of it were sold to Digital Stout Holding, LLC (“Digital Realty”) for over £700m, some of which was payable in an “Earn-Out Period”. Following the sale, Mr Sodzawiczny continued to be involved with the Sentrum Group through a consultancy arrangement which ran until July 2015. Shortly after the Digital Realty sale, on 22 September 2012, Mr Sodzawiczny had a meeting with Mr Ruhan at which the oral agreement was affirmed and in certain respects modified in Mr Sodzawiczny's favour. In particular, it was agreed that:
(1) Mr Sodzawiczny was entitled to 15% of the net profits from the Digital Realty sale; and
(2) Mr Sodzawiczny would be entitled to 20% of each of (a) the profits generated in the Earn-Out Period, (b) the monies left over in an escrow account set up as part of the Digital Realty sale (“the Escrow Account”), and (c) the net sale proceeds of properties and data centres which had not been sold to Digital Realty.
Mr Ruhan said at this meeting that Mr Sodzawiczny's share of the Digital Realty sale profits were £21.75m, and that of that sum, £1.75m would be dealt with by way of a transfer of a property to Mr Sodzawiczny and £20m would be paid into a “ structure”. Mr Ruhan said that Mr Sodzawiczny should see Mr McNally to set up the “ structure”. Mr Sodzawiczny did so on 25 September 2012, in the Isle of Man (where Mr McNally was based). At that meeting, Mr McNally explained that (a) Mr Sodzawiczny's money would be held in a structure involving Isle of Man and Liechtenstein entities with the name “ Ruefikopf” in them (“the Ruefikopf Structure”), (b) Mr Sodzawiczny would be able to access his money or get some kind of finance based on his entitlement to it during the Earn-Out Period and thereafter collapse it, but (c) Mr Sodzawiczny could not have any paperwork in relation to the structure.
Mr Sodzawiczny, who had worked with Mr McNally closely for many years by this point, trusted what he said in relation to the structure and was content to go along with it. And, although Mr Sodzawiczny did not actually know that the Ruefikopf Structure had been set up, he believed that it had, and, on one occasion, received what he believed was financing from it in a manner which was consistent with what Mr McNally had told him.
Mr Sodzawiczny first became aware of the effect of the Isle of Man Agreement (but not its terms) on 9 April 2014. It caused him considerable confusion and shock. There then followed a series of meetings and communications with Dr Smith and Ms Stickler, now ostensibly in control of the Arena Group and any “structure” for Mr Sodzawiczny within it,...
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