Hotel Portfolio II UK Ltd ((in Liquidation)) v Marlborough Developments Ltd

Hearing dates: 22, 23, and 24 October 2024

Approved Judgment

This judgment was handed down remotely at 2.30pm on 29 November 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

A. INTRODUCTION

This trial, and the associated claims brought by the Claimant, Hotel Portfolio II UK Limited (“HPII”), involves the consideration of a very long and complex underlying factual history, which relates to activities of multiple persons in relation to which there have been lengthy proceedings involving numerous parties across many years in many jurisdictions, beginning in around 2012 and continuing to date. The procedural history itself is convoluted and has seen many interim applications.

As will become apparent, it is hard to overstate the serious dishonesty that has been found in the underlying litigation going back over 20 years. The main characters in the present claim are Dr Gerald Smith (“Dr Smith”) and Mr Andrew Ruhan (“Mr Ruhan”), who, as archenemies, were involved in heavy attritional and bitter-fought litigation against one another over many years, but whom HPII submits have now formed a union to join, what is characterised to me as, the “unholiest of unholy alliances” to thwart HPII in the recovery of the fruits of its litigation against Mr Ruhan.

This judgment deals with HPII's claims in two proceedings: HPII's claim in the proceedings with claim number CL-2023-000044 (the “HPII Proceedings”), and HPII's application in claim number CL-2023-000138 (the “Ozturk Proceedings”). The Ozturk Proceedings were first in time (issued in June 2022 under claim number BL-2022-000963), and resulted in what HPII submits is a (sham) default judgment (the “Default Judgment”) entered against Mr Ruhan on 5 July 2022 for circa £0.85 billion. In the Ozturk Proceedings, the Claimants are collectively referred to as the “Ozturk Claimants”, and claimants 3–9 only are referred to as the Non-Cause of Action Defendants (the “NCADs”).

The HPII Proceedings follow on the heels of proceedings issued by HPII and its liquidator against Mr Ruhan and Mr Anthony Stevens (“Mr Stevens”) in CL-2018-000226 (the “Ruhan Proceedings”), which resulted in HPII obtaining a money judgment against Mr Ruhan in a sum of at least £102.26 million plus very substantial interest and costs ( [2022] EWHC 383 (Comm)), (the “Ruhan Trial Judgment”).

In short, HPII contends that upon finding out, through supply of the draft Ruhan Trial Judgment (the “Draft Ruhan Trial Judgment”), that HPII had succeeded in a major victory in the Ruhan Proceedings, Mr Ruhan and Dr Smith together engaged in devising, and thereafter carrying out, a dishonest scheme (“the Scheme”). That Scheme was designed to undermine and prejudice HPII's judgment rights against Mr Ruhan, by way of the Ozturk Proceedings.

HPII contends that the Scheme involved a dishonest and abusive claim being made (by way of the Ozturk Proceedings) against Mr Ruhan by companies controlled by Dr Smith (including Marlborough Developments Limited (“MDL”), Ozturk 2 Recoveries Limited (“Ozturk”) and the 7 NCADs), which would not be contested by Mr Ruhan and thus lead to the Default Judgment. Even before the Default Judgment was entered, a (dishonest) “settlement” was, in the event, reached (the June Settlement, to which I will refer in due course) so as to provide an avenue for Mr Ruhan to move his assets to Dr Smith (and/or the companies under his control), thus out of the reach of creditors such as HPII, whilst at the same time dwarfing HPII's Ruhan Trial Judgment (making HPII a minority creditor) and thereby thwarting HPII's recovery efforts against Mr Ruhan.

Arising out of the above, two sets of claims arise for determination before me:-

i) First, HPII's claim in the HPII Proceedings for (a) relief against MDL and Ozturk under s.423 of the Insolvency Act 1986 on the basis that the transaction resulting from June Settlement was made at an undervalue, which, if proven, would provide the court with wide discretionary powers in granting relief to HPII to protect its interests; and (b) final injunctions against the three defendants, including Dr Smith, based on the Marex tort, restraining them from interfering with HPII's rights against Mr Ruhan under the Ruhan Trial Judgment.

ii) Second, HPII's application in the Ozturk Proceedings which seeks orders (a) setting aside the Default Judgment against Mr Ruhan and (b) striking out the Ozturk Proceedings as abusive (the “Set Aside/SO Application”), such application being brought by HPII on the basis that although HPII was not a party to the Ozturk Proceedings, it was directly affected by the Default Judgment and is entitled to apply to have it set aside or varied under CPR 40.9.

The Parties

The Claimant (HPII) is a private limited company presently in liquidation. It was incorporated on 21 February 2002, and went into creditors' voluntary liquidation on 30 April 2008. It was dissolved on 26 May 2010. On 13 July 2015, it was restored to the register. Its current liquidator is Ms Elizabeth Aird-Brown.

The First Defendant (MDL) is a private limited, which was incorporated on 14 May 1996. Its current de jure directors are Mr Charles Bryce (“Mr Bryce”), Mr David Almond (“Mr Almond”), and Mr Christopher Burt. HPII contends that, at all material times for the purposes of this claim, the Third Defendant, Dr Smith, was in effective control of, and instructed, the actions of MDL/its de jure directors.

The Second Defendant (“Ozturk”) is a private limited company, which was incorporated on 17 May 2022. Its sole de jure director is “Mr Anthony Smith”, who is the brother of Dr Smith. HPII contends that, at all material times for the purposes of this claim, Dr Smith was in effective control of, and instructed, the actions of Ozturk/its de jure director.

The Third Defendant, Dr Smith, is a businessman and a thrice convicted fraudster, who is said to be a “highly persuasive individual” who often uses others to do his bidding. In 1993, Dr Smith was convicted and sentenced to 2 years' imprisonment in connection with the theft of £2 million from a corporate group of which he was the chief executive. In 2006, Dr Smith was convicted and sentenced to 8 years' imprisonment in connection with the theft of £35 million from a company called Izodia Plc (“Izodia”) (“the Izodia Theft”). In 2024, Dr Smith was convicted and sentenced to 18 months' imprisonment for bounce back loan related fraud.

Dr Smith has a track record of serious and sustained dishonesty, and has been recently described by Foxton J (in [2023] EWHC 179 (Comm) at [4]) as “a serially dishonest individual, who has been twice convicted of offences of dishonesty by criminal courts and who has continued to act in a dishonest manner thereafter.”

It is important to note at the outset, that many of the main protagonists of the events that are before me have been debarred from defending HPII's claims, and as such took no part in the trial before me:-

i) MDL, Ozturk, and Dr Smith have been debarred from defending the claims against them in the HPII Proceedings.

ii) The Ozturk Claimants (i.e., MDL, Ozturk, and the NCADs) have been debarred from defending the Set Aside/SO Application in the Ozturk Proceedings.

Mr Ruhan is a businessman and entrepreneur, against whom HPII has obtained judgment for fraudulent breach of fiduciary duties. He has been described by Foxton J (in the Ruhan Trial Judgment, at [218]) as having “told … lies … with considerable tactical acuity and, at times, controlled aggression”, and, during an application for a worldwide freezing order before Foxton J, as “one of the more tactically aware and, in a controlled way, front foot litigants [the judge has] come across in 30 years at the Bar and three on the Bench”.

Mr Ruhan was given an opportunity to file a statement of case but he chose not to do so, nor did he file any evidence. He knows about the proceedings and this trial, and he attended and participated at interlocutory stages (before each of Dias J and Calver J).

A week before the start of this trial, Mr Ruhan informed the Court that he no longer wished to attend the trial:

“Dear Judge,

I have been repeatedly made aware of the above matters that are set to be heard on 22–23 October 2024. I am not a party to CL-2023-000044, but was the defendant in CL-2023-000138, a claim that concluded with a judgment against me because I no longer wanted to fight litigation which I could not defend. I decided to accept the...