Re Phoenix Kapitaldienst GmbH

JurisdictionEngland & Wales
CourtChancery Division
JudgeMrs Justice Proudman,MR JUSTICE SALES
Judgment Date23 January 2012
Neutral Citation[2012] EWHC 62 (Ch),[2011] EWHC 294 (Ch)
Date23 January 2012
Docket NumberCase No: 142 of 2008 Appeal Ref: CH/2010/0684,Case No: 142 of 2008

[2011] EWHC 294 (Ch)

IN THE HIGH COURTS OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Before: Mr Justice Sales

Case No: 142 of 2008

Between
Frank Schmitt
Applicant/Claimant
and
Deichmann and Others
Respondent/Appellant/Applicant

MR DAVID MARKS QC (instructed by Orrick Herrington & Sutcliffe (Europe) appeared on behalf of the Applicant/Claimant

MR DAVID WOLFSON QC and MR JAMES EDELMAN (instructed by Kennedys LLP) appeared on behalf of the Respondent/Appellant/Applicant

Approved Judgment

MR JUSTICE SALES
1

This is an application for permission to appeal out of time against an order made by Registrar Jaques dated 23 May 2008 ("the Order"). By that Order the High Court recognised the appointment of the Respondent to this application ("Mr Schmitt") as the insolvency administrator appointed by the Frankfurt Insolvency Court in Germany in respect of Phoenix Kapitaldienst GmbH ("Phoenix") and ordered that Mr Schmitt "be empowered or otherwise entitled to exercise and/or enjoy all such rights, powers, duties and obligations" as a licensed insolvency practitioner could do under the Insolvency Act 1986 and general English law.

2

The order was applied for ex parte without notice to the Applicants on this application ("the present Applicants"). Registrar Jaques gave a judgment, which is reported as Re Phoenix Kapitaldienst GmbH [2008] BPIR 1082.

3

Mr Schmitt has investigated the affairs of Phoenix. His case is that while ostensibly operating as an investment company it in fact operated a Ponzi scheme whereby monies paid in by investors were recycled to pay profits and capital to other investors rather than being invested to earn genuine returns. There were a considerable number of investors in a number of jurisdictions.

3

The present Applicants are certain Dutch investors who are resident or have assets in this jurisdiction. They invested with Phoenix and received various payments back from it. The application to Registrar Jaques was made on the footing that Mr Schmitt was considering bringing proceedings against the present Applicants and others in the course of the insolvency administration of Phoenix and wished to be able to bring proceedings in the English courts to establish his rights as administrator for Phoenix against them. It was, however, explained to the Registrar that Mr Schmitt had not yet formed a firm intention of suing in England.

4

The present Applicants were not named as parties to Mr Schmitt's application. At that stage there was no necessity for them to be joined. The solicitors acting for Mr Schmitt ("Orricks") wrote to the solicitors acting for the present Applicants ("Kennedys") by letter dated 22 August 2008 to inform them that the recognition order had been made by Registrar Jaques and demanding payment and threatening legal proceedings. No copy of the order was enclosed nor did Orricks enclose any of the materials put before the Registrar, any transcript or note of the hearing before him or any copy of his judgment.

5

The present Applicants rejected the demands for payment made by Mr Schmitt. Despite the threat in Orricks' letter of 22 August 2008 Mr Schmitt did not at that stage launch proceedings against them. He did, however, commence proceedings in a range of other jurisdictions against a number of other investors who had received payments from Phoenix.

6

Eventually, in March 2010, Mr Schmitt sent the present Applicants and certain others ("the Defendants") a pleading setting out his case against them for repayment of sums paid out to them by Phoenix, annexed to a notice of application for orders against them inter alia under s.423 of the Insolvency Act 1986 for such repayment. In the notice of application and in the annexed pleading Mr Schmitt made reference to and relied upon the Order as the basis for his having standing to bring those claims. The notice of application and the pleading were sent to the Defendants on about 22 April 2010.

7

When the application for the Order was made to Registrar Jaques, the notice of application suggested that the application was made on the basis of the Cross-border Insolvency Regulations 2006 ("the Regulations", which incorporated the relevant UNCITRAL model law into English law) or, in the alternative, on the basis of the common law. In the event, at the hearing before the Registrar Mr Marks for Mr Schmitt (who appears before me now as Mr Marks QC) relied only on the common law as the basis for the Registrar's power to make the order sought, and it is clear from the Registrar's judgment that that was the power which he exercised. That point did not appear on the face of the Order itself.

8

A copy of the Order was only sent to the Defendants on about 27 May 2010. At that stage, again, none of the materials put before Registrar Jaques on the ex parte application, nor any note or transcript of the hearing nor any copy of his judgment or reference to the report of it were provided to the Defendants.

9

The present Applicants filed a Defence and Additional Claims dated 23 July 2010. In that pleading they put in issue Mr Schmitt's standing to bring the claims against them, but did so on the mistaken assumption —as was evident from the pleading —that the Order had been made on the basis of the Regulations. Those acting for Mr Schmitt did not disabuse them and explain that the Order had been made on the basis of common law powers. Nor, again, did they send the present Applicants the materials relating to the ex parte application before the Registrar or a copy of his judgment (which would have made the position clear). Instead, in Mr Schmitt's Reply and Defence to Counterclaim dated 3 September 2010, at paragraph 2, it was blandly pleaded that no reliance was placed on the Regulations "and reference will be made in full at trial to the terms of the order and judgment made and issued by Mr Registrar Jaques."

10

Kennedys pressed for disclosure of the materials relating to the ex parte application to Registrar Jaques and the Order, but these were still not provided. It was only in a letter from Orricks dated 11 October 2010 that it was explained that the Order had been made on the basis of the common law rather than the Regulations. Even at that stage, no copy of the judgment was provided nor reference to its citation in a set of law reports.

11

Eventually, by a letter dated 27 October 2010 Orricks sent the present Applicants a copy of the judgment and on 2 November 2010 a copy of the skeleton argument deployed before the Registrar was provided to them. The present Applicants managed eventually to obtain for themselves a copy of the transcript of the hearing before Registrar Jaques.

12

A case management conference ("CMC") had been scheduled for 4 November 2010. Now armed with full knowledge of what had transpired before the Registrar and of the terms of his judgment, the present Applicants promptly indicated that they wished a preliminary point to be determined, namely whether Mr Schmitt had proper standing to bring the claims against the Defendants. Mr Wolfson QC for the present Applicants served a skeleton argument dated 1 November 2010 for the CMC, which set out the essence of the argument which the present Applicants wished to raise on the question of Mr Schmitt's standing which has been repeated before me. That argument involves, in substance, a challenge the Order made by Registrar Jaques, on the basis of a submission that the common law powers he exercised do not extend to allowing an English court to clothe a solvency practitioner appointed by a foreign court with authority to bring proceedings in England to establish rights against persons, as distinct from providing assistance to such practitioner to get in the recognised assets of the entity in administration or liquidation and to distribute those assets.

13

At the CMC hearing on 4 November 2010 Deputy Registrar Garwood declined to direct a trial of this point as a preliminary issue, because the Order had not itself been put in issue by way of an application to appeal against it or an application back to Registrar Jaques to rescind it. However, the Deputy Registrar directed that the present Applicants should have until 12 November 2010 to decide whether they wished to issue such an appeal or application. Although an issue of delay arises on the present application, it is common ground that the effect of this direction is that the question of delay falls to be assessed as at 4 November 2010 and that the additional period down to 12 November 2010 does not affect matters.

14

On 12 November 2010 the present Applicants issued their notice of appeal. Appended to that notice were a number of orders they asked the court to make. The first two orders sought were for an extension of time to appeal and for permission to appeal against the Order. The next two orders sought, in the alternative, were for an extension of time to apply for the Order to be set aside or varied and for it to be set aside in exercise of the court's powers under Rule 7.47(1) of the Insolvency Rules 1986 and/or CPR Part 40.9 and Part 23.10. The final order sought was for the claims to be struck out or for summary judgment on the issue of Mr Schmitt's standing to bring them.

15

Mr Wolfson's primary argument before me was that this court should extend time to appeal and then grant permission to appeal. He argued that an extension of time should be allowed because the present Applicants had not had a fair opportunity to understand the basis of the Order until very late in the day, and when they did...

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