SPL Private Finance (PF1) IC Ltd and 17 Others v Arch Financial Products LLP
| Jurisdiction | England & Wales |
| Judge | Mr Justice Walker |
| Judgment Date | 18 December 2014 |
| Neutral Citation | [2014] EWHC 4268 (Comm) |
| Docket Number | Case No: 2011 Folio 1559; 2012 Folio 419 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 18 December 2014 |
[2014] EWHC 4268 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Walker
Case No: 2011 Folio 1559; 2012 Folio 419
Richard Coleman QC and Giles Wheeler (instructed by Stephenson Harwood LLP) for the claimants
Mr Robin Farrell and Mr Robert Addison (under authorisation of the defendant dated 1 October 2013 and by permission of the court under CPR 39.6) for the defendant in 2011 Folio 1559
Mr Robin Farrell in person in his capacity as defendant in 2012 Folio 419
Hearing dates: 21, 25, 26, 27, 28 November 2013, 2, 3, 4, 5, 9, 10 December 2013, 22, 23 January 2014, 12 and 13 February 2014, 18 December 2014
| A. Introduction | 1 |
| A1. The claims and the outcome | 1 |
| A2. Companies, partnerships and individuals | 8 |
| A2.1 Descriptions of companies, partnerships and individuals | 8 |
| A2.2 Arch FP, Arch UK, AIGHL, Mr Farrell and Mr Addison | 9 |
| A2.3 Mr King, Mr Jeffs, Mr Derks, Mr Smith and Mr Ruparell | 13 |
| A2.4 The OEICs, the UK funds and sub-funds, and Capita FML | 14 |
| A2.5 The ICC, the cells, AT1, Bordeaux, Mr Radford and Mr Meader | 19 |
| A2.6 Carey Olsen, Moore Stephens and Fortis | 23 |
| A2.7 Club Easy, Mr Hayes and Storeys | 24 |
| A2.8 FCL, Mr Barkman, Mr Montague, FHL and "Foundations" | 28 |
| A2.9 FPP, Mr Blythe and Blythe Financial | 30 |
| A2.10 PKF and Cobbetts | 31 |
| A2.11 Mr Scott, Mr Davey and Spearpoint | 33 |
| A3. Lonscale: overview of events | 34 |
| A4. The FSA investigation | 60 |
| A5. The issues at trial | 62 |
| B. The trial | 72 |
| B1. The trial: introductory | 72 |
| B2. Factual evidence | 74 |
| B2.1 Factual evidence: general | 74 |
| B2.2 Factual evidence of Mr Scott | 76 |
| B2.3 Mr Davey | 80 |
| B2.4 Mr Farrell | 84 |
| B2.5 Mr Addison | 87 |
| B2.6 Mr Jeffs | 89 |
| B2.7 Hearsay evidence: Mr Radford and Mr Meader | 91 |
| B2.8 Hearsay evidence of Mr King | 92 |
| B3. Expert evidence | 93 |
| B3.1 Expert evidence: general | 93 |
| B3.2 Expert evidence of Mr Walton | 95 |
| B3.3 Expert evidence of Mr Rees | 97 |
| B4. The defendants' general observations about the trial | 100 |
| B5. Inequality of arms | 109 |
| C. Aims and events in 2007 | 111 |
| C1. Aims and events in 2007: general | 111 |
| C2. Aims and events prior to 18 August 2007 | 112 |
| C3. Aims and events in the remainder of 2007 | 128 |
| C4. Disclosure to, and consent by, the cells | 140 |
| C5. Processes involved in the acquisition | 151 |
| C6. The defendants' evidence as to events in 2007 | 157 |
| D. Duties and entitlements | 164 |
| D1. Duties and entitlements: general | 164 |
| D2. Mandate: powers and duties | 165 |
| D3. Management powers and duties | 171 |
| D4. Duties of loyalty | 172 |
| D5. Disclosure as an answer to breaches of duties of loyalty | 182 |
| D5.1 Disclosure: general | 182 |
| D5.2 Oral disclosure to Mr Radford and Mr Meader | 184 |
| D5.3 The alleged Base Prospectus | 186 |
| D5.4 Disclosure in other ways | 199 |
| E. Failures of care in October 2007 | 200 |
| E1. Failures of care in October 2007: general | 200 |
| E2. Arch FP's approach to Storeys' valuations | 204 |
| E3. PKF's identified need for a capital injection | 217 |
| E4. Risk/reward analysis in October 2007 | 226 |
| E5. Conclusion on reasonable care in October 2007 | 233 |
| F. Failures of care after October 2007 | 234 |
| G. Breaches of fiduciary duty | 243 |
| G1. Breaches of fiduciary duty: general | 243 |
| G2. Advice on fair management of conflicts | 246 |
| G3. Alleged fair management of the conflict | 248 |
| G4. Conclusions on breaches of duties of loyalty | 264 |
| H. Breach of mandate | 265 |
| J. Alleged dishonesty by Mr Farrell | 276 |
| J1. Alleged dishonesty by Mr Farrell: general | 276 |
| J2. Legal tests for dishonest assistance | 278 |
| J3. Whether the tests were met | 283 |
| K. Alleged inducing of breach of contract | 286 |
| K1. Inducing breach of contract: general | 286 |
| K2: Legal principles concerning inducement | 288 |
| K3. Application of the principles in this case | 289 |
| L. The alleged release under the waiver agreement | 293 |
| M. Causation, remedies and recoverability | 308 |
| M1. Causation, remedies and recoverability: general | 308 |
| M2. Effect of later events | 309 |
| M2.1 Effect of later events: general | 309 |
| M2.2 Losses on alternative investments | 311 |
| M2.3 Scope of Arch FP's duties and intervening causes | 327 |
| M3. The duty to mitigate losses | 331 |
| M4. Claim for equitable compensation against Arch FP | 347 |
| M5. Alternative remedies for breach of fiduciary duty | 350 |
| M6. Damages for failure to exercise reasonable skill and care | 354 |
| M7. Restitutionary remedies | 356 |
| M8. Equitable compensation for Mr Farrell's dishonest assistance | 357 |
| M9. Damages against Mr Farrell for inducement | 358 |
| N. Conclusion | 359 |
| Annex 1A: | Annex 1A |
| Abbreviations and short forms, sorted by short form | |
| Annex 1B: | Annex 1B |
| Abbreviations and short forms, sorted by long form | |
| Annex 2: History of main events | Annex 2 |
| A2/ A. Summary of events: introduction | Annex A2/A |
| A2/ B. Late July up to and including 17 August 2007 | Annex A2/B |
| A2/ C. 18 August up to and including 29 October 2007 | Annex A2/C |
| A2/ D. 30 October 2007 to 9 January 2008 inclusive | Annex A2/D |
| A2/ E. 10 January 2008 to 28 April 2008 inclusive | Annex A2/E |
| A2/ F. 29 April 2008 to 9 June 2008 inclusive | Annex A2/F |
| A2/ G. 10 June to 2 July 2008 inclusive | Annex A2/G |
| A2/ H. 3 July to 6 October 2008 inclusive | Annex A2/H |
| A2/ J. 7 October 2008 to 11 December 2008 inclusive | Annex A2/J |
| A2/ K. 12 December 2008 to 5 January 2009 inclusive | Annex A2/K |
| A2/ L. 6 January to 13 March 2009 | Annex A2/L |
| A2/ M. 14 March 2009 onwards | Annex A2/M |
A. Introduction
A1. The claims and the outcome
Arch Financial Products LLP ("Arch FP") was, among other things, an investment manager. It managed funds which were known as "the Arch-Cru funds". For this purpose an incorporated cell company ("ICC") was used. The ICC was incorporated in Guernsey under the Incorporated Cell Companies Ordinance 2006. I shall refer to this company, now known as SPL Guernsey ICC Limited, as "the ICC". The ICC comprised a number of cells ("the cells"), each of which was a separate legal entity, and each of which held its own separate assets. Among them were cells with a focus on private finance ("the PF cells") and cells with a focus on real estate ("the RE cells").
The claims advanced in 2011 Folio 1559 are brought against Arch FP by 18 cells, each of which entered into a written investment management agreement ("IMA") with Arch FP. They include claims ("the Lonscale Arch claims") which concern a student housing business known as "Club Easy" run by companies in the Clubeasy Group ("the Clubeasy Group companies"). Those companies included three companies which were the effective corporate owners of that business ("the CG owning companies").
References below to the "acquisition" are to the proposed or actual acquisition of the CG owning companies. They were in the event bought by Lonscale Ltd ("Lonscale"), an Isle of Man company, under agreements made on 17 August 2007 and completed at the end of October 2007. During the period from late October 2007 to August 2009 inclusive various types of investment in Lonscale, using this expression to include the purchase of loan notes with ultimate values dependent upon Lonscale's performance or value, were made. The investors included six of the cells. They are the second, third, fourth and fifth claimants in 2011 Folio 1559 (referred to below as "PF2", "PF3", "PF4" and "PF5" respectively and as "the PF claimants" together), and the twelfth and thirteenth claimants in 2011 Folio 1559 (referred to below as "RE1" and RE2" respectively and as "the RE claimants" together). I refer to these six cells below as "the Lonscale claimant cells".
The Lonscale claimant cells make key assertions that the decisions to make these investments were driven by Arch FP's financial interest in obtaining illegitimate payments rather than proper consideration of the investments' merits and the interests of the cells, and that in this regard Arch acted in breach of fiduciary duty, in breach of contract and negligently.
In addition to their claim against Arch FP in 2011 Folio 1559, the Lonscale claimant cells make claims ("the Lonscale Farrell claims") against Mr Robin Farrell. The Lonscale Farrell claims are the subject of the proceedings in 2012 Folio 419. Mr Farrell is and at all material times was the Chief Executive Officer ("CEO") of Arch FP. The Lonscale claimant cells make key assertions that Mr Farrell dishonestly assisted Arch FP to breach its fiduciary duties and induced its breaches of contract.
By an order made on 27 July 2012 Mr Colin Edelman QC, sitting as a Deputy Judge, directed that the Lonscale Arch claims and the Lonscale Farrell claims be tried together. This judgment sets out my conclusions following the trial, in accordance with that order, of the Lonscale Arch claims and the Lonscale Farrell claims. At the trial the Lonscale claimant cells were represented by Mr Richard Coleman QC and Mr Giles Wheeler, instructed by Stephenson Harwood LLP. Arch FP and Mr Farrell were represented by solicitors and counsel until 5 July 2013, by which time the parties had given disclosure and exchanged witness statements. Since then they have been unrepresented. At the trial Mr Farrell acted in person as defendant to the Arch Farrell claims. With my permission under CPR 39.6, he and...
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Baroness Jacqueline Van Zuylen v Rodney Whiston-Dew
...the assets of another gives rise to fiduciary duties (for which see SPL Private Finance (PF1) IC Ltd v Arch Financial Products LLP [2014] EWHC 4268 (Comm), [174], per Walker 195 I accept that the First Defendant should be regarded as a fiduciary and held to the duties applicable to a fiduc......