The Complete Retreats Liquidating Trust v Geoffrey Logue and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ROTH,Mr Justice Roth |
| Judgment Date | 23 July 2010 |
| Neutral Citation | [2010] EWHC 1864 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC10C01447 |
| Date | 23 July 2010 |
[2010] EWHC 1864 (Ch)
Before: The Hon Mr Justice Roth
Case No: HC10C01447
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Jeffrey Onions QC and Hannah Brown (instructed by Stewarts Law LLP) for the Applicant
John Wardell QC (instructed by Withers LLP) for the Respondents
Hearing dates: 6 to 8 July 2010
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.
This is an application to discharge a worldwide freezing order in the amount of just over $9.6 million made without notice by Morgan J on 29 April 2010 against the first respondent, Mr Geoffrey Logue, and the second respondent, Hayden Holdings Foundation (“Hayden”). The order was coupled with a freezing order in more limited terms concerning only one property in the United Kingdom as against the third respondent, Ms Emma Logue, who is the sister of Geoffrey Logue.
Hayden is a Lichtenstein Stiftung of which Mr Logue is the sole beneficiary. It was previously called Eden Holdings Foundation (“ Eden”). It is accepted by the first two respondents that Mr Logue is the beneficial owner of Hayden and it is not suggested that there is any material distinction between them as regards this application.
The return date of the without notice order was 13 May 2010 when it was continued at a with notice hearing by Norris J pending the hearing of the respondents’ application to discharge. On 21 May 2010, at a further hearing before Norris J, by consent the injunction against Emma Logue was discharged. There are no further proceedings against her and the only outstanding issue so far as she is concerned is her application for costs. The substantive application before me is accordingly that of the first two respondents.
BACKGROUND
The background to this matter is a business established in the United States in which the founder and driving force was a Mr Robert McGrath. The business operated so-called “destination clubs” under which individuals were invited to subscribe to membership which gave them the right to spend vacations at luxury homes in various exclusive locations around the world. There were a series of related companies, including Complete Retreats LLC (“Complete Retreats”), Preferred Retreats LLC (“Preferred Retreats”), Private Retreats LLC and Distinctive Retreats LLC (“Distinctive Retreats”) (together “the Retreats companies” and “the Retreats group”). It appears that Complete Retreats and Preferred Retreats were affiliated companies and that Preferred Retreats was the first operating company and the other operating companies may have been its subsidiaries. The corporate structure is not entirely clear on the evidence but the details are not relevant for present purposes. The different companies operated distinct “destination clubs” at different levels of luxury, and membership involved an initial investment from individuals of an amount varying between $250,000 and $1,000,000. Mr McGrath was the president and CEO of the group.
Mr Logue is a British citizen who went to business school in the United States and after working as an investment banker in New York was engaged to work in the Retreats group by Mr McGrath in about October 2002. In particular, during 2003 he was heavily engaged in assisting the companies in achieving a branding and co-operation arrangement with Abercrombie & Kent and then involved in the setting up of the second of the destination clubs, Distinctive Retreats.
In circumstances which it will be necessary for me to describe more fully, Mr Logue parted company with Mr McGrath and his business in January 2005. On 23 July 2006, the Retreats companies filed for relief under Chapter 11 of the US Bankruptcy Code, and in due course the estate of all the Retreats companies was consolidated for the purpose of the bankruptcy. On 31 December 2007, a Modified First Amended Joint Plan of Liquidation for the Retreats group became effective. All causes of action available to the Retreats companies were transferred to the Complete Retreats Liquidating Trust (“the Liquidating Trust”). It is the Liquidating Trust which is the applicant in the present proceedings and in whose favour the worldwide freezing order was granted.
On 22 July 2008, a complaint was issued on behalf of the Liquidating Trust in the US Federal Bankruptcy Court for the District of Connecticut (“the US Court”), commencing claims against Mr Logue, Mr McGrath and various other defendants under the US Bankruptcy Code (“the US proceedings”). The Complaint comprises 36 counts of which four are alleged against Mr Logue and/or Mid-Atlantic Capital Foundation, a Liechtenstein Stiftung (“Mid-Atlantic”).
The application and grant of the freezing order was made in support of the US proceedings under section 25(1) of the Civil Jurisdiction and Judgment Act 1982 as amended by the Civil Jurisdiction and Judgment Act 1982 (Interim Relief) Order 1997, section 2. Accordingly, the only relevant substantive proceedings against Mr Logue are the proceedings in the US Court. No claim is made in the US proceedings against Hayden but, as I have explained, the assets of Hayden are beneficially owned by Mr Logue.
THE US PROCEEDINGS
The four counts alleged against Mr Logue essentially comprise two distinct grounds of claim under the US Bankruptcy Code, and there is also an equivalent claim under the Connecticut statute that is not suggested to add anything material for present purposes. Those two grounds are:
(a) that there were “fraudulent transfers” to Mr Logue within the terms of section 548 of the Bankruptcy Code, being transfers for “less than reasonable equivalent value” made when the debtor was insolvent or became insolvent as result of the transfers; and
(b) that there were “preferential” transfers to Mr Logue since they were made within the “preference period” while the transferor was insolvent, which therefore fall to be avoided under section 547 of the Bankruptcy Code. For this purpose, the Liquidating Trust relies on the “preference period” of one year before the filing of the petition, which applies if (but only if) Mr Logue was an “insider” for the purpose of the Bankruptcy Code at the time of the transfer.
The “fraudulent transfer” claim under section 548 relies on two distinct transactions:
(a) the payment by the Retreats group to Mr Logue of $3,650,000 by wire transfer on 24 January 2005 (“the January payment”); and
(b) the transfer to Mid-Atlantic, pursuant to a Settlement Agreement of September 2005 concluded between Mr Logue and the Retreats group, their rights and interests in four apartment units in Knightsbridge, London (“the London properties”), along with properties in Paris and other compensation (“the property transfers”). These transfers to Mid-Atlantic are alleged to have been for the benefit of Mr Logue.
As regards the circumstances of the January payment, the Complaint alleges in the section headed “The Background” that this was made in response to a threat by Mr Logue “to expose various forms of mismanagement to the media” unless that payment was made. However, the specific count alleged against Mr Logue is not based on actual fraud or blackmail, but on constructive fraud as set out above.
The preferential transfers claim under section 547 relates only to the property transfers (presumably, because the January payment was outside the preference period).
The allegations made in the US proceedings by the Liquidating Trust rely heavily on a claim brought by the Retreats companies in April 2005 against Mr Logue in the Missouri state court (“the Retreats Claim”) and a claim brought by Mr Logue, also in April 2005, against Preferred Retreats, Complete Retreats and Mr McGrath in the US District Court for Southern District of New York (“the Logue Claim”). The reason for this was set out in the affidavit of the trustee of the Liquidating Trust, Mr Douglas Evans (who refers to the Retreats companies collectively as “the Debtors”) as follows:
“Due to the lack of proper record keeping by the Debtors, it is not entirely clear in every instance how, by whom, and on what basis, decisions were made by the Debtors. Reference has therefore been made to, amongst other things, the [Retreats Claim] and the [Logue Claim] for the purposes of understanding, inter alia, the role and responsibilities of Mr Logue for the Debtors, the transfers of property to Mr Logue, and Mr Logue's knowledge of, and participation in, actions which contributed towards the Debtors liquidation.”
The Settlement Agreement to which I have referred was concluded between Mr Logue and the various Retreats companies and Mr McGrath in full and final settlement of the Retreats Claim and the Logue Claim. It appears that neither of those actions had progressed much, if at all, before this settlement.
The US proceedings were sent by first class post on 31 July 2008 to Mr Logue at 737 Park Avenue, New York, and then were served personally on 23 December 2008 on the porter at that apartment building after the process server had been unable to contact Mr Logue himself. There was no response from Mr Logue in the proceedings and on 16 July 2009 a “default” order was entered in the US Court. It appears that although not technically a “judgment”, this default has an effect broadly equivalent to a judgment on liability since it enables the claimant to seek an order for the assessment of damages that will then result in a formal “judgment” for a quantified sum. The Liquidating Trust accordingly...
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