The Serious Fraud Office v Hotel Portfolio II UK Ltd ((in Liquidation)) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 18 May 2021 |
| Neutral Citation | [2021] EWHC 1273 (Comm) |
| Date | 18 May 2021 |
| Docket Number | Case No: CL-2017-000323 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 1273 (Comm)
Mr Justice Foxton
Case No: CL-2017-000323
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Daniel Saoul QC, Tim Akkouh and Richard Hoyle (instructed by Harcus Parker Limited and others) for the First and Second Applicants and the Fifth to Seventh, Tenth and Twenty-First to Twenty-Fifth Respondents (“ the Settlement Parties”)
James Pickering QC and Samuel Hodge (instructed by Spring Law) for the Twelfth to Fourteen Defendants (“ HPII”)
Hearing dates: 24, 25 and 26 March 2021
Draft Judgment circulated: 26 April 2021
Approved Judgment
I direct that 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 Honourable
Table of Contents
| A. INTRODUCTION | 4 |
| B. THE TEST TO BE APPLIED | 4 |
| C. THE PROCEDURAL BACKGROUND | 6 |
| D. HPII'S TRACING CASE IN SUMMARY | 8 |
| E. THE APPLICABLE LEGAL PRINCIPLES | 9 |
| The nature of tracing | 10 |
| “Backwards tracing” | 11 |
| The conceptual debate | 11 |
| The earlier cases | 11 |
| The more recent authorities | 14 |
| Conclusions | 18 |
| Election | 19 |
| F. STAGES 1 AND 2 | 21 |
| G. STAGE 3A | 21 |
| The factual background | 21 |
| The election argument | 25 |
| HPII's argument | 26 |
| H. STAGE 3B | 28 |
| The factual background | 28 |
| Election | 28 |
| Can HPII trace through a repaid loan? | 28 |
| Conclusion | 29 |
| I. STAGE 3C | 29 |
| J. STAGE 4 | 31 |
| Stage 4A: Payments 1 to 10 | 32 |
| Stage 4B: Payment 11 | 33 |
| Stage 4C: Payment 12 | 34 |
| K. STAGE 5 | 34 |
| Introduction | 34 |
| Stage 5B: Can HPII trace from the assets transferred under the IOM Settlement into the Non-Arena Companies and the IUAs? | 35 |
| The shares in the Non-Arena Companies | 35 |
| The IOM Settlement Cash | 36 |
| The IUAs | 37 |
| Stage 5A | 37 |
| Introduction | 37 |
| The sources of information already available to HPII | 38 |
| The further sources of information which it is said will be available by the time of trial | 38 |
| What can HPII point by way of supportive inferences now? | 40 |
| L. STAGE 6 | 41 |
| M. STAGE 7 | 41 |
| N. STAGE 8 | 41 |
| O. CONCLUSION | 42 |
A. INTRODUCTION
This judgment addresses the Settlement Parties' application for an order dismissing:
“HPII's proprietary claim to the Relevant Property and the IUAs, as advanced in HPII's Revised Statement of Case dated 13 March 2019 (in relation to the Relevant Property) and HPII's Statement of Case dated 3 July 2020 (in relation to the IUAs)”,
In the judgment which follows, I will use the phrase “the Relevant Property” to encompass all the property in issue in the Directed Trial.
The background to the claims is set out in my judgment in the Directed Trial at [2021] EWHC 1272 (Comm) (“the Directed Trial Judgment”), and the matters said to give rise to HPII's claim are addressed at Section M of that judgment. In this judgment, I use the terms which I have defined in the Directed Trial Judgment.
For the purposes of the Settlement Parties' application, it is to be assumed that:
i) HPII has a claim against Mr Ruhan arising from his breach of the self-dealing rule, by being involved in the purchase of the Hyde Park Hotels from HPII through Mr Stevens as a secret nominee;
ii) by reason of that breach, the profits made from the subsequent sale and development of the Hyde Park Hotels are held on constructive trust for HPII.
The issue to be determined in this application is whether it is arguable that HPII can trace or follow those profits into the Relevant Property.
B. THE TEST TO BE APPLIED
I was referred to the frequently quoted summary of the approach to be adopted in determining summary judgment applications set out by Lewison J in Easyair Limited (t/a Openair) v Opal Telecom Limited [2015] EWHC 339 (Ch), [15] and also to the decision of the Court of Appeal in AC Ward & Son Ltd v Catlin (Five) Ltd [2009] EWCA 1098, [34]. Two of the principles identified in those cases are particularly relied upon here:
i) in deciding whether a claim or defence is arguable, the court must take account not only the evidence actually placed before it on the application for summary judgment, but also “the evidence that can reasonably be expected to be available at trial”; and
ii) the court should hesitate before making a final decision without a trial, even if there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation of the facts would add to or alter the evidence available at the trial and so affect the outcome of the case.
The Settlement Parties supplemented that summary with the judgment of Asplin LJ in Elite Property Holdings Ltd v Barclays Bank [2019] EWCA Civ 204, [40–42] where she stated:
“40. There was no dispute about the test to be applied in the circumstances of this case. The dispute was whether the Judge had applied it properly or whether he had fallen into error by conducting a mini trial. In any event, it is important to bear in mind that the overriding objective applies and the question of whether permission to amend should be given must be considered in the light of the need to conduct litigation fairly and justly and at proportionate cost.
41. For the amendments to be allowed the Appellants need to show that they have a real as opposed to fanciful prospect of success which is one that is more than merely arguable and carries some degree of conviction … A claim does not have such a prospect where (a) it is possible to say with confidence that the factual basis for the claim is fanciful because it is entirely without substance; (b) the claimant does not have material to support at least a prima facie case that the allegations are correct; and/or (c) the claim has pleaded insufficient facts in support of their case to entitle the Court to draw the necessary inferences …
42. The court is entitled to reject a version of the facts which is implausible, self-contradictory or not supported by the contemporaneous documents and it is appropriate for the court to consider whether the proposed pleading is coherent and contains the properly particularised elements of the cause of action relied upon …”
For its part, HPII referred to a number of authorities which addressed the relevance, in a summary judgment context, of the possibility of further material becoming available at trial. In ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725, [14], Moore-Bick LJ observed that “sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial”, in which case it would be wrong to give summary judgment. In Lexi Holdings v Pannone and Partners [2009] EWHC 2590 (Ch), Briggs J referred to this passage, and noted that the issue is whether “there is a sufficient prospect that material will become available in time for trial so as to afford the defendants the real prospect of a successful defence” ([4]). He later stated that the question for the court is whether there was a “real prospect” of documents becoming available at trial which will make good the defendant's case, rather than a likelihood ([37]).
Of course, a summary judgment application may be brought at a relatively early stage in the life of an action or the wider dispute of which it forms part, before disclosure or evidence gathering is substantially underway, in which context the need for the court to have regard to “the evidence that can reasonably be expected to be available at trial” will often be a compelling reason why it is not possible to conclude at the summary judgment stage that the claim or defence lacks a realistic prospect of success. On occasions, however, a summary judgment application is brought when the available processes for procuring evidence have already been deployed, with the prospect of anything further becoming available at trial being substantially diminished.
This application is being heard over three years after HPII first asserted its claim, after I have heard a two month trial which considered a number of closely related issues involving the same parties, and after completion of the production of evidence in an action commenced by HPII to advance the same claims against two other parties.
C. THE PROCEDURAL BACKGROUND
HPII first asserted its entitlement to trace into the Relevant Property in its statement of case served in December 2017. It did so in the most general of terms. It alleged that Mr Ruhan had profited from the Cambulo Transaction (paragraph 48(1)) and that it was “entitled to follow or trace the above transferred property or its proceeds of sale accordingly” (paragraph 52(1)). There followed:
i) A plea that the proceeds had been paid into the Arena Settlement, the Cooper and McNally Companies or companies held by Mr Stevens as Mr Ruhan's nominee (paragraph 76).
ii) A plea that the transferees under the IOM Settlement acquired rights subject to Mr Ruhan's proprietary claims which were in turn...
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