The Serious Fraud Office v Litigation Capital Ltd (a company incorporated in the Marshall Islands) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 18 May 2021 |
| Neutral Citation | [2021] EWHC 1272 (Comm) |
| Date | 18 May 2021 |
| Docket Number | Case No: CL-2017-000323 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 1272 (Comm)
Mr Justice Foxton
Case No: CL-2017-000323
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
IN THE MATTER OF GERALD MARTIN SMITH
AND IN THE MATTER OF THE CRIMINAL JUSTICE ACT 1988
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”)
Rupert Bowers QC and Tom Stewart Coats (instructed by Keystone Law LLP) for the First Respondent (“ LCL”)
Richard Thomas (instructed by Berkeley Square Solicitors) for the Third Respondent (“ Dr Smith”)
David Lord QC and Sebastian Kokelaar (instructed by Richard Slade & Co) for the Eighth and Ninth Defendants (“ P&M”)
Andrew Crossley of St Paul's Solicitors for the Sixteenth and Seventeenth Respondents (“ Messrs Thomas and Taylor”)
James Pickering QC and Samuel Hodge (instructed by Spring Law) for the Twelfth to Fourteenth Defendants (“ HPII”)
The Twentieth Respondent in person (“Mr Pelz”) with assistance on a pro bono basis from Jeremy Brier (instructed by Advocate through the Advocate and COMBAR Commercial Court and London Circuit Commercial Court Pro Bono Scheme)
Hearing dates: 19–22 and 25–28 January; 2–4, 8–10, 15, 22–25 and 28 February; 1, 2, 8 and 9 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 | 8 |
| B THE PARTIES | 9 |
| B1 The Settlement Parties | 9 |
| B2 Other participating parties | 10 |
| B3 Other interested parties | 11 |
| C THE WITNESSES | 11 |
| C1 Susan Dunn | 11 |
| C2 Sean Upson | 11 |
| C3 Carl Jackson and Simon Bonney | 12 |
| C4 Elaine Millar | 12 |
| C5 Anthony Stevens | 12 |
| C6 Elizabeth Aird-Brown | 13 |
| C7 Roger Taylor | 17 |
| C8 Nicholas Thomas | 18 |
| C9 Ulrich Pelz | 19 |
| C10 Nicole Langlois | 19 |
| C11 Adverse inferences | 19 |
| (1) The relevant legal principles | 20 |
| (2) HPII's adverse inference case | 20 |
| (3) Messrs Thomas and Taylor's adverse inference case | 21 |
| (4) The Settlement Parties' adverse inference case | 21 |
| D MY FINDINGS ON THE FACTS | 22 |
| D1 Dr Smith, the Izodia Theft and the May 2003 Agreement | 22 |
| D2 Mr Ruhan, Messrs Cooper and McNally and the Arena Settlement | 24 |
| D3 The Cambulo Transaction | 26 |
| D4 The background to the 2012 Proceedings | 27 |
| D5 The IOM Settlement | 28 |
| D6 The 2012 Proceedings continued | 33 |
| D7 The Geneva Settlement | 37 |
| E THIS LITIGATION | 40 |
| F GENERALLY APPLICABLE LEGAL PRINCIPLES | 42 |
| F1 A beneficiary's right to trace into the proceeds of trust property | 42 |
| F2 Tracing into mixed funds | 43 |
| F3 The priority of competing equitable interests | 44 |
| (1) Bona fide | 44 |
| (2) For value | 46 |
| (3) Of a legal interest | 46 |
| (4) Without notice of the equitable interest at the time of transfer of the legal estate | 48 |
| (5) Burden of proof | 50 |
| F4 Declarations of trust over property which the trustee has yet to acquire | 50 |
| G THE NATURE OF THE COMPETING CLAIMS | 51 |
| H ISSUES ARISING IN RELATION TO THE HARBOUR IA | 53 |
| H1 The construction of the Harbour IA | 53 |
| (1) The relevant terms | 53 |
| (2) Does the Harbour Trust extend to the assets transferred to Dr Cochrane or SMA under the IOM Settlement and/or the Geneva Settlement? | 54 |
| (3) Were the IOM Settlement or the Geneva Settlement entered into by the Orb Claimants or their affiliates? | 56 |
| (4) Did the IOM Settlement arise out of or relate to the Causes of Action? | 56 |
| (5) What did the Orb Claimants agree to hold on trust? | 57 |
| H2 The construction of the Harbour Deed | 58 |
| H3 Harbour's alternative claims | 60 |
| I THE EFFECT OF THE IOM SETTLEMENT | 60 |
| I1 The parties to the IOM Settlement | 60 |
| I2 The nature of Mr Ruhan's interest in the Arena Settlement | 62 |
| I3 Was the IOM Settlement entered into in breach of trust? | 67 |
| I4 Were the Orb Claimants aware that the IOM Settlement was entered into in breach of trust? | 68 |
| I5 The effect of my findings | 72 |
| J THOSE CLAIMING INTERESTS IN THE ASSETS TRANSFERRED UNDER THE IOM SETTLEMENT | 73 |
| J1 Harbour | 73 |
| J2 Messrs Thomas and Taylor | 74 |
| J3 Orb | 75 |
| K THE GENEVA SETTLEMENT | 76 |
| K1 Introduction | 76 |
| K2 The argument that the Orb Claimants gave up their claims against Dr Cochrane and/or SMA in respect of assets held by them on trust | 76 |
| K3 Did the LICSA effect an equitable assignment to Phoenix? | 78 |
| (1) The terms of the LICSA | 78 |
| (2) Are the rights which are subject to clause 2.4 capable of assignment in equity? | 83 |
| (3) The principles relevant to determining whether clauses 2.4 and 2.6 of the LICSA constituted an equitable assignment | 84 |
| (4) Does the LICSA effect an assignment of SMA's s.207(3) rights? | 86 |
| (5) Who has priority if the LICSA gives rise to an equitable assignment in favour of Phoenix? | 88 |
| (6) Did the Harbour IA give Harbour and the Orb Claimants an equitable interest in the Transferred Companies prior to the Geneva Settlement? | 89 |
| Introduction | 89 |
| Commentary | 90 |
| Authority | 92 |
| Discussion | 97 |
| (7) If not, who has priority as between those claiming interests under the Harbour IA and Phoenix? | 100 |
| (8) Is there any reason why the conventional order of priorities should be adjusted? | 103 |
| Introduction | 103 |
| The applicable principles | 104 |
| The position in this case | 105 |
| (9) If any interests of Harbour and the Orb Claimants otherwise have priority, did Phoenix take free of those interests as a bona fide purchaser for value? | 106 |
| K4 P&M's alternative case | 108 |
| (1) The first argument: the amounts payable by Dr Cochrane and SMA to P&M must be deducted in order to arrive at the “Proceeds” held on the Harbour Trust | 108 |
| (2) The second argument: the subrogation argument | 110 |
| Introduction | 110 |
| The applicable legal principles | 111 |
| (3) The claims against SMA | 114 |
| What claims do P&M have against SMA? | 114 |
| Did SMA undertake its obligations under the LICSA in its capacity as trustee of the Harbour Trust? | 115 |
| Is SMA entitled to an indemnity from the trust fund constituted by the Arena Holdcos? | 118 |
| (4) The claims against Dr Cochrane | 118 |
| Is it open to Phoenix now to assert a proprietary claim to the Non-Arena Companies? | 119 |
| Did Dr Cochrane undertake her obligations under the Loan Note and the LICSA in her capacity as a trustee of the bare trust of the Non-Arena Companies? | 119 |
| Is Dr Cochrane entitled to an indemnity from the trust fund constituted by the Non-Arena Companies? | 120 |
| If Dr Cochrane holds the Non-Arena Companies on bare trust for Dr Smith, could Dr Cochrane assert an equitable lien over the Non-Arena Companies, such that Phoenix could be subrogated to that lien? | 120 |
| Has Phoenix waived its claim to enforce a lien over Dr Cochrane's assets? | 122 |
| L STEWARTS' CLAIM FOR A LIEN | 122 |
| L1 The legal principles relating to a solicitor's lien | 122 |
| L2 Against whom can Stewarts assert a lien? | 126 |
| L3 Is there an identifiable fund (or fund in sight) over which the lien can be asserted? | 127 |
| L4 Is the requisite causal relationship between Stewarts' work in the 2012 Proceedings and Messrs Thomas and Taylor's share in any recovery made out? | 128 |
| L5 To what costs claimed by Stewarts does the lien extend? | 130 |
| (1) The effect of the 2019 Settlement Agreement | 131 |
| (2) The liability of the Orb Claimants | 132 |
| (3) Should I allow an assessment of the costs claimed? | 133 |
| (4) The significance of Messrs Thomas and Taylor's claim against Stewarts | 134 |
| L6 Should the Court refuse to give effect to the lien as a matter of discretion? | 134 |
| L7 Conclusion | 135 |
| L8 Stewarts' alternative claims | 135 |
| M HPII | 135 |
| M1 HPII's claim | 135 |
| M2 Legal Principles | 136 |
| M3 The facts | 137 |
| (1) Notice of a Breach of Duty | 138 |
| The material relied upon by HPII | 138 |
| The points raised by the Settlement Parties | 141 |
| Conclusion | 141 |
| (2) Notice of a Tracing Claim | 143 |
| The materials relied upon by HPII | 143 |
| The Settlement Parties' arguments | 149 |
| Conclusion | 150 |
| (3) Good Faith | 154 |
| (4) Conclusion | 156 |
| N CLAIMS FOR BERKELEY APPLEGATE RELIEF | 156 |
| N1 The applicable principles | 156 |
| N2 Harbour's claim | 158 |
| N3 Stewarts' claim | 159 |
| O STEWARTS' CLAIM TO THE £2M | 159 |
| P THE VISCOUNT'S CLAIMS | 163 |
| P1 The LCL Transfers | 163 |
| P2 The shares in Bodega and Glen Moar | 165 |
| (1) Bodega | 165 |
| (2) Glen Moar | 165 |
| P3 The Jersey Properties | 166 |
| (1) The relevance of Jersey Law | 166 |
| (2) The expert evidence | 166 |
| (3) Ms Langlois' evidence | 170 |
| (4) Analysis and conclusion | 177 |
| Q THE ISSUES BETWEEN THE... |
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