The Serious Fraud Office v Litigation Capital Ltd (a company incorporated in the Marshall Islands) and the (2) to (45)

JurisdictionEngland & Wales
JudgeMr Justice Foxton
Judgment Date21 December 2020
Neutral Citation[2020] EWHC 3548 (Comm)
Date21 December 2020
CourtQueen's Bench Division (Commercial Court)
Docket NumberCase No: CL-2017-000323

[2020] EWHC 3548 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

AND IN THE MATTER OF GERALD MARTIN SMITH

AND IN THE MATTER OF THE CRIMINAL JUSTICE ACT 1988

Before:

Mr Justice Foxton

Case No: CL-2017-000323

Between:
(1) The Serious Fraud Office
(2) Mr John Milsom and Mr David Standish (as joint Enforcement Receivers in respect of the realisable property of Gerald Martin Smith)
Applicants
and
(1) Litigation Capital Limited (a company incorporated in the Marshall Islands) and the (2) to (45)
Defendants Respondents

Daniel Saoul QC, Tim Akkouh and Richard Hoyle (instructed by Harcus Parker Limited and others) for the Settlement Parties

James Pickering QC and Samuel Hodge (instructed by Spring Law) for the Twelfth to Fourteen Defendants

David Lord QC and Sebastian Kokelaar (instructed by Richard Slade & Co) for the Eighth and Ninth Defendants

Hearing date: 11 th December 2020

Written submissions: 15 th December 2020

Draft Judgment Circulated: 18 th December 2020

Approved Judgment

Mr Justice Foxton

The Honourable

1

This judgment addresses an issue raised but not resolved at the Pre-Trial Review in this case which took place on 11 December 2020. The issue is one which will only be of interest to the parties to the litigation, and therefore I shall refrain from any general summary of the background to the case, which is already familiar to them, and which I have set out in previous judgments.

2

The issue which arises is how to address, in the context of the 10 week trial which begins on 11 January 2021 (“the Directed Trial”) issues relating to the question of whether Mr Stevens (who is associated with the Eighth and Ninth Defendants (“Phoenix and Minardi”)) was acting as a nominee for a Mr Andrew Ruhan in relation to the Geneva Settlement (“the Geneva Nominee Issue”), in circumstances in which connected aspects of Mr Stevens' relationship with Mr Ruhan – and in particular whether Mr Stevens was acting as Mr Ruhan's nominee in a 2005 transaction involving a company called Cambulo (“the Cambulo Nominee Issue”) — do not form part of the Directed Trial.

3

The issue was raised with the Court for the first time on 11 December, with the trial due to commence on 11 January. It raises a number of difficult issues. The argument was reached only in the afternoon of the PTR. I ordered further written submissions from the relevant parties, which were filed on 15 December.

4

To resolve the issue it is necessary to:

i) review the history of the relevant aspects of the management of the litigation;

ii) consider the significance of the Geneva Nominee Issue in the context of the Directed Trial;

iii) consider the potential relevance of the Cambulo Nominee Issue to the Geneva Nominee Issue;

iv) consider the practical implications of (a) not deciding the Geneva Nominee Issue in the Directed Trial; (b) deciding the Cambulo Nominee Issue as part of the Directed Trial or (c) deciding the Geneva Nominee and Cambulo Nominee Issues separately; and

v) in the light of those matters, determine the appropriate way forward.

The management of the litigation

5

The litigation concerns competing claims to a variety of assets. An important part of the background to the action is litigation between a Jersey company called Orb arl (“Orb”) and Mr Andrew Ruhan and the companies he controlled, which came to be settled in circumstances which are the subject of fierce dispute. The background to the Orb proceedings is set out in Mr Justice Popplewell's judgment in Orb arl v Ruhan [2016] EWHC 850 (Comm), [7]–[19]. The transactions entered into in the aftermath of the settlement of the Orb action include transfers effected by the Geneva Settlement in 2016.

6

As Popplewell J explained in Sodzawiczny v Ruhan [2018] Bus LR 2419, [6]:

“Following the settlement of the main litigation there have emerged numerous further claims, both in relation to the settlement and in relation to assets of those in the Dr Smith camp including the Arena and non-Arena assets. Amongst the claimants are the SFO; the Viscount of Jersey who has succeeded to the title of Dr Cochrane who is in ‘en désastre’ (a form of bankruptcy in Jersey); liquidators of various BVI companies which sat at the head of structures within the Arena Settlement…; beneficiaries of the settlement of the main action; various litigation funders; Stewarts Law, Orb's former solicitors in the main litigation; and a number of others. I have been managing those various actions together, which were described before me as ‘the Popplewell proceedings’, and have ordered a trial of a number of issues in relation to proprietary claims to certain of the assets, which is not due to be heard until 2020.”

7

In addition to those claiming rights under the transactions entered into in the aftermath of the Orb proceedings, the 12 th to 14 th Defendants (“HPII”) contend that they had an anterior entitlement to trace into the assets transferred in the aftermath of the settlement of the Orb proceedings. The tracing claim is said to arise from HPII agreement in 2005 to sell various hotels to a company called Cambulo-Comercio Internacional E Services Sociedade Unipessoal Lda (“Cambulo”). I will refer to the transaction as the Cambulo Hotels Transfer. HPII says that when entering into the Cambulo Hotels Transfer, it believed Cambulo to be beneficially owned by Mr Stevens, when in fact Mr Stevens was acting as the nominee of Mr Ruhan, so that the transaction infringed the self-dealing rule. Those allegations are hotly denied by Mr Stevens, including in a witness statement filed on 7 November 2014. In that statement, Mr Stevens also gave evidence that Mr Ruhan had become indebted to him arising out of funding provided for a construction project in Qatar (“the Qatar Project”).

8

The scale of the issues raised by the numerous claims to the assets, and the number of parties asserting or affected by such claims, led to a series of hearings before Popplewell J to determine how best to manage the case. At the first hearing, on 6 June 2017, HPII was initially contending that its claims should be heard first, with all other proceedings stayed, but that position was not pursued in the face of a common position among the other parties that the SFO's claims should go first, and Popplewell J so ordered.

9

There was a further hearing on 24 and 25 April 2018. At that hearing, Popplewell J concluded that it would not be feasible to determine all of the issues in a single hearing, and as he noted on 24 April 2018, “there has been little appetite on any side for that”. He decided to order a trial – the Directed Trial – which would principally be concerned with proprietary claims in relation to assets dealt with by the Isle of Man Settlement (in 2014) and the Geneva Settlement (in 2016).

10

There was debate at these hearings as to the consequences of trying the status of transactions concerning certain assets (referred to as “the Relevant Assets”) which took place in the aftermath of the settlement of the Orb litigation, in circumstances in which disputes as to matters occurring before 2012 were not being resolved – and in particular allegations relating to Mr Ruhan's ownership of and dealing with assets long before the Orb action was commenced. Counsel for Harbour (now one of the Settlement Parties) invited the Court to list the claims of HPII first. That application was resisted by all the other parties, including HPII and Phoenix and Minardi, and it was rejected by the Judge.

11

In addition to these issues concerning the Relevant Assets, Popplewell J ordered that an otherwise discrete issue – “the Stewarts Discharge Application” – be heard as part of the Directed Trial. That was an application by Stewarts to set aside a freezing order obtained by Phoenix and Minardi over £2m held by Stewarts for various reasons, including that in obtaining the injunction, Phoenix and Minardi had misled the Court by telling Popplewell J that Mr Ruhan had no interest in certain assets which those companies had acquired pursuant to the Geneva Settlement. Popplewell J took this course because this aspect of the Stewarts Discharge Application raised the issue of Mr Stevens' role in the Geneva Settlement and whether he was acting as a nominee for Mr Ruhan, which issue would be decided when resolving the status of the Geneva Settlement in any event. He observed:

“The issue is one which also arises in the context of the issues I have ordered to be determined in Phase 1 of the SFO's application, and it is highly undesirable that the same issue should be investigated separately, on the one hand between these parties, and on the other with all the parties who are interested in the Phase 1 issues”.

As that passage expressly states, and as is clear from the transcript and surrounding documents, Popplewell J's case management order involved the Geneva Nominee Issue being resolved in the Directed Trial.

12

It must have been obvious to all parties, and the Judge, that the chronological split involved in the Directed Trial necessarily had some rough edges, and that it involved the Cambulo Nominee Issue and the Geneva Nominee Issue lying on opposite sides of the divide. In one ruling, the Judge noted that there was “no ideal solution” and that the Court was seeking to identify “the least worst option”. However, in circumstances in which no one was seriously suggesting that a single trial of the entire story was viable, this was unavoidable. It is clear that in focussing the trial on the Isle of Man and Geneva Settlements, and on proprietary claims to the assets which were the subject of those arrangements,...

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