www.southsquare.comAUGUST 2015

SOUTH SQUAREA REGULAR REVIEW OF NEWS, CASES AND ARTICLES FROM SOUTH SQUARE BARRISTERS

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Cross-BorderInsolvency: A New Report

Lehman Brothers:Waterfall II(A) and

II(B) decisions

Ex Turpi Causa:Where are we now?

New Companyand Insolvency

Legislation

Schemes ofArrangement

Developments incommon law

judicial assistance

DIGEST

‘SOUTH SQUARE PROVIDES A WORLD-CLASS SERVICE’ Legal 500

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SCHEMES

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In recent years the circumstances inwhich it has become established thatthe English Court will acceptjurisdiction to sanction a scheme ofarrangement in respect of a companyhave expanded enormously. From itsorigins as a procedure used essentiallyfor domestic (i.e. English incorporated)companies, schemes have successfullybeen promoted in an increasingly widerange of circumstances:

• Foreign companies withsubstantial assets in England1

• Foreign companies where therelevant liabilities were governed byEnglish law and subject to Englishjurisdiction2

• Foreign companies where therelevant liabilities were governed byEnglish law alone3, but which haveno other connections to thejurisdiction

• Foreign companies where theliabilities are governed by foreignlaw but the centre of main interests(COMI) is in England (including

where the COMI has beendeliberately moved to England forthe purposes of establishing schemejurisdiction)4.

Much of this development is centredaround the increasing recognition thatat its heart a creditor scheme ofarrangement is a mechanism forcompromising or restructuringliabilities (usually contractual in basis),and therefore what matters for thepurposes of jurisdiction is not so muchthe characteristics of the debtorcompany (e.g. its place ofincorporation) but the characteristicsof the relevant liabilities themselves(e.g. governing law and jurisdiction).These considerations go hand in glovewith the fact that the internationaleffectiveness of schemes will usuallybe a critical consideration, and thatone of the principal ways a schememay achieve effect internationallystems from the fact that manyjurisdictions will recognise a variationor amendment of liabilities effected in

accordance with the law governingthose liabilities.

Changing the Governing LawBuilding on these principles, in therecent cases of Apcoa5 and DTEKFinance6 the companies soughtsuccessfully to found the jurisdictionof the Court to sanction the relevantscheme on the basis of a change of thelaw governing the liabilities from aforeign law to English law7. (In Apcoajurisdiction was sought to be foundedby reference to both the governinglaw and jurisdiction clauses in therelevant finance agreement, whereasin DTEK the company’s primary caseon jurisdiction was founded on thegoverning law provision alone.)

The facts of DTEK Finance areinstructive. That case concerned aNetherlands incorporated financevehicle which formed part of aUkrainian energy group and whichhad issued Notes governed by a NewYork law indenture. At first blush, the

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1/. The earliest example might be Re Heron International NV [1994] 1 BCLC 667.2/. Re Rodenstock GmbH [2012] BCC 459.3/. Re Vietnam Shipbuilding Industry Group [2014] 1 BCLC 400.4/. Re Magyar Telecom BV [2015] 1 BCLC 418.5/. Re Apcoa Parking UK Ltd [2014] BCC 538 and Re Apcoa Parking Holdings GmbH [2015] BCC 142.6/. [2015] EWHC 1164 (Ch).7/. This article does not address the further question, which may apply where one or more scheme creditors is domiciled in the EU, of whether theCourt has jurisdiction over such scheme creditors for the purposes of the Judgments Regulation. That raises the question, not yet resolved, ofwhether a scheme is a measure where the creditors are “sued” so as to fall within Article 4 of the recast Judgments Regulation.

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scope for an English law scheme ofarrangement to effectively restructurethe liabilities under the Notes might bethought to be limited. However, theterms of the note indenture permitteda change of governing law (by,arguably, a simple majority ofnoteholders). The company solicitedsuch a change of governing law fromNew York law to English law, and thescheme was promulgated andsanctioned by the Court on the basisthat the change of governing law wasalone sufficient found to jurisdiction.

The logic underlying this approachis sound. As Hildyard J concluded inApcoa, there is no reason in principlethat English law should have any lessstatus or effect as the governing law ofliabilities where it results from achange of governing law as comparedwith the situation where it was thegoverning law from the outset.Accordingly, once it is accepted thatEnglish governing law is sufficient to

found the jurisdiction of the Court tosanction a scheme in respect of thoseEnglish law liabilities, it does notmatter whether English law was theoriginal governing law or whether itbecame the governing law as theresult of a change. In either case, thefact that English law is the governinglaw has the same effect andconsequences. All that matters in acase where there has been a change ofgoverning law is that the change toEnglish governing law was effective.

The Effectiveness of the ChangeThe question of whether the change toEnglish law was effective may not,however, be straightforward on thefacts of individual cases. Logically, thequestion of whether the change toEnglish law was effective will begoverned by the previous governinglaw, on the footing that such law willgovern the effectiveness ofamendments and variations made to

the contract.In DTEK itself, this meant that the

question of whether the change ofgoverning law to English law waseffective was governed by New Yorklaw, being the original governing lawof the note indenture. For thepurposes of effecting the change, thecompany had relied on the provisionsof the indenture which allowedchanges to the indenture and the notesto be made by a simple majority ofnoteholders except in relation tocertain specified amendments where asuper majority of 90 per cent wasrequired. The specified amendmentsrequiring a 90 per cent majority didnot include either changes togoverning law or jurisdiction.

A dissenting creditor, Alden,however argued that the change ingoverning law fell foul of a differentprovision in the indenture (whichderived from and reflected languagecontained in the US Trustee

THE RELEVANT LIABILITIES IN THE DTEK CASE AROSE UNDER NOTES GOVERNED BY A NEW YORK LAW INDENTURE

The circumstances in which the English Court will find a “sufficient connection”for the purposes of the scheme jurisdiction have developed significantly, but theapproach is based on sound foundations, writes Tom Smith QC

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proposition”, he went on to say that over thecourse of the two centuries which followedHolman v Johnson this rule of public policybecame “encrusted with an incoherent mass ofinconsistent authority” mainly because judgesdecided each case in its own factual and legalcontext without regard for a broader legalprinciple.

The late twentieth and early twenty-firstcenturies have seen a search for such a broaderlegal principle. We describe some of the key casesbelow.

Euro-Diam v BathurstIn 1987 the illegality defence came to beconsidered by the Court of Appeal (Kerr andRussell LJJ and Sir Denys Buckley) in Euro-Diam vBathurst [1990] 1 QB 1. The Court of Appeal, inthe words of Lord Sumption in Bilta, treated “thewhole body of authority as illustrative of aprocess which was essentially discretionary innature”. Kerr LJ (who gave the only reasonedjudgment) stated that the test was whether “in allthe circumstances it would be an affront to the

public conscience to grant the plaintiff the reliefwhich he seeks because the court would therebyappear to assist or encourage the plaintiff in hisillegal conduct or to encourage others in similaracts”. He also said that this was something whichshould be approached “pragmatically and withcaution, depending on the circumstances”. Thetest thus became essentially a discretionary one.

Tinsley v MilliganThe illegality subject then came to be consideredby the House of Lords (Lords Keith, Goff, Jauncey,Lowry and Browne-Wilkinson) in Tinsley vMilligan [1994] AC 340. Stella Ruth Tinsley andKathleen Milligan were, to use the judge’sexpression, “lovers”. They bought a house in MissTinsley’s sole name using funds generated by abusiness they ran together running lodginghouses. However their understanding was thatthe property was jointly owned. The purpose ofthis arrangement was to defraud the Departmentof Social Security. Over the years that followedMiss Milligan, with Miss Tinsley’s help, madefalse benefit claims. Miss Tinsley also made her

IN 1725 THE EX TURPI CAUSADEFENCE PREVENTED ONE

HIGHWAYMAN FROM SUINGANOTHER

On 14 and 15 October 2014 the Supreme Court(comprising Lord Neuberger, President, andLords Mance, Clarke, Sumption, Carnwath,Toulson and Hodge) heard the case of Jetivia SA vBilta (UK) Limited (in liquidation). The caserelated to the principle or rule of public policyknown as ex turpi causa non oritur actio (a Latintag meaning “from a dishonourable cause anaction does not arise”) or, putting it another way,the so-called illegality defence. Judgment [2015]UKSC 23 was given some six months later on 22April 2015 and comprised four separatejudgments: one from Lord Neuberger (withwhom Lords Clarke and Carnwath agreed), onefrom Lord Mance, one from Lord Sumption and acombined judgment from Lords Toulson andHodge. The judgments run to 215 paragraphsspread over 88 pages.

As explained in further detail below, theSupreme Court was unanimous in its decision todismiss the appeal holding that the illegalitydefence could not bar Bilta’s claims on the basisthat the conduct of the directors could not beattributed to the company. However, there wasdisagreement between members of the SupremeCourt (in particular, Lord Sumption on the onehand and Lords Toulson and Hodge on the other)as to the proper approach to the illegalitydefence. This article reviews where we are nowin relation to this contentious defence.

BackgroundThe ex turpi causa defence is of considerableantiquity. One old case that is often cited insupport of the principle took place in 1725 (when

George I was on the throne). John Everet of theParish of St James’ in Clerkenwell and JosephWilliams went into partnership. Their businesswas that of being highwaymen, something theyappear to have practised in places like HounslowHeath, Finchley, Blackheath, Bagshot, Salisbuyand Hampstead, removing watches, rings,swords, canes, horses, bridles, saddles and otherthings from their owners. Perhaps inevitably,Everet and Williams fell out, there being nohonour amongst thieves. Everet thought hispartner had been getting too much of the profitfrom their partnership. Somewhat astonishinglyEveret presented a bill in equity at the Court ofthe Exchequer. He claimed discovery, an accountand general relief from Williams. The case wasdismissed as scandalous and impertinent. Thesolicitors were arrested and fined £50 each forcontempt in bringing such a case before the court(and were committed to the Fleet prison untilpayment). Williams was arrested and tried. Hewas hanged at Maidstone in 1727. Everet faredlittle better. He was hanged at Tyburn in 1730.Finally, one of the solicitors involved in theaction, Wreathock, was convicted of robbery in1735 and sentenced to hang, but his sentence wascommuted and he was transported Australia.

Whilst the defence of ex turpi causa is an oldone, one often-used starting point in relation to itin modern discussions is Lord Mansfield CJ’sstatement in Holman v Johnson (1775) 1 Cowp 341at 343: “No court will lend its aid to a man whofounds his cause of action on an immoral or anillegal act”. Whilst this is what Lord Sumptiondescribed in Bilta as an “apparently simple

Ex Turpi Causaso where are we after Bilta?

David Alexander QC and Marcus Haywood reviewwhere the defence of ex turpi causa lies following theSupreme Court’s recent decision in Jetivia SA v Bilta

EX TURPI CAUSA

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equivalent of the directors whowould have to be natural persons,and what details of these personswould need to be publicly available?

The deadline for response to theseproposals was 27 April 2015. Theimplementation of these restrictionson corporate directorships has beendelayed and no revised timetable hasyet been announced.

Shadow directorsThe SBEE Act applies directors’ dutiesto shadow directors so far as they arecapable of applying.

A shadow director, as is well-known, is a person in accordancewith whose directions or instructionsthe directors are accustomed to act. A

person is not, however, to beregarded as a shadow director byreason only that the directors act onadvice given by him in a professionalcapacity; section 251(1) and (2) CA2006.

The exclusions that are added bythe new legislation are: a person isnot regarded as a shadow director ifexercising a function conferred by orunder a statutory provision; or, ifguidance or advice is being given by aperson in their capacity as a Minsterof the Crown.

The general statutory duties thatapply to de jure and de facto directorsunder the 2006 Act do not all apply toshadow directors is as follows:1

“The general duties apply to shadow

directors where, and to the extent that,the corresponding common law rulesor equitable principles so apply.”

The law, as from 26 May 2015, isthat:

“The general duties apply to ashadow director of a company whereand to the extent they are capable ofso applying.”

This provision is subject to anyregulations about the application ofgeneral duties of directors to shadowdirectors.2

Persons with significant controlThe principal change concerning theaccountability of companies isintended to make it easier to see whoowns or controls the company and

CAPTION RELATING TO CONTROL OF COMPANIES

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1/. Section 170(5) of the 2006 Act. See also Ultraframe (UK) v Fielding [2005] EWHC 1638 (Lewison J) and Vivendi SA v Murray Richards [2013]EWHC 2006 (Newey J) on the state of the law on duties of shadow directors.2/. Section 89 of the SBEE Act.

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Company & Insolvency LawNew LegislationHilary Stonefrost sets out the significant changes to the Companies Act 2006, theInsolvency Act 1986 and the Directors’ Disqualification Act 1986 that have been orwill be brought about by the Small Business, Enterprise and Employment Act 2015and the Deregulation Act 2015.

A significant number of importantand diverse changes have recentlybeen made to company andinsolvency legislation. It would beeasy to miss these changes given thatthere is no clue in the title of thestatutes of the nature or scope of therevisions.

THE SMALL BUSINESS ENTERPRISEAND EMPLOYMENT ACT 2015The Small Business, Enterprise andEmployment Act 2015 (the SBEE Act)became an Act of Parliament on 26March 2015. The SBEE Act coverseclectic topics including theregulation of pub owning businesses,the regulation of child care togetherwith new statutory provisionsgoverning insolvency,disqualification of directors and theregulation of companies.

While the title suggests that thestatutory provisions are directed atsmall companies, this is not the case;this statute makes significant changesto company law and corporategovernance of all companies.

Some of the statutory provisionshave already come into force; othersare coming into force at later dates.

There will be secondary legislationand guidance on the new provisions,but these are still in the process ofbeing drafted.

COMPANY LAWThe company law provisions of theSBEE Act, in parts 7 and 8 theCompanies Act 2006 (the 2006 Act).

The main changes to companylegislation directed primarily but notexclusively at company transparency,are as follows:1/. The requirement that companydirectors are natural persons.2/. The changes to the definition ofand to the scope of the duties ofshadow directors.3/. The creation of a register of peoplewith significant control.4/. The abolition of bearer shares.

Company directorsThe SBEE Act intends to increasetransparency about who is acting as adirector of a company by restrictingthe practice of companies acting ascorporate directors to limitedcircumstances by amending the 2006Act. The existing law requires at leastone director to be a natural person

(section 155 of the 2006 Act), butimposes no restrictions on corporatedirectors.

In November 2014 there was aconsultation on whether theSecretary of State should makeregulations setting out exemptionsfrom the ban on corporate directors.In March 2015 the Department forBusiness Innovation and Skills (BIS)published a questionnaire onwhether there should be a “principlesbased exemption” to the ban oncorporate directors. The proposalcovered the following issues:

1/. Whether a company couldappoint a corporate director if all thedirectors of the corporate directorwere natural persons and, if thecorporate director is an overseascompany, certain details of theindividual directors of that corporatedirector were disclosed in a publicregister.

2/. Whether a corporate directorcould be an entity other than a UKincorporated company, for examplean overseas LLP, and, if so, whetherall of its members would need to benatural persons and if it were anoverseas entity who would be the

COMPANY & INSOLVENCY LAW

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CASE DIGESTS

Banking and Finance p17Civil Procedure p19Commercial Cases p20Company Law p22Corporate Insolvency p25Personal Insolvency p26Property and Trusts p28Sport p30

FEATURE ARTICLES

Consumer Redress and the SchemeJurisdictionWilliam Trower QC discusses the significanceof two recent schemes of arrangement designedto facilitate the payment of redress toconsumers asserting claims arising out of themis-selling of financial products. p6

Lehman Brothers: Waterfall II(A) andII(B) decisionsIn the matter of Lehman Brothers International(Europe) (In Administration) [2015] EWHC 2269(Ch), David Richards J. p10

Schemes - conferring jurisdiction bychanging the governing lawThe circumstances in which the English Courtwill find a “sufficient connection” for thepurposes of the scheme jurisdiction havedeveloped significantly, but the approach isbased on sound foundations, writes Tom Smith QC. p12

Ex Turpi Causa: so where are weafter BiltaDavid Alexander QC and Marcus Haywoodreview where the defence of ex turpi causa liesfollowing the Supreme Court’s recent decision inJetivia SA v Bilta. p32

African Farms to African Minerals:developments in common lawjudicial assistanceStephen Robins examines the latest case lawon cross-border insolvencies and extra-terratoriality. p40

REGULARS

From the Editor p4EEC/EEA Update p62News in Brief p64South Square Challenge p68Diary Dates p70

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THE CITY OF LONDON

Sufficient connection once again:does trouble lie ahead?Richard Fisher highlights issues of practice andprinciple rising out of the recent VGG judgment. p44

Company & Insolvency Law: NewLegislationHilary Stonefrost sets out the significantchanges to the Companies Act 2006, theInsolvency Act 1986 and the Directors’Disqualification Act 1986 that have been or willbe brought about by the Small Business,Enterprise and Employment Act 2015 and theDeregulation Act 2015. p48

INSOL International Bermuda OneDay SeminarWilliam Willson reports from INSOL’s recentone day seminar in Hamilton, Bermuda andfound delegates grappling with the ‘commonlaw in all its splendid inadequacy’. p56

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COVER STORY

From discord to harmony: the futureof cross-border insolvencyA new report published by South Square andGrant Thornton UK LLP. p58

Richard Sheldon QCRichard Sheldon QC retires from the Barand as a full member of South Square p61

In this issue

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FROM THE EDITORDAVID ALEXANDER QC

Welcome to the summer edition of the Digest,the last one for this legal year. The financialworld has been dominated in the last fewmonths by Greece and whether there would bea Grexit from the Euro. In scenes bordering onthe farcical it went down to the wire with someextraordinary things happening. In late June2015, according to the Eurogroup, the Greeksbroke off negotiations. The Prime Minister,Alexis Tsipras, then decided to have areferendum on whether to accept what was onoffer with his party, Syriza, campaigning for a“no” (or “Oxi”) vote. Greece then made historyby becoming the first developed country inhistory to default on its debts to the IMF whenit failed to make a payment of Euros 1.5 billion(although that default was then merely

downgraded to Greece being in “arrears”). Nextthe Greeks had their referendum andoverwhelmingly voted “no” to the Europeanproposals (the split was 61% to 39% on a 62.5%turnout). So back to the negotiating table MrTsipas went, only to emerge with even harsherterms from Europe than those which were onoffer prior to the Greek referendum and whichhe appears to have felt compelled to accept toprevent Greece falling out of the Eurozone. Thewhole thing appears to have been, andcontinues to be, a tragedy for Greece withmany suggesting that Greece would have beenfar better off just to have dropped out of theEurozone and returned to the Drachma. Whatthat tragedy does suggest, however, is that herein the UK we are probably very lucky that wenever joined the Euro.

So outside of the Greek crisis, what else hasbeen happening? Three other things stand outfor me. Firstly, the tragic events in Tunisiawhen a lone gunman arrived on a jet-ski on thebeach and killed 38 holidaymakers (of whom30 were British) staying in a resort just north ofSousse.

Secondly, the farce that is FIFA. Corruptionallegations have always surrounded FIFA. Butit took the FBI to do something about it thatmattered. And at the end of May 2015 sevenFIFA officials were arrested at the Hotel Bar auLac in Zurich where they were preparing toattend FIFA’s 65th annual congress which wasscheduled to include the election of a newPresident. Amazingly, despite what was

A summer of tragedy and farce

GREEK FINANCE MINSTERVAROUFAKIS, ON HIS BIKE

article by Stephen Robins on developments incommon law and judicial assistance followingSingularis. Finally there are also articles byRichard Fisher on whether trouble lies aheadin relation to satisfying the “sufficientconnection” test in relation to schemes ofarrangement; and Hilary Stonefrost on thechanges brought about by the Small BusinessEnterprise and Employment Act 2015 and theDeregulation Act 2015 .

Apart from articles, this edition of the Digestcontains a report on the recent decision ofDavid Richards J in what are known asWaterfall A and Waterfall B, as well as theusual case digests, the latter edited this time byLloyd Tamlyn.

Plus we have a report by William Willson onthe highly successful INSOL International oneday seminar in Bermuda, an EU/EEA lawupdate by Robert Amey and Andrew Shaw, asummary of the findings in a new reportpublished by South Square and Grant ThorntonUK LLP following research in relation to cross-border insolvencies, news in brief, diary datesand the South Square Challenge.

We hope that you enjoy this edition of theDigest. As ever, if you wish to be added to thecirculation list (and it is free) or your contactdetails change, please emailkirstendent@southsquare.com and we willendeavour to make sure you get the nextedition. In the meantime, all at South Squarewish you a good summer.

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happening, the election carried on and SeppBlatter, who has been President since 1998, wasre-elected. Mass calls for his resignationfollowed and, in a moment akin to peopleknowing where they were when man firstwalked on the moon, on 2 June 2015 Blattersaid he was resigning. Only apparently to try togo back on that subsequently and postponingthe election of a new President until 2016.

Thirdly, Donald Trump. The AmericanPresidential race is hotting up. On 14 June 2015Trump announced at Trump Tower that he wasentering the race. Ever since, he has been whatone can only describe as controversial, forexample making a slur against Mexicans andattacking John McCain’s war record. Yet thepublicity he was generating appeared to bedoing him some good, at least until the TVdebate. Surely the US cannot have him asPresident, can it? Probably not, but Trump hascertainly generated interest in the Republicannomination election.

So what do we have in this edition of theDigest. As always there are plenty of articles ofinterest. Firstly, there is an article by WilliamTrower QC on the significance of two recentschemes of arrangement designed to facilitatethe payment of redress to consumers assertingclaims arising out of the mis-selling of financialproducts. There is also an article by Tom SmithQC on the circumstances in which the Englishcourt will find a “sufficient connection” for thepurposes of the scheme of arrangementjurisdiction.

In addition there is an article by MarcusHaywood and myself on where the defence ofEx Turpi Causa lies following the decision of theSupreme Court in Jetivia SA v Bilta and an

BLATTER: THE PRESIDENT WHOFINALLY QUIT?

‘THE DONALD’ HAS SPICED UPTHE RACE TO THE WHITE HOUSE

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The compulsory rearrangement of rightsagainst a company is a long-establishedprinciple of English law. It is a useful tool,not just when a company is in financialdifficulties, but also when there are othergood commercial reasons for therearrangement. In such circumstances, allthat is required is that an appropriatemajority (75 percent by value and 50percent by number) of stakeholders regardthe rearrangement as appropriate, and thecourt (applying the relevant legal test) isprepared to confirm that this is the case. Notall legal systems have such a process, butEnglish law has long accepted that it issometimes better for a class of members orcreditors to have their strict legalentitlements restricted or varied against thewishes of some individual members of theclass, so long as a sufficient numberconsider that it is in their interests for that tohappen, and so long as the court is able toconclude that the rearrangement is fair.

In the case of a company’s members thelink to the Companies Act 2006 and itsstatutory predecessors is all relativelystraightforward. Their respective rights, bothinter se and as against the company, will inlarge part derive from the statutory contract

to which they and the company are party.The compromise or arrangement is imposedon any dissenting minority under theauthority of the statute, being the samestatute that in many other respects governsthe relevant relationship. It is no surprise tofind that this statute also containsmechanisms for a compulsory variation ofthe terms of that relationship.

At first blush, it is more surprising to findthat the same statute also contains provisionfor the rearrangement of rights whichcreditors have against their corporatedebtor. There are historic reasons for this,but there is now little else in the Companieslegislation which relates to those creditorrights; indeed those rights may derive fromcontracts or relationships which are whollyunrelated to matters of company law.Whether the liability is actual, contingent orfuture is neither here nor there, nor does thesource of the liability matter. It can bederived from a contract, a statute or arise atcommon law. From at least the late 19thcentury (e.g. Re Midland Coal, Coke andIron Co [1895] 1 Ch 267) it has been clearthat the word creditor is used in the widestsense, including all persons having anypecuniary claim against the company.

Indeed it is wider even than the category ofclaims which are capable of proof in awinding-up or administration, and so iscapable of extending to creditors with non-provable claims in tort (Re T&N Limited[2006] 1 WLR 1728).

The consequence of this is that the courtshave become accustomed to sanctioningschemes between a company and manydifferent types of creditor. Of course, thejurisdiction is most often employed wherethe creditors are bank lenders or the holdersof other debt instruments, such asdebentures or loan notes. In this type ofcase the scheme is normally proposedbecause the company’s future developmentis circumscribed by the terms of its existingfinancing arrangements. Rearrangement isrequired in order to enable it better toflourish or even survive.

However, the jurisdiction has also beenused to rearrange many other types ofcreditor right, where the context is slightlydifferent, e.g. claims of trade creditors,landlords, tort claimants, employees andinsurance or reinsurance policyholders. Inrecent years, landlords have more oftenbeen affected by CVAs than they have byschemes of arrangement under the

Consumer Redress andthe Scheme Jurisdiction

William Trower QC discusses the significance of two recent schemes ofarrangement designed to facilitate the payment of redress to consumers assertingclaims arising out of the mis-selling of financial products

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Companies Act, but the rearrangement ofthe rights of tort claimants and employeeswas at the core of much of the T&N litigationwhile, until a recent change in policy fromthe FCA, many London market insurers andreinsurers used the jurisdiction to rearrangethe rights of their policyholders.Furthermore, in an appropriate case, therearrangement of rights can extend not justto the relevant scheme creditors’ rightsagainst the scheme company, but also totheir rights against third parties, so long asthat rearrangement can still properly bedescribed as part of an arrangement withthe scheme company. A striking example ofthe innovative use of the scheme jurisdictionin this type of case was in Re T&N Limited(No 4) [2007] Bus LR 1411, where a schemetook effect so as to vary the rights which theScheme companies’ employees had not

against the Scheme company itself (whichwere left unvaried by the scheme), butagainst its employers’ liability insurers. Inthese types of case, the need for certainty isoften the impetus behind the proposedscheme. In particular a company may befaced with a situation in which it knows orsuspects that there are claims out there, butthe extent of those claims is highly uncertainand the very fact of that uncertainty is actingas a break on the company’s ability to planfor the future.

In this context, two recent cases have added a further category of creditor to the list, namely customers with actual or possible claims for the payment of financial redress arising out of the alleged mis-selling of insurance and other products regulated by the FCA. In Re Card Protection Plan Limited [2013] EWHC 3288 (Ch) and [2014]

EWHC 114 (Ch), where the scheme meetings were convened by David Richards J, and the scheme itself was sanctioned by Proudman J, the scheme creditors were customers with claims arising out of their purchase of a card protection product and an identity protection product. These products were either sold by Card Protection Plan Ltd (“CPP”) itself, or through the agency of a number of business partners, including high street banks and other well known financial institutions. CPP was vulnerable both to mis-selling claims from customers who had purchased one of the products and to ricochet claims by business partners if and to the extent that the business partners were themselves liable to pay redress to customers.

In Re A I Scheme Limited [2015] EWHC1233, in relation to which Norris J both

A COMPANY MAY BE FACED WITH A SITUATION IN WHICH IT KNOWS OR SUSPECTS THAT THERE ARE CLAIMS OUT THERE, BUT THE EXTENT OF THOSE CLAIMS IS HIGHLYUNCERTAIN

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convened the scheme meetings andsanctioned the scheme, the relevantcustomers were purchasers of a credit cardsecurity product sold by AffinionInternational Limited (“Affinion”) under anumber of brand names including CardProtection, Sentinel, Sentinel Gold, SentinelProtection, Sentinel XL, and Safe andSecure Plus. This card security product wassold both directly by Affinion and with theassistance of business partners whoseinvolvement in the sales was similar to therole played by the CPP business partners.The structure was such that customersmight have had claims for redress againstboth Affinion and the business partners, andthose entities themselves asserted thepossibility of cross claims against each otherarising out of the customers’ claims forredress.

At the time it proposed its scheme, CPPhad been subject to an FCA investigationfollowing concerns regarding potential mis-selling of the relevant products. It wasengaged in a past business review (“PBR”)overseen by a skilled person appointedunder s.166 of FSMA 2000 to contact andoffer redress to customers who had sufferedloss as a result of a relevant sale. In thecase of Affinion, there was no suchinvestigation or PBR on foot, but Affinionhad identified the possibility that customersmight make Consumer Credit Act or similarclaims against it and/or the businesspartners arising out of the inclusion in theproduct of fraud insurance cover whichcustomers probably did not need. It hadtherefore entered into discussions with theFCA on the steps to take to deal with thesepotential claims.

The concept behind each scheme wasvery simple. It provided a straightforwardprocedure for assessing whether customerswere eligible for compensation, the level ofwhich was set in all cases as the total

amount paid by the customer in respect ofthe relevant product (plus 8 percentinterest), less any payments made to thecustomer under the product (plus 8 percentinterest). There is a longstop bar date bywhich all claims for redress must be made.By the time of that bar date all such claimsare released, either by the occurrence of thebar date itself, or by the earlier making of aclaim under the scheme. The releasegranted by each scheme extends to thebusiness partners. There is a schemeadministrator to administer each scheme,and customers have a right of appeal to ascheme adjudicator. The FinancialOmbudsman continues to have a role, butonly by deciding what any determinationunder the scheme should have been. This ispossible because the FCA has givenappropriate directions to ensure that theOmbudsman has to consider any complaintby reference to the terms of the scheme,rather than by applying the usual test ofwhat is fair and reasonable in all thecircumstances.

In each case the potential number ofscheme creditors was huge. CPP hadidentified almost 7 million scheme creditorswhile, in the case of Affinion, there werealmost 2 million potential claimants. Thesenumbers, and the inherent uncertainty as tothe time for which these liabilities might behanging over the company (and theirextent), was one of the commercialconsiderations behind the proposal of thescheme. But the desirability of introducing amore streamlined process for dealing withsuch an enormous number of potentialclaims was also a strong incentive forcustomers to vote in favour of the scheme.

The number of potential claimants, andtheir profile as retail consumers, obviouslygave rise not just to significant logisticalchallenges, but also to the need to take realcare in ensuring that they were given

appropriate guidance as to what was goingon. Consumers whose claims do not exceedmore than a few hundred pounds fall into avery different category from sophisticatedfinancial institutions. It was recognised fromthe outset that the court would need to havea high degree of assurance that therearrangement of customer rights was bothintrinsically fair and obviously capable ofbeing in their own best interests.

This did not mean that the court was likelyto apply a different legal test to the questionof fairness. As with any other case, thecreditors acting collectively are the bestjudges of their own interest (Re English,Scottish and Australian Chartered Bank[1893] 3 Ch 385, 409). However, the courtwas always likely to subject the terms of thescheme to a particularly rigorous analysis toensure that the scheme taken as a wholewas obviously something that a rationalcreditor could support. In carrying out thattask, it was very important that bothschemes were put together in closeconsultation with the FCA, one of whosecore regulatory principles is that the firms itregulates are required to treat customersfairly. It was also important that the FCA didnot simply confirm that it did not object tothe scheme without further explanation of itsposition, an approach which it had adoptedwhen commenting on many of the schemespromulgated by solvent insurers andreinsurers. Instead, in both cases, the FCAproduced a lengthy and well-reasonedanalysis of the terms of the proposedscheme, including an explanation of why allof the relevant provisions satisfied its ownregulatory requirements, and concluded thatin its view the scheme constituted anappropriate mechanism for providingredress.

The adoption of this approach by the FCAwas welcome. Doubtless, it reflected arecognition that there were sound regulatoryreasons for facilitating the scheme process,and it is clear that the court was muchassisted both by the views of the FCA on thesubstance of the Schemes themselves andby the fact that the FCA had given carefulconsideration to the means by which theScheme companies had communicated withScheme creditors and the form of those

Consumers whose claims do not exceedmore than a few hundred pounds fall into avery different category from sophisticatedfinancial institutions

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communications. One small illustration fromthe Affinion scheme reflects the type of issuewhich might arise in a consumer redressscheme, but which would never arise in amore conventional scheme between acompany and its bank lenders. Whennotification of the proposed scheme was firstgiven to customers on the Affinion database,a small number of customers intimated(some in quite forceful terms), that theywished to have no further communication inrelation to the scheme. Sometimes this wasbecause of a general irritation with creditcard companies, but sometimes it wasbecause of genuine emotional distress, forexample arising out of the fact that thecommunication related to the affairs of arecently deceased customer. The solutionwas for the court to give a direction which,within tightly defined limits, released thescheme company from giving any furthernotifications to a specific category ofidentified customers.

In the case of Affinion, a specialrefinement was required. Affinion was not ina position to propose a scheme itself,because there was a material risk that, bytaking such a step, an event of default wouldhave been triggered under its New York law-governed financing agreements. A structurewas therefore put in place under which aspecial purpose company (A I SchemeLimited) executed a deed poll under which itassumed joint and several liability to all ofAffinion’s Scheme creditors. It did so for thesole purpose of promoting the Scheme,including the grant of what then amounted tothird party releases to Affinion and thebusiness partners in respect of their ownliabilities to the Scheme creditors. The abilityto release Affinion and the business partnerswas achieved by application of the principlessummarised by Patten LJ (at para 65) in ReLehman Brothers International (Europe)[2010] Bus LR 489. Although obviouslyunusual, Norris J was satisfied that thescheme was still an arrangement for thepurposes of the statute and that thestructure was appropriate. As he put it, thestructure was not created as a matter of“mere artifice”, it had a “solid grounding incommercial necessity”. I doubt that there willbe many other cases in which the adoption

of a similar structure is appropriate, becausethe test of commercial necessity will be quitedifficult to satisfy. However, where it issatisfied, this aspect of the Affinion schemesets a useful precedent.

The overall lesson to be learnt is not justthat the scheme jurisdiction continues toflourish. More specifically, the lesson is thatthe jurisdiction continues to be a flexiblemeans of ensuring that the sensiblerearrangement of creditor rights can alwaysbe achieved, against the wishes of a smalldissenting minority and where there is aneed to bind actual or potential creditors to a

process for crystallising and accelerating thepayment of their claims. Sometimes it isnecessary, both in the interests of thecompany and the class as a whole, torequire creditors to make their claim or losetheir rights – in effect to put up or shut up.These two cases show how it can be donein a customer, regulatory context. So long asthe jurisdiction is properly applied, there isno distinction in principle between theposition of a few bank lenders each with aclaim worth several million pounds, and theposition of several million consumers eachwith a claim worth a few hundred pounds.

WILLIAM TROWER QC

10

IntroductionIn the June 2015 edition of the Digest, AlexanderRiddiford reported on the Court of Appealjudgment in the appeals against the decision ofDavid Richard J: In re Lehman BrothersInternational (Europe) (in administration) [2015]EWCA Civ 485. Following on from this, on 31July, Mr Justice David Richards handed downtwo judgments relating to the Lehman BrothersWaterfall II application, which address anumber of important and novel points ofinsolvency law arising from the £7 billionsurplus in the estate of Lehman BrothersInternational (Europe) (“LBIE”). Five silks andseven juniors from South Square, representingsix different parties, appeared on theapplication.

BackgroundFollowing the discovery of a large surplus(estimated at over £7 billion) in the estate ofLehman Brothers International (Europe)(“LBIE”) the administrators applied to the courtfor directions as to the payment waterfall. Thesehave become known as the ‘Waterfall’applications.

In his judgment in Waterfall I ([2015] Ch 1,largely affirmed at [2015] EWCA Civ 485) DavidRichards J had determined that the surplusshould be applied first to pay interest under rule2.88 of the Insolvency Rules 1986 (“statutoryinterest”), secondly to pay non-provable claims(including the “currency conversion claims” of

creditors whose pre-administration debts weredenominated in foreign currency and who hadsuffered a loss as a result of depreciation ofsterling) and thirdly to pay subordinated debt.

The Waterfall II(A) DecisionThe Waterfall II(A) judgment concerns the

correct calculation of statutory interest and

currency conversion claims. In summary, the

judge held:1/. Where the applicable rate of statutory interest is the rate specified in the Judgments Act 1838

(“judgment rate”), interest is payable on a simple

basis.2/. To calculate the daily rate of statutory interest at the judgment rate, the administrators should

take the annual rate and divide it by 365, except where that year includes 29 February, in which

case the correct divisor is 366, Harrahill v

Kennedy [2013] IEHC 539 not followed. A year

for these purposes commences on the

anniversary of LBIE’s administration, 15

September.3/. When calculating statutory interest, dividends

already paid to creditors are to be treated as

having been paid to discharge principal first, then interest, Bower v Marris [1841] Cr&Ph 351

not followed. Rule 2.88 represents a complete

code for the payment of post-administration

leaving no non-provable claim for further

interest, be it interest on interest or interest calculated according to the rule in Bower v

Marris.

In the matter of Lehman Brothers International (Europe) (In Administration) [2015]EWHC 2269 (Ch), David Richards J

Lehman Brothers:Waterfall II(A) and II(B) Decisions

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4/. The words “the rate applicable to the debtapart from the administration” in rule 2.88 refernot only to a numerical rate of interest, but alsoto the mode of calculation (ie, they can includecompound interest).5/. A foreign law judgment rate is not “the rateapplicable to the debt apart from theadministration” unless a relevant foreignjudgment had already been obtained before thecommencement of the administration.6/. When establishing, under rule 2.88(9),“whichever is the greater” of the judgment rateand the rate applicable apart from theadministration, the administrators must comparethe total amounts of interest that would bepayable, rather than the numerical ratesthemselves. Where a proved debt comprises twoor more separate debts, with a contractual rateapplicable to some but not to others, thecomposite debt should be disaggregated into itsconstituent parts and the appropriate rate ofinterest paid on each part.7/. Statutory interest is payable on future debtsand on the amount admitted to proof in respectof contingent debts from the date of thecommencement of the administration. 8/. Calculation of currency conversion claimsshould not take into account the statutoryinterest paid to the relevant creditor.

The Waterfall II(B) DecisionThe Waterfall II(B) judgment concerns theconstruction and effect of certain postadministration contracts, specifically a ClaimResolution Agreement (the “CRA”) and ClaimsDetermination Deeds (“CDDs”). In particular,whether a creditor’s rights to statutory interest,currency conversion claims or other non-provable claims have been released by thoseagreements and, if so, whether theadministrators should be directed not to enforcesuch releases on the basis of the rule in ex parteJames, Re Condon [1874] LR 9 Ch App 60,alternatively paragraph 74 of Schedule B1 to theInsolvency Act 1986. In summary, the judge held:1/. As a matter of construction, neither the CRAnor any CDD has the effect of releasing in wholeor in part claims to statutory interest under rule2.88. All creditors, including signatories to theCRA or CDDs, are entitled to payment ofstatutory interest at the higher of the judgmentact rate and the rate applicable to the debt apartfrom the administration.

2/. As a matter of construction, neither the CRAnor any CDD has the effect of releasing currencyconversion claims.3/. As a matter of construction, the CRA does notgive rise to or create any currency conversionclaims.4/. If, as a matter of construction, the CRA or anyof the CDDs had the effect of releasing currencyconversion claims, the administrators wouldhave been directed, under the rule in ex parteJames, Re Condon [1874] LR 9 Ch App 60 andunder paragraph 74 of Schedule B1 to theInsolvency Act 1986, not to enforce such releases. South Square members involved in LBIE wereRobin Dicker QC, William Trower QC, Antony Zacaroli QC, David Allison QC, Tom Smith QC,Daniel Bayfield, Richard Fisher, Stephen Robins,Adam Al-Attar, Henry Phillips and Alexander Riddiford.

ROBIN DICKER QCANTONY ZACAROLI QC

DANIEL BAYFIELDHENRY PHILLIPS

12

SCHEMES

Schemes - conferringjurisdiction by changingthe governing law

In recent years the circumstances inwhich it has become established thatthe English Court will acceptjurisdiction to sanction a scheme ofarrangement in respect of a companyhave expanded enormously. From itsorigins as a procedure used essentiallyfor domestic (i.e. English incorporated)companies, schemes have successfullybeen promoted in an increasingly widerange of circumstances:

• Foreign companies withsubstantial assets in England1.

• Foreign companies where therelevant liabilities were governed byEnglish law and subject to Englishjurisdiction2.

• Foreign companies where therelevant liabilities were governed byEnglish law alone3, but which haveno other connections to thejurisdiction.

• Foreign companies where theliabilities are governed by foreignlaw but the centre of main interests(COMI) is in England (including

where the COMI has beendeliberately moved to England forthe purposes of establishing schemejurisdiction)4.

Much of this development is centredaround the increasing recognition thatat its heart a creditor scheme ofarrangement is a mechanism forcompromising or restructuringliabilities (usually contractual in basis),and therefore what matters for thepurposes of jurisdiction is not so muchthe characteristics of the debtorcompany (e.g. its place ofincorporation) but the characteristicsof the relevant liabilities themselves(e.g. governing law and jurisdiction).These considerations go hand in glovewith the fact that the internationaleffectiveness of schemes will usuallybe a critical consideration, and thatone of the principal ways a schememay achieve effect internationallystems from the fact that manyjurisdictions will recognise a variationor amendment of liabilities effected in

accordance with the law governingthose liabilities.

Changing the Governing LawBuilding on these principles, in therecent cases of Apcoa5 and DTEKFinance6 the companies soughtsuccessfully to found the jurisdictionof the Court to sanction the relevantscheme on the basis of a change of thelaw governing the liabilities from aforeign law to English law7. (In Apcoajurisdiction was sought to be foundedby reference to both the governinglaw and jurisdiction clauses in therelevant finance agreement, whereasin DTEK the company’s primary caseon jurisdiction was founded on thegoverning law provision alone.)

The facts of DTEK Finance areinstructive. That case concerned aNetherlands incorporated financevehicle which formed part of aUkrainian energy group and whichhad issued Notes governed by a NewYork law indenture. At first blush, the

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1/. The earliest example might be Re Heron International NV [1994] 1 BCLC 667.2/. Re Rodenstock GmbH [2012] BCC 459.3/. Re Vietnam Shipbuilding Industry Group [2014] 1 BCLC 400.4/. Re Magyar Telecom BV [2015] 1 BCLC 418.5/. Re Apcoa Parking UK Ltd [2014] BCC 538 and Re Apcoa Parking Holdings GmbH [2015] BCC 142.6/. [2015] EWHC 1164 (Ch).7/. This article does not address the further question, which may apply where one or more scheme creditors is domiciled in the EU, of whether theCourt has jurisdiction over such scheme creditors for the purposes of the Judgments Regulation. That raises the question, not yet resolved, ofwhether a scheme is a measure where the creditors are “sued” so as to fall within Article 4 of the recast Judgments Regulation.

The circumstances in which the English Court will find a “sufficient connection”for the purposes of the scheme jurisdiction have developed significantly, but theapproach is based on sound foundations, writes Tom Smith QC

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scope for an English law scheme ofarrangement to effectively restructurethe liabilities under the Notes might bethought to be limited. However, theterms of the note indenture permitteda change of governing law (by,arguably, a simple majority ofnoteholders). The company solicitedsuch a change of governing law fromNew York law to English law, and thescheme was promulgated andsanctioned by the Court on the basisthat the change of governing law wasalone sufficient found to jurisdiction.

The logic underlying this approachis sound. As Hildyard J concluded inApcoa, there is no reason in principlethat English law should have any lessstatus or effect as the governing law ofliabilities where it results from achange of governing law as comparedwith the situation where it was thegoverning law from the outset.Accordingly, once it is accepted thatEnglish governing law is sufficient to

found the jurisdiction of the Court tosanction a scheme in respect of thoseEnglish law liabilities, it does notmatter whether English law was theoriginal governing law or whether itbecame the governing law as theresult of a change. In either case, thefact that English law is the governinglaw has the same effect andconsequences. All that matters in acase where there has been a change ofgoverning law is that the change toEnglish governing law was effective.

The Effectiveness of the ChangeThe question of whether the change toEnglish law was effective may not,however, be straightforward on thefacts of individual cases. Logically, thequestion of whether the change toEnglish law was effective will begoverned by the previous governinglaw, on the footing that such law willgovern the effectiveness ofamendments and variations made to

the contract.In DTEK itself, this meant that the

question of whether the change ofgoverning law to English law waseffective was governed by New Yorklaw, being the original governing lawof the note indenture. For thepurposes of effecting the change, thecompany had relied on the provisionsof the indenture which allowedchanges to the indenture and the notesto be made by a simple majority ofnoteholders except in relation tocertain specified amendments where asuper majority of 90 per cent wasrequired. The specified amendmentsrequiring a 90 per cent majority didnot include either changes togoverning law or jurisdiction.

A dissenting creditor, Alden,however argued that the change ingoverning law fell foul of a differentprovision in the indenture (whichderived from and reflected languagecontained in the US Trustee

THE RELEVANT LIABILITIES IN THE DTEK CASE AROSE UNDER NOTES GOVERNED BY A NEW YORK LAW INDENTURE

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SCHEMES

Indenture Act 1939 itself8) to theeffect that the right of any noteholderto receive payment of principal orinterest or to bring proceedings forthe enforcement of such paymentshould not be “impaired or affected”without the consent of a 90 per centmajority of noteholders. Thecompany, supported by its experts onNew York law9, argued that thisprovision was not engaged:

As a matter of construction of theindenture, amendments to the

indenture and the notes were dealtby a specific provision, and thatspecific provision took precedenceover the general provision relied onby Alden;

• In any case, a change ofgoverning law did not “impair oraffect” the payment rights of thenoteholders or the ability to bringproceedings to enforce those rights;

• In any case, on a purposiveapproach, the purpose of theprovision in the indenture relied on

by the noteholders was to prohibitjudicial scrutiny of debt re-adjustment plans, whereas in thiscase the change of governing lawwas made to facilitate a schemewhich would be subject to judicialscrutiny by the English Court.

Alden’s expert10 took the contraryposition. The Court would thereforehave had to determine the point ofNew York law, on the basis of expertevidence, in order to determinewhether the change to English lawhad been effective. In the event, itwas spared this task, as immediatelyprior to the sanction hearing the 90per cent threshold of consents to theamendment was passed. The pointmay, however, fall to be determinedin any future scheme based on achange of governing law under aNew York law indenture where theamendment has attracted the supportof less than 90 per cent ofnoteholders.

Abusive Changes of LawIn the context of changing governinglaw, a question which may arise iswhether a change of governing law isto be regarded as somehow “abusive”and therefore ineffective. Suchquestions might be relevant but theyare, however, for the original lawwhich governed the relevantliabilities. It is a matter for that law asto whether the change of governinglaw was effective. In most cases, thiswill be a question of whether, as amatter of construction of the relevantagreement, the amendment to thegoverning law was effective (e.g. as towhether or not the requisite majoritywas obtained). It might also involveconsideration of whether there areother principles of law foundedoutside of the agreement whichrestrict or regulate the exercise of thepower to amend. But, provided that

TOM SMITH QC

! !

8/. Section 316(b) of the Trust Indenture Act 1939.9/. Judge James Peck and Richard Levin, then of Cravath, Swaine & Moore LLP.10/. Professor George Mann of Columbia University.

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the change of governing law waseffective in accordance with thegoverning law, then the Court shouldproceed on the basis that theliabilities are now governed byEnglish law, in the same way as theywould have been if English law hadbeen specified as the governing lawfrom the outset.

A “Step too Far”?On this analysis, provided that achange to English law is effective inaccordance with the originalgoverning law, then thecircumstances in which a Courtwould not sanction a scheme foundedon such change should be limited.Once a change to English law iseffective in accordance with theoriginal governing law then, underusual principles, the Court will havejurisdiction to sanction a scheme inrespect of those liabilities. Thequestion is whether there might beany grounds on which it woulddecline to do so as a matter ofdiscretion.

One example might be where it wasnot made clear to creditors who wereasked to consent to the amendment tothe governing law provision that theamendment was being sought for thepurposes of then pursuing a scheme.There would seem to be a strongargument that this would amount tounfair treatment and arguably makeit inappropriate for the court tosanction the scheme.

Apart from that, both Hildyard J inApcoa and Rose J in DTEK applied afurther test under the rubric “a steptoo far”: “it seems to me that the onusplaced on the court in exercising itsjurisdiction to make an order whichwill be given recognition elsewheremay well require it to be especiallywary if, for example, the new choice isof a law which appears entirely aliento the parties’ previous arrangementsand/or with which the parties had no

previous connection; or if the changein law has no discernible rationale orpurpose other than to advantage thosein favour at the expense of thedissentients; or even more generally,where in its discretion the courtconsiders that, in the places in whichthe parties are, the extent of thealteration of rights between theparties for which sanction is soughtwould be considered a “step too far”.”11

It appears that the relevance ofthese considerations is at thediscretion stage of analysis, i.e.whether the court should exercise itsdiscretion to sanction the scheme,rather than at the jurisdiction stage.But, in circumstances where thegoverning law has been effectivelychanged to English law, it must bequestionable whether any of theconsiderations identified by HildyardJ would in fact ever be likely to besufficient to cause the court not tosanction the scheme as a matter ofdiscretion. In particular:

• Once the governing law has beenchanged to English law, then thereis a compelling argument that anEnglish law scheme is appropriate –and perhaps even essential – toeffect a restructuring of theliabilities.

• If the change of the governinglaw is effective as a matter of theoriginal governing law, then it isnot clear why the English courtshould itself then apply any furthertests directed at the questions ofwhether English law is alien or asto the purpose of the change ofgoverning law or at similarquestions.

• But, in any case, in most cases itis difficult see why English lawwould be alien (if a foreign lawgoverned finance agreementincludes provision to change thegoverning law, then it must bereasonable to assume that theparties would have contemplatedthat one of the likeliest candidatesfor the governing law to be changedto would be English law). Similarly,it is obviously no bar to the Courtsanctioning a scheme based on achange of governing law that thechange was made for the purpose offacilitating the scheme (and therebyallowing the majority to imposetheir will on the minority). This wasthe position in both Apcoa andDTEK.

ConclusionIn conclusion, schemes where thejurisdiction of the English court isfounded on a change of the lawgoverning the relevant liabilities froma foreign law to English law have asound foundation in principle. Inprinciple, the sole requirement shouldbe that the change to English law iseffective in accordance with theoriginal governing law. That questionitself may, however, raisecomplications, and it seems likely tobe only a matter of time before theEnglish court has to determine foreignlaw questions – presumably on thebasis of cross-examination of experts –as to the effectiveness of a change ofgoverning law to English law.Tom Smith QC and Charlotte Cookeappeared for the scheme company in

‘schemes where jurisdiction is founded on achange of the law governing the liabilities toEnglish law have a sound foundation in principle’

! !

11/. Re Apcoa at para. 251.

16

Case Digests

Two of the cases in the Corporate Insolvencysection of this issue’s Digest touch on the worldof special administration orders (that is, ordersmade in respect of “investment banks”,defined in section 232 of the Banking Act 2009,under the Investment Bank SpecialAdministration (England and Wales)Regulations 2011). One objective of the specialadministration regime is “to ensure the returnof client assets as soon as reasonablypracticable”. In practice (“practice” for thesepurposes typically encompassing the complexaffairs of an investment bank whose records

LLOYD TAMLYN

are in some disarray and a proportion of whoseclients, for whatever reason, show little interestin responding to special administratorcorrespondence), before the administrators canreturn client assets they need to ascertain clientclaims against those assets: or in any eventensure that clients who have not establishedclaims against the assets at the point ofdistribution are unable (successfully) to crawlfrom the woodwork and seek to upset thedistribution, or to sue the special administratorsfor inaccurately distributing the trust assets.

Eliminating these risks means the impositionof a bar date on client claims: but whilst theRegulations give the special administratorspower to impose a bar date, there is no powerin respect of client assets subject to the FCAclient money rules (the majority of specialadministration cases). These matters arediscussed in Worldspreads Limited, in which anFCA modification of its client money rules didnot avoid the need for a second courtapplication authorising a distribution process.In Hartmann Capital, the Court confirmed thatthe “carve out” of insolvency proceedings fromthe Government’s reforms of CFA agreementsdid not extend to the special administrationregime.

In the field of personal insolvency, Mrs JusticeProudman has confirmed in Oraki v Bramstonthat a trustee in bankruptcy owes no commonlaw duty of care to a bankrupt, albeit that one ofthe ingredients of justice found in theoverriding objective (common humanity)dictated that a trustee should not rideroughshod over someone who should not havebeen made bankrupt in the first place, or whomit can be seen has assets greater than liabilities.In Maud v Aabar Block SARL, where a creditor’srights depended on the precise date of issue ofan insolvency application, the stamp used bycourt staff at the counter of the Rolls Buildingcame in for significant criticism.

Lloyd Tamlyn

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Digested by TOBY BROWN

Tesco Stores Ltd v MasterCard Inc [2015] EWHC 1145 (Ch) (Asplin J,24 April 2015)Interchange fees - competition law – summary judgment - ex turpi causa

The Tesco claimants brought a claimfor damages against the MasterCarddefendants for breach of European anddomestic competition law in relation toMasterCard’s imposition of multilateralinterchange fees (MIFs) in the course ofoperating its credit card system. Theyclaimed that the MIFs were the resultof an anti-competitive agreement ordecision of an association ofundertakings such that Tesco wasovercharged when the MIFs werepassed onto it.MasterCard argued that Tesco Bank,which was not one of the Tescoclaimants, carries on its MasterCardbusiness on the basis of the same MIFs,and that the claimants and Tesco Bankpromoted the use of Tesco BankMasterCards and half of the sums

claimed relate to MIFs which were infact paid to Tesco Bank. As such,MasterCard argued the claims werebarred by the maxim ex turpi causaand therefore they were entitled tosummary judgment or that the claimshould be struck out. The applicationraised at least 4 issues for the Court –(i) whether the Tesco claimants andTesco Bank were part of a singleeconomic entity (ii) whether TescoBank was a party to the infringementof competition law (iii) whether themaxim of ex turpi causa applied and(iv) whether Tesco bears a significantresponsibility for the infringement.Although in her judgment Asplin Jaddressed each of these issues, herbroad conclusion was that the matterwas not suitable to be dealt with by

way of strike out or summaryjudgment. It was not appropriate todecide difficult questions of law at aninterlocutory stage where the factsmay determine how those legal issuespresent themselves and the legal issuesrequired not only detailed argumentbut mature consideration. This wasespecially the case in a developing areaof law such as the present. There waslikely to be further evidence whichwould put the documents in a differentlight including evidence as to TescoBank’s relationship with MasterCardand its responsibility for the allegedinfringement which would beavailable to the trial judge afterdisclosure has taken place.Accordingly, the Court dismissedMasterCard’s application.

BANKING AND FINANCE

TOBY BROWN

Bank Mellat v HM Treasury [2015] EWHC 1258 (Comm) (Flaux J, 6May 2015)

Counter-terrorism banking restrictions – human rights – reflective loss

In 2009, the Treasury made theFinancial Restrictions (Iran) Order2009 under the Counter-TerrorismAct 2008, which had the effect ofshutting Bank Mellatt out of the UKfinancial sector. Following a hearingbefore a nine-judge Supreme Court,the majority held that the 2009 Orderwas unlawful and the Treasury failedto comply with the proceduralrequirements. Before the CommercialCourt was a claim by the Bank fordamages from the Treasury inparticular for future loss of profit,estimated at some $4 billion. Flaux Jhad to decide three preliminaryissues. Firstly, the Treasury arguedthat it was open to it to contend that itdid not act in a way incompatiblewith a Convention right contrary to s.

6(1) of the Human Rights Act 1998,this being the Bank’s cause of actionfor damages. This was rejected byFlaux J on the basis that it could notbe clearer that Lord Sumptionconsidered the 2009 Order unlawfulbecause it was incompatible withConvention rights. Secondly, theTreasury argued that it could contendthat the loss caused to the Bank by adiminution in the earnings beforetaxation generated by a subsidiarywas irrecoverable (i.e. the ruleagainst reflective loss). Flaux Jdecided that the Bank was the onlydirect victim of the unlawful 2009Order and therefore the subsidiarycould not have brought a claimagainst the Treasury under theHuman Rights Act. The case law of

the European Court of Human Rightsrecognised a general restrictionequivalent to the rule againstreflective loss, unless there wereexceptional circumstances such asthat the company could not bring aclaim against the wrongdoer. Flaux Jheld that for the purposes of theStrasbourg jurisprudence there wereexceptional circumstances becausethe subsidiary could not claim againstthe Treasury, and therefore the Bankwas free to pursue its claim fordiminution of the value of itsshareholding in the subsidiary.Thirdly was a question of whetherthere was scope for limiting thedamages recoverable by reference towhat amounted to “possessions”within the meaning of Article 1 of the

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CASE DIGESTS

first protocol to the Convention. TheJudge considered that the Strasbourgcase law showed that once unlawfulinterference with possessions wasestablished, damages wererecoverable for whatever loss and

damage was suffered as aconsequence including future loss ofearnings whether or not that loss wasitself a “possession”. However, heconsidered that the recoverabledamages would depend not on an

artificial restriction that loss of futureprofits could not be a “possession”,but rather on issues of causationwhich were not suitable fordetermination at the preliminaryissue stage.

BNY Mellon Corporate Trustee Services Limited v LBG Capital No. 1 plc[2015] EWHC 1560 (Ch) (Sir Terence Etherton C, 3 June 2015)

Enhanced capital notes – redemption – interpretation

During the financial crisis, LloydsBanking Group needed to improve itscapital position. Through itssubsidiaries it therefore issued £8.3billion in bonds known as enhancedcapital notes (ECNs), a new form ofcontingent CT1 capital.£3.3m of ECNs remained outstandingon which nearly £1 million in interestwas payable each day. BNY Mellon,Trustee of the ECNs, sought adeclaration that the Issuers could notredeem the ECNs in advance of thecontractual maturity dates. TheIssuers, however, argued that theECNs could be redeemed prior totheir maturity dates because a capitaldisqualification event (CDE) hadoccurred. The trust deeds providedthat a CDE would be deemed to occur“if as a result of any changes to theRegulatory Capital Requirements orany change in the interpretation orapplication thereof by the FSA, theECNs shall cease to be taken intoaccount in whole or in part (savewhere this is only as a result of anyapplicable limitation on the amountthat may be so taken into account) forthe purposes of any “stress test”applied by the FSA in respect of theConsolidated Core Tier 1 Ratio.” TheIssuers’ position was that due to thechanges in regulatory capitalrequirements in 2013 resulting inLloyds having to increase its capital,

the ECNs were “not taken intoaccount” in the stress test carried outby the PRA in December 2014, andtherefore a CDE had occurred. It wascommon ground they were not takeninto account because Lloyds passedthe stress test in view of the strengthof its capital position without anyneed to take into account the ECNs.The Chancellor rejected the Issuers’argument. The definition of a CDEwas not looking at the particularstrength of Lloyd’s capital and theparticular composition of its capitalat any one moment of time in thecontext of a particular stress test thenimposed by the regulator. Rather, theexpression “shall cease to be takeninto account” connoted adisallowance in principle of the ECNson stress testing with continuingeffect in the foreseeable future. TheIssuers’ alternative argument wasthat a CDE occurred whenever, as aresult of changes in the regulatorycapital requirements, the ECNs didnot perform the purpose of providingregulatory capital so as to enableLloyds to stay above the pass mark ina stress test. The Issuers contendedsuch a situation had occurredbecause the effect of changes to theregulatory regime meant it wasinevitable that the stress test wouldalways be failed by Lloyds before theconversion trigger for ECNs could

occur in the hypothetical stressscenario.In rejecting these arguments, theChancellor accepted the Trustee’sobservations that a stress test doesnot stop at the point at which it canbe seen that the stress test is eitherpassed or failed. The stress testreveals not only whether a bank isable to meet internationally agreedminimum standards but, if it fails todo so, the extent of the shortfall andthe most appropriate remedialmeasures that the regulator ought torequire to be taken. The Court heldthat the definition of a CDE wasdirected towards the possibility of aregulatory change which wouldpreclude the ECNs any longerfulfilling their role as specified in theoffering memorandum. Adapting theoffering wording, the ECNs had notceased to count as core tier 1 for thepurposes of the regulator’s stresstests when the stress projectionshows below 5% core tier 1. TheChancellor accordingly declared thata CDE had not occurred. TheChancellor granted permission toappeal, not because he considered anappeal to have a real prospect ofsuccess, but because the matter wasone of public importance. The Courtof Appeal has expedited the appeal,which will be heard in late August.[Jeremy Goldring QC; Stephen Robins]

JEREMYGOLDRING QC

STEPHEN ROBINS

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CIVIL PROCEDURE Digested by ALEXANDER RIDDIFORD

Petter v EMC Europe Ltd [2015] EWCA Civ 480 (Court of Appeal, 16April 2015)Case management orders – damages – expedited hearings

The Court of Appeal held that theCourt below had been entitled toorder an expedited trial of the issueas to whether a restrictive covenantprovided by a contract ofemployment was enforceable. Thiswas because: (a) the former employeein question needed to know withcertainty and promptly whether hecould lawfully continue in his newjob; and (b) expedition would notprejudice the employer. The Courtnoted that a case managementdecision made by a Judge at firstinstance should be interfered with

only in limited circumstances. TheJudge would have had to have notmerely preferred one imperfectsolution over another imperfectsolution, but to have applied anincorrect principle in reaching hisdetermination of the point. Theprinciple in this case was not indoubt. The discretion to expedite atrial had to be exercised while takinginto account: (a) the overridingobjective; (b) the available resources;and (c) the other Court users. Thecategories of cases that could beexpedited were not closed and the

reasons for expedition could be manyand varied, but the four factors to beconsidered had been set out in WLGore & Associates GMBH v Geox Spa[2008] EWCA Civ 622, namely: (a)good reason; (b) the level ofinterference with the administrationof justice; (c) the prejudice to theother side; and (d) other specialfactors. In this case there was realurgency and pressing reasons for anexpedited trial of the relevant issueand the Judge was entitled to decidethat an expedited trial should bedirected.

ALEXANDERRIDDIFORD

Hearst Holdings Inc v AVELA Inc [2015] EWCA Civ 470 (Court of

Appeal, 23 April 2015)Security for costs – stifling of appeals

The Court of Appeal held that it wasjust to make an order for security forcosts against a US-based company (A)appealing against findings of trademark offences. It had asserted that itwas insolvent but this assertion wasbelied by the fact that A continued totrade and to litigate in the US; furtherA had not attempted to show that thesecurity for costs order would stifle

its appeal. The key question for theCourt was whether the demand for Ato pay security for costs would stifleA’s appeal. A argued that it wasunable to pay R’s costs if orderedsuch that one or more of theconditions under CPR r.25.13(2)applied and it was unjust for asecurity for costs order to be made.However R argued that (for the

reasons stated above) A’s assertion ofimpecuniosity rang hollow. The Courtof Appeal accepted R’s argument andconsidered that A’s ability to continuelitigating implied that there wereindividuals behind it who weresupporting it financially and therewas no evidence that they could orwould not assist in financing theappeal.

Actavis UK Ltd v Eli Lilly & Co [2015] EWCA Civ 666, (Court of

Appeal, 30 June 2015)Costs – issue-based costs orders

It fell to the Court of Appeal todetermine the question of costs afterits granting of an appeal in relation toa European patent for the use of aparticular cancer treatment. It washeld that X had indirectly infringedthe designations of a patent held by L.

The issue was then (a) what ordershould be made in relation to thecosts of the trial and the appeal and(b) what should happen to an interimpayment of some £1.8m that L hadpaid on account of the costs of thetrial in the Court below. Although L

had not won in every respect it wasclear that L was the overall winner,on the basis that X had sought butfailed to obtain declaration forclearance of its products. The startingpoint was therefore that L shouldrecover its costs. However L had lost

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on certain discrete issues, both onappeal and in the Court below(including the declarations of non-infringement issues). Accordingly itwas held that L should pay X’s costs ofthose issues on which L had lost,

rather than simply having its owncosts award reducedcommensurately. It was relevant inthis regard that the parties differedwidely on the percentage of theircosts expended on the relevant issues.

Further, the interim payment orderwas varied downwards, on the basisthat interim payments should becautious particularly where (as in thepresent case) there was uncertainty asto the final outcome on costs.

Alpha Rocks Solicitors v Alade [2015] EWCA Civ 685 (Court ofAppeal, 9 July 2015)Abuse of process – striking out

The Court of Appeal held that the Judgebelow had wrongly struck out claimsfor payment of solicitors’ fees on thebasis that the solicitors had been guiltyof abuse of process by relying onexaggerated claims and fabricateddocuments. In particular, the Judgehad conducted an inappropriate mini-trial without hearing oral evidence,such that he could not properly havebeen satisfied that there was suchserious misconduct on the part of the

solicitor claimants that it was anaffront to the Court to permit theclaims to continue (Masood v Zahoor[2009] EWCA Civ 650, [2010] 1 W.L.R.746 and Summers v Fairclough HomesLtd [2012] UKSC 26, [2012] 1 W.L.R.2004 applied). In the early stages of aclaim, the court should exercisecaution in striking out the whole claimon the grounds that part had beenimproperly or fraudulently exaggerated.This was because of the draconian

effect of doing so and the risk that, at atrial, events may appear less clear cutthan they do at an interlocutory stage.The emphasis should be on theavailability of a fair trial. There was ananalogy with the approach to relieffrom sanctions because of theemphasis on the need for litigation tobe conducted efficiently and atproportionate cost (Denton v TH WhiteLtd [2014] EWCA Civ 906, [2014] 1W.L.R. 3926 considered).

COMMERCIAL CASES Digested by CHARLOTTE COOKE

CHARLOTTE COOKE

BV Scheepswerf Damen Gorinchem v Marine Institute, The Celtic Explorer [2015]EWHC 1810 (Comm) (Flaux J, 24 June 2015)Arbitration – shipping

A shipbuilder applied to set aside anarbitration award made in favour of abuyer under a shipbuilding agreement.The award had not been publisheduntil a year after the arbitrationhearing had concluded, though neitherthe shipbuilder nor the buyer hadpursued the matter in the meantime orcomplained about the delay. Althougha delay in publishing an arbitral award

was not in itself a ground of seriousirregularity under section 68(2) of theArbitration Act 1996, a delay of a yearwas capable of founding anapplication to have the award setaside. The party challenging the awarddid, however, still need to show thatthe irregularity had caused substantialinjustice in that but for the delay, thearbitrator might have reached a

decision in its favour. In the context ofa lengthy delay, the Court might bemore likely to check closely that thearbitrator had dealt with all the issuesput before the arbitral tribunal.However, in this case the arbitratorhad dealt with all the issues and thatCourt was not satisfied that, but for thedelay, the Court would have reached adecision in the shipbuilder’s favour.

Hellenic Petrolium Cyprus v Premier Maritime Ltd [2015] EWHC 1894(Comm) (Flaux J, 1 July 2015)Arbitration – shipping

A charterer had taken a vessel butdenied that the arrangementconstituted a time charter on the basisthat it was of no defined duration. Theowner maintained that the partieshad agreed a two and a half year time

charter, which included a Londonarbitration clause, and commencedarbitration proceedings for breach ofthe time charter. An award was madein favour of the owner. The charter made an application to

set aside the arbitration award. Thearbitration award was set aside. Thecharterer had not expressly or byconduct accepted the proposed timecharter which included thearbitration clause.

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Maccaferri Ltd v Zurich Insurance Plc [2015] EWHC 1708 (Comm)(Knowles J, 19 June 2015)Insurance – notification

In September 2011 a man sustainedan eye injury at work when using aSpenax gun to attach wire cagingtogether. He sued his employer andhis employer then sought to claimagainst its insurer. The employer’sinsurance policy provided that “TheInsured shall give notice in writing tothe Insurer as soon as possible afterthe occurrence of any event likely togive rise to a claim.” The employer

was told of the claim in July 2013 andnotified the insurer shortlythereafter. The insurer declined toprovide an indemnity on the basisthat the insured had not given noticeas soon as possible after the accident,as required by the aforementionedclause. It was held that the requirement thatthe insured notify the insurer as soonas possible after the occurrence of

any event likely to give rise to a claimreferred to an event with at least a50% chance that a claim against theinsured would eventuate. On theevidence, when the accident occurred,there had not been at least a 50 percent chance that a claim against theinsured would eventuate. Thedeclaration sought by the employer,that the insurer was obliged toindemnify it, was therefore granted.

Barclays Bank Plc v McMillan [2015] EWHC 1596 (Comm) (Popplewell J,9 June 2015)Contract – loan – repayment

In October 2007, the Defendantbecame a partner in a US law firm.In June 2010, the Defendant signedan agreement with the Claimantbank for a partner capitalsubscription loan, in the sum ofUS$540,000. The sum wassubsequently paid by the bank to thefirm. In May 2012, the firm filed forbankruptcy. The bank issuedproceedings against the Defendantseeking repayment of the loan (plusinterest) on the ground that theagreement provided that theDefendant was personally liable torepay the loan and its recourseagainst the firm was merelycollateral to that obligation.The Defendant’s position was that hewas not personally obliged to repaythe loan, alternatively his obligation

was as guarantor and the firm’sliability had been discharged byforbearance or agreement and/ordue to non-disclosure. TheDefendant also averred that the loanagreement was unenforceable as asham, that he had never receivedthe loan proceeds, that the bank hadimpliedly represented that at thetime the loan agreement wasentered into, there was no un-remedied event of default, which hesaid was untrue, and that the loanagreement had given rise to anunfair debtor-creditor relationshipand should not be enforcedpursuant to section 140B of theConsumer Credit Act 1974. He alsoaverred that he had a counterclaimon the basis that the bank hadbreached its duty of care to advise

him. The Court held that Defendantwas personally liable to repay theloan and that it was not a sham; theagreement was understood andintended to be for the provision of aloan. The Defendant’s argument thathe had not received the money alsofailed as the agreement providedthat the loan was to be drawn downby payment to the firm and that waswhat happened. As to the allegedmisrepresentation, it was held thatthere had been no impliedrepresentation and in any event,there had been no un-remediedevent of default. Further, the Courtdid not consider that therelationship was unfair or that thebank had owed a duty to advise theDefendant, so his counterclaim alsofailed.

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Sanko Holdings Co Ltd v Glencore Ltd [2015] EWHC 1031 (Ch) (Judge Simon Barker QC, 16 April 2015)

Japan – sale proceeds of vessel – Cross-Border Insolvency Regulations 2006 – company’s undertaking

COMPANY LAW Digested by GEORGINA PETERS

The dispute between the partiesoriginated in the late delivery of acargo of silicon manganese to NewOrleans in 2012. The cargo was beingtransported on the MV Sanko Mineral,a ship owned by The Sanko SteamshipCo, Ltd (“Sanko”), a Japanese company.Glencore originally pursued a claim inrelation to this late delivery in the UScourts, but shortly thereafter Sankoentered insolvency proceedings inJapan. Glencore therefore filed bothsecured and unsecured claims in theJapanese insolvency; these claims arecurrently the subject of proceedingsbefore the Tokyo District Court. TheJapanese insolvency proceedings wererecognized under the Cross-BorderInsolvency Regulations 2006 (“theCBIR”) by an order of Mr Justice Neweydated 30 July 2012.Following a claim by the Bank ofTokyo-Mitsubishi UFJ Limited (“theBank”), which held a mortgage overthe MV Sanko Mineral (“the Vessel”),the Vessel was arrested in England andsold pursuant to an order of theAdmiralty Court. As a result of itssecured claim, Glencore entered acaution against the release of the saleproceeds and applied for permissionfrom the Companies Court tocommence an in rem claim against theVessel. Glencore took these steps topreserve the subject matter of itssecured claim in the Japaneseinsolvency proceedings, pending thedetermination of that claim by theTokyo District Court. Before theapplication to the Companies Courtcould be heard, Sanko applied to theAdmiralty Court for Glencore’s cautionto be struck out and for payment out ofthe remaining sale proceeds (the bulk

of the sum claimed by the Bank hadalready been paid out by consent).Mr Justice Teare heard this applicationand struck out Glencore’s caution onthe ground that its cargo claim wascontractually time-barred as a matterof English law; Glencore has beengranted permission by the Court ofAppeal to appeal against this finding.Mr Justice Teare declined to give aview on whether the contractual timebar affected Glencore’s claims in theJapanese insolvency. Despite strikingout Glencore’s caution, Mr JusticeTeare was unwilling to order paymentout in circumstances where Glencorewas pursuing a claim in the Japaneseinsolvency proceedings, which hadthemselves been recognized inEngland as foreign main proceedingsunder the CBIR, and where foreignrepresentative of Sanko (“the Trustee”)had applied for remission of theremaining sale proceeds to Japanunder the CBIR. He therefore held thatpayment out would be subject toSanko providing an undertaking thatthe funds would be held in asegregated US dollar account to theorder of the Tokyo District Court or thefurther order of the Admiralty Courtpending any subsequent decision ofthe Companies Court on the Trustee’sremission application. Sanko has beengranted permission to appeal againstthis part of Mr Justice Teare’sjudgment. Before the remissionapplication came on, the Japaneseinsolvency proceedings wereterminated. This led the Trustee, toapply under Article 17(4) to Schedule 1of the CBIR for continued recognitionas a foreign representative under theCBIR in order that he could fulfil his

residual obligations. Glencore opposedthis application, as there was no longera foreign proceeding to recognize.Glencore maintained a consequence ofdismissing the recognition applicationwas that the Companies Court did nothave jurisdiction to order remissionunder Article 21(2) of the CBIR, asthere would no longer be a foreignrepresentative.The issues before the Companies Courttherefore ultimately concerned thetreatment of the remaining saleproceeds of the Vessel pending thedetermination of Glencore’s claims inthe Japanese insolvency.HHJ Simon Barker QC acceptedGlencore’s submissions that under theCBIR it is only foreign proceedings thatare recognized, not foreignrepresentatives, whose status underthe CBIR is entirely dependent uponthe recognition of the foreignproceeding in which they areauthorized to act. He therefore heldthat while Article 17(4) of Schedule 1 tothe CBIR could support theconstruction argued for by Sanko,namely that recognition could bemodified, even after termination of theunderlying foreign proceedings, thiswas at odds with commercial commonsense. Article 17(4) should therefore beconstrued such that if the foreignproceedings have ceased to exist,recognition should be terminated.The Court also held that to hold thefunds in England indefinitely couldencourage delay. It therefore orderedthat the funds in court should be paidout to the trustee unless Glencore wereto provide: (i) a cross-undertaking indamages for any loss caused to Sankoby the retention of funds in court; (ii)

TOM SMITH QC GEORGINA PETERS

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Thomas v Dawson & Anor [2015] EWCA Civ 706 (Arden LJ, Ryder LJ, Briggs LJ, 9 July 2015)

Share purchases – share valuation – unfairly prejudicial conduct – Companies Act 2006, section 996

respondent each owned a single sharein the company and were the onlydirectors. The joint management of thecompany broke down after eachdirector embarked on a series ofunauthorized withdrawals from thecompany’s bank account, resulting incourt judgments against each directorfor recovery of those sums. An interimorder was also made finding unfairprejudice under the Companies Act2006, section 996, on the basis of therespondent’s failure to allow the

proper financial management of thecompany and to consent to theappellant receiving properremuneration for his continuingmanagerial role. The order providedfor the respondent’s share to bepurchased by the appellant for a priceto be valued.Valuation evidence subsequentlyproduced failed to value the companyor the share in question, causing theJudge to order that the appellantshould be given the option of

Inderjit Singh Bhullar v (1) Jatinderjit Singh Bhullar (2) Bhullar Developments Ltd (3) Bhullar Bros Ltd [2015] EWHC 1943 (Ch) (Morgan J, 7 July 2015)Breach of fiduciary duty – derivative claims – minority shareholders – permission – prospective

The Court granted permission to aminority shareholder to continue adouble derivative claim assertingcauses of action on behalf of twocompanies, against the first defendantcompany director, alleging dishonestpayments and a property transfer by adirector. The minority shareholderclaimed that the two companies hadmade payments to another companywholly owned by the defendantdirector, and that one of the twocompanies had transferred a propertyto the defendant director at anundervalue. It was alleged that suchpayments and property transfer hadbeen conducted without boardapproval, and in breach of fiduciaryduty. The Court held, first, applying thedecisions in Foss v Harbottle 67 E.R.189 and Konamaneni v Rolls RoyceIndustrial Power (India) Ltd [2002] 1

WLR 1269, that the minorityshareholder had made out a primafacie case of dishonest breach of dutyin relation to the payments and theproperty transfer. Second, that to fallwithin the exception in Foss vHarbottle the claimant was required todemonstrate actual fraud on theminority, or that there was a benefit orprofit to the wrongdoer. In relation tothe payments, both a prima facie caseof dishonesty and a clear benefit todefendant director’s company hadbeen established. As to the propertytransfer, there was a prima facie caseof wrongdoer control by the firstdefendant, and an independent boardof directors could have reasonablyconcluded, having regard to the sizeand strength of the claim, that it wasappropriate to sue the director, andshould not have declined to do so

because of the management timeinvolved or the disruption caused bylitigation against a director.The Court declined, however, to makea pre-emptive costs order for anindemnity out of the company’s assets(cf. Wallersteiner v Moir (No. 2) [1975]QB 373), as it would give the minorityshareholder a considerable advantage.The Court considered thatconsiderable care should be exercisedwhen deciding whether to make suchan order, and should have a highdegree of assurance that such anindemnity would be the proper orderto make following a trial. One factorinfluencing the Court was that thederivative proceedings before it were astepping stone towards a negotiationfor a formal management split orunfair prejudice petition, such that bothparties should be at risk as to costs.

an undertaking to progress itsinsolvency claims before the TokyoDistrict Court with all due expedition;and (iii) an undertaking to issue anapplication in Japan within a specifiedtime for an order that the funds be

preserved pending the finaldetermination of Glencore’s insolvencyclaims. If Glencore were to providethese undertakings, then the fundswould be held in a joint solicitors’account pending a decision of the

Tokyo District Court on theirpreservation. This would provide“adequate protection” to Glencore asrequired by Article 21(2) to Schedule 1of the CBIR.[Tom Smith QC, Andrew Shaw]

The Court of Appeal held that a courthad discretion to grant an option topurchase a shareholding to a party fora significant sum, as relief on an unfairprejudice petition under theCompanies Act 2006, section 996,despite valuation evidence showingthat the company was balance sheetinsolvent.The case concerned a residential carehome business, which was a quasi-partnership co-owned by the parties tothe proceedings. The appellant and

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Re Van Gansewinkel Groep BV [2015] EWHC 2151 (Ch) (Snowden J,22 July 2015)Schemes of arrangement – foreign insolvent company – practice – jurisdiction

The Court considered an applicationto sanction six linked schemes ofarrangement in respect of companiesin the VGG group – five companieswere registered in the Netherlandswith their COMI in the Netherlandsand one company was registered inBelgium with its COMI in Belgium.The Court sanctioned the schemes.There are five points that should behighlighted in relation to thereasoning of the Judge.First, the Judge stated that the Court,at the sanction hearing, should givedetailed consideration to the questionof international jurisdiction in cross-border schemes of arrangement, savein circumstances where the issue ofjurisdiction had been fully addressedin the Practice Statement Letter andwhere the Judge at the conveninghearing had given a reasoneddecision on the issue. Second, the Judge stated that, on the

assumption that the recast JudgmentsRegulation applied to schemes ofarrangement, a clause pursuant towhich only the scheme companiessubmitted to the jurisdiction of theEnglish courts would not fall withinArticle 25 so as to engage thejurisdiction of the Court. Moreover, and in contrast to otherdecisions, the Judge questionedwhether scheme proceedingsconstituted a “dispute” within themeaning of a jurisdiction clause.Third, the Judge found that therewould be jurisdiction under therecast Judgments Regulation incircumstances where one or morescheme creditors were domiciled inEngland, thereby engaging Article 8.The Judge relied on this provision tosatisfy himself that the Court wouldhave jurisdiction under the recastJudgments Regulation.Fourth, the Judge stated that where a

scheme is proposed as an alternativeto formal insolvency proceedings, theexplanatory statement and theevidence should provide a detailedtreatment of the possible alternativesto the scheme and the predictedoutcomes for the scheme creditors. Itshould be noted that the evidenceplaced before the Court was moredetailed than in many schemes as itprovided an estimated outcome forcreditors in formal insolvencyproceedings. Fifth, the Judge wasuncertain in relation to theeffectiveness of a standard formrelease provision in a scheme whichwas intended to operate to release athird party guarantor. The Judge’sview was that this should be achievedby way of a separate deed of release.The scheme contained a power ofamendment which was relied upon toachieve this situation. [David Allison QC]

purchasing the respondent’s share for£55,000 (comprising the judgment sumowed by the respondent, and a figurerepresenting the capitalization of aspecified term of income also taken bythe respondent from the company).Provision was also made for theappellant’s payment to be madeinitially to the company and applied indischarge of the respondent’sjudgment debt to it, the balance beingpaid to the respondent.The Court of Appeal upheld the Judge’sdecision. In particular, the Judge hadbeen correct to attribute a significantpositive value to the respondent’sshare in the company, and was entitled

to take into account the value which itsacquisition represented to theappellant in obtaining control, so as tobe able to enforce the derivativejudgment, whilst securing the non-enforcement of the larger derivativejudgment against himself. The Courtconsidered that it was entitled to inferfrom the appellant’s vigorous pursuitof the appeal that he wished to obtainownership and control of the companyas something of real value to him. TheJudge’s solution to the difficultproblem of remedy was well withinthe scope of the statutory discretionafforded to him under section 996.There was no issue with attributing a

capitalized sum for the respondent’sformer income stream as part of theprice, since that income was derivedfrom her shareholding, and wouldpass to the appellant upon the transferof her share. The reasoning forregarding the respondent’s judgmentdebt as an item of value appeared to bethat access to that debt was directlyattributable to the appellant’sacquisition of the respondent’s share.The Judge’s solution could secure aclean break should the appellantchoose to avail himself of it, such thathe could not complain that conferringa mere option to purchase was unfairto him.

DAVID ALLISON QC

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CORPORATE INSOLVENCYRe Hartmann Capital Ltd (in special administration) [2015] EWHC1514 (Ch) (Newey J, 13 May 2015)

Special administration

The joint administrators of HartmannCapital Limited, a firm in specialadministration under the InvestmentBank Special AdministrationRegulations 2011, sought adeclaration which would establish insubstance that they were entitled totake advantage of the funding regimewhich applied in relation toinsolvency proceedings generally.The issue arose because the literalwording of the gateway to thefunding exception under article 4 of

the Legal Aid, Sentencing andPunishment of Offenders Order 2013was not adequate to except specialadministration. It referred to“proceedings brought by a companywhich has entered administrationunder Part II of the [Insolvency Act1986]”.The administrators had asked thecourt to adopt a purposive approach.The judge accepted that there couldbe no sensible reason for excludingthe administrators of an investment

Digested by ADAM AL-ATTAR

bank, or administrators appointedpursuant to one of the other specificregimes, from the general exemptionfor which art 4 of the 2013 orderprovided regarding insolvencyproceedings. He however held that itwas not open to the court to achievethe result sought by theadministrators as a matter ofconstruction of the relevantregulations. The decision is thesubject of an appeal.[Adam Al-Attar]

ADAM AL-ATTAR

Astra Resources plc v Credit Veritas USA LLC [2015] EWHC 1830(Ch) (David Richards J, 23 June 2015)

Winding-up petition – abuse of process – collateral purpose

The judge declined to enjoin thepresentation of a winding-up petitionfor abuse of process, on the allegeground of a collateral purpose,because he held that the object ofseeking to obtain control of the

company by presentation of awinding-up petition as a precursor toa scheme of arrangement or other“reorganisation plan” by whichcontrol might be obtained, was notan improper purpose. Any such

outcome achieved through theprocess of liquidation would only beachieved if properly proposed by aliquidator, approved by creditorsand, as required, sanctioned by thecourt.

Re Worldspreads Ltd (In Special Administration) [2015] EWHC 1719 (Ch)(Birss J, 19 June 2015)Special administration

In the special administration ofWorldspreads Limited, which hadoperated an online spread-bettingtrading platform, the judge followedthe earlier decision of David Richards Jin In re MF Global Limited (in specialadministration) [2013] 2 BCLC 426,which had fashioned a procedure forthe distribution of client money by theadministrator as agent of the firm astrustee of the client money trust. Theessential feature of the client money

distribution procedure, which has nowbeen used in a number of cases andthe use of which is anticipated in othercases, is that it enables a distributionof trust money on a set of factualassumptions. If the assumptionsshould later be proved incorrect, theadministrator as agent is protectedbecause the trustee itself is protectedby distributing under the indemnity ofan order of the court. The basis ofrelief is the inherent jurisdiction of the

court, which has long been exercisedin relation to estates and testamentarytrusts to enable a distributionnotwithstanding the ‘known unknown’of a missing beneficiary.Absent further reform by the FCA of itsClient Assets sourcebook theadaptation of a Re Benjamin order tothe modern context of a statutory trustis likely to remain a key practicalcomponent of the distribution of clientmoney. [Glen Davis QC]

GLEN DAVIS QC

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An application was made by a trusteein bankruptcy to determine whetherhe would be liable for costs at previousstages of litigation in circumstanceswhere he adopted the litigation for thepurposes of an appeal.The appeal that the trustee intended toadopt arose out of litigation betweenthe bankrupt (G) and his solicitors inrelation to a specific transaction. Boththe Court of Appeal and the trial judgefound that the solicitors had beennegligent in their handling of therelevant transaction. The differencebetween the two Courts was that thetrial judge awarded the full amountthat G would have recovered under thetransaction whereas the Court ofAppeal awarded nominal damages. Asa result the trial judge awarded G hiscosts for the trial; however this wasreversed by the Court of Appealresulting in G facing a cost order of£469,170.60. Following the order of the

Court of Appeal, G was declaredbankrupt and the trustee wasappointed. The effect was that the rightto pursue the appeal against thedecision of the Court of Appeal vestedin the trustee.The ordinary rule is that a trustee inbankruptcy is treated as party to anylegal proceedings which hecommences or adopts, and ispersonally liable for any costs whichmay be awarded to the other side,subject to a right of indemnity againstthe insolvent estate to the full extent ofthe assets. This was accepted by thetrustee in relation to the costs relatingto any appeal going forward. The issuethat arose for determination waswhether, if the appeal failed, thetrustee would also be liable for thecosts ordered by the Court of Appeal.Lord Sumption, with whom the otherJSCs agreed, declared that in the eventthat the trustee were to adopt the

appeal to the Supreme Court, he wouldnot be held personally liable for anycosts incurred by G up to and includingthe order of the Court of Appeal byvirtue only of the fact of his office astrustee of G or of his adoption of theappeal: see §19. In a case where theproceedings below had beenconducted to their conclusion beforethe bankruptcy, by the bankrupthimself, to order the trustee to pay thecosts below personally would in effectenable the respondent to obtain anunwarranted priority for its claimunder the Court of Appeal’s costsorder.In coming to his decision LordSumption held that the decision inBorneman v Wilson (1884) 28 Ch. D. 53,in which the Court of Appeal extendedthe personal liability of the trustee tocover costs incurred by the other sidebefore his adoption of the proceedings,was no longer good law.

PERSONAL INSOLVENCY Digested by MATTHEW ABRAHAM

Gabriel v BPE Solicitors and another [2015] UKSC 39, [2015] 3 WLR 1Mance, Sumption, Carnwath, Joulson, Hodge LLJ, 17 June 2015)

Trustee’s Liability for costs of lower court hearings when adopting an appeal MATTHEW ABRAHAM

Tchenguiz v Grant Thornton UK LLP and others [2015] EWHC 1864 (Comm)(Mrs Justice Carr DBE, 1 July 2015)Directive 2001/24/EC on reorganisation and winding-up of credit institutions – Article 1(2)(b) of the Lugano Convention

The Claimants sought to bring claimsin England and Wales against theDefendants alleging a tortiousconspiracy. One of the Defendants,Kaupthing Bank hf, was and is subjectto insolvency proceedings in Iceland,and contended that by virtue ofDirective 2001/24/EC onreorganisation and winding-up ofcredit institutions, and the EnglishCredit Institutions (reorganisationand winding-up) Regulations 2004, aprohibition under Icelandic lawagainst bringing proceedings againstKaupthing was effective in England.The contention succeeded, and the

proceedings against Kaupthing weredismissed or stayed. AnotherDefendant, an Icelandic lawyer andmember of Kaupthing’s ResolutionCommittee and then Winding-UpCommittee, applied (together withKaupthing) for a stay or dismissal ofthe proceedings on the basis that theyfell within the “bankruptcyexception” in Art 1(2)(b) of theLugano Convention. That applicationwas dismissed, on the basis that thetortious claims did not derive directlyfrom the winding-up of Kaupthing,nor were they closely connected withthem, the winding-up providing

merely the context for the claims(paragraphs 140-158). The Judgereasoned (paragraph 156) that aclaim brought against anAdministrator (or the company inadministration on the ground ofvicarious liability) in respect of thesale of an asset of a company inducedby a fraudulent misrepresentation ofthe administrator, would not fallwithin the bankruptcy exception: theclaim is independent of theinsolvency process, that processmerely providing the context and occasion for the fraudulentmisrepresentation.

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Glenn Maud v (1) Aabar Block SARL (2) Edgeworth Capital(Luxembourg) SARL [2015] EWHC 1626 (Rose J, 8 June 2015)Setting aside of a statutory demand

The Applicant sought to set aside astatutory demand served on him bythe Respondents in relation to ajudgment debt. The Applicant soughtto set aside the statutory demand ontwo grounds. The first was under r6.5(4)(b) Insolvency Rules 1986 on thebasis that the debt had already beensatisfied in full by a party that wasjointly and severally liable for theoriginal debts which were the subjectof the judgment. The second wasunder r.6.5(4)(d) Insolvency Rules1986 on the basis that the demand hadbeen issued for a collateral purposeand so was an abuse of process. Inrelation to the first ground, Rose J heldthat there was no substantial disputeabout whether the judgment debt wasdue because it was not arguable thatthe debt had been paid already.As for the second ground, Rose J found

that (1) there was insufficient materialto show that the demand was anabuse of process and (2) that therewere other grounds to satisfy thecourt to set aside the statutorydemand. In coming to her decisionher Ladyship reviewed the case lawon collateral purpose. In particular,reference was made to the recentPrivy Council decision in Ebbvale Ltd vHosking [2013] UKPC 1. Her Ladyshipheld, at §29, that that the pursuit ofinsolvency proceedings in respect of adebt which is otherwise undisputedwill amount to an abuse in twosituations: (1) where the petitionerdoes not really want to obtain theliquidation or bankruptcy of thecompany or individual at all, butissues or threatens to issue theproceedings to put pressure on thetarget to take some other action which

the target is otherwise unwilling totake; and (2) where the petitioner doeswant to achieve the relief sought buthe is not acting in the interests of theclass of creditors of which he is one orwhere the success of his petition willoperate to the disadvantage of thebody of creditors. Rose J also held thatthe jurisdiction to dismiss a petitionbased on an undisputed debt on thegrounds of collateral purpose must beexercised sparingly. Bankruptcyproceedings cannot be allowed tobecome the forum for a detailedinvestigation into past and presentrelationships or an exploration ofwhat the petitioner hopes to gain fromthe insolvency of the company orindividual, in financial or personalterms or a consideration of whetherthose hopes are legitimate or not.[Mark Phillips QC; William Willson]

WILLIAM WILLSON MARK PHILLIPS QC

Glenn Maud v Libyan Investment Authority [2015] EWHC 1625 (Rose J, 8 June 2015)Extension of time to set aside statutory demand – rule 6.5(4)(d) Insolvency Rules 1986

Mr Maud applied, 5 months out oftime, to set aside a statutory demandserved on him by the LibyanInvestment Authority on the basisthat payment of the guaranteeliability which formed the basis of thedemand would constitute a breach of

the sanctions regime in place againstLibya. Rose J held that time should beextended on the ground of the publicinterest in ensuring the sanctionsregime is observed; and further heldthat payment of the guaranteeliability would breach the regime.

The statutory demand was thereforeset aside under rule 6.5(4)(d)Insolvency Rules 1986, which gavethe Court a residual discretion to setaside a demand where “satisfied onother grounds that the demand oughtto be set aside.” [Adam Al-Attar]

Glenn Maud v (1) Aabar Block SARL (2) Edgeworth Capital (Luxembourg) SARL [2015]EWHC 2093 Glenn Maud v Libyan Investment Authority (Rose J, 15 June 2015)

Time of issue of an application to set aside a statutory demand under rule 6.4 Insolvency Rules 1986

The issue resulted from the twojudgments immediately above. TheLibyan Investment Authority hadpresented a bankruptcy petitionagainst Mr Maud, but the statutorydemand which preceded the petitionwas set aside on the basis thatpayment of the sum demanded would

breach the Libyan sanctions regime.Mr Maud’s attempt to set aside astatutory demand served on him byAabar Block SARL and another failed.The court was required to determinewhether Aabar Block SARL wasentitled to be substituted as petitioneron a bankruptcy petition issued in

relation to the debtor by the LibyanInvestment Authority.A statutory demand was served on thedebtor by the creditor seekingsubstitution on 13 June 2014. It wascommon ground that under the r.6.4(1)Insolvency Rules 1986 the 18-dayperiod in which the debtor could apply

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CASE DIGESTS

PROPERTY & TRUSTS Digested by ANDREW SHAW

Bellis v Challinor [2015] EWCA Civ 59 (Moore-Bick LJ, Underhill LJ and Briggs LJ, 5 February 2015)

Resulting trusts – unjust enrichment

This appeal concerned the status ofmonies paid into the appellantsolicitors’ (“the Firm”) client accountmade by the Respondents, a group of21 prospective investors (“theInvestors”). These monies had beenpaid out by the Firm to the RoyalBank of Scotland to reduce the short-term borrowing of a client of theFirm, Albemarle Fairoaks Ltd(“AFL”).

AFL was an “off-the-shelf” companywhich was used as a vehicle for aproperty investment scheme. Thisscheme failed and AFL was placed inadministration, with little prospectof any distribution to its creditors,among whom were the Investors.The Investors thus looked elsewherefor recompense and issuedproceedings against the Firm. Thebasis of these proceedings was that

the monies paid into the Firm’s clientaccount by the Investors were only tobe paid to AFL on satisfaction ofcertain conditions, which, in theevent, were not met. It shouldtherefore have been held onresulting trust for the Investors. Inthe alternative, the Investorsmaintained that the monies wereheld on resulting trust for thembecause AFL had neither authorised

The claimants were made bankrupt(on 10 January 2006 and 1 September2005 respectively) on petitions basedon a judgment debt relating to costs ofa firm of solicitors. The Claimantsreceived their discharge a year aftertheir respective bankruptcies butcontinued to challenge the fact thatthey had been made bankrupt.Following a decision by Mr RobertHam QC sitting as a deputy judge ofthe High Court the claimants had theirbankruptcies annulled, subject tothree conditions, on the ground thatthey ought not to have been made.

One of the conditions of the order wasthat the claimants should pay thecosts and expenses of thebankruptcies. The conditions werenot satisfied as the claimantschallenged the Trustee’s costs andexpenses. The action before the Courtrelated to allegations by theClaimants that the Trustee failed inhis duty to them in that he carried outhis role improperly. In particular, itwas alleged that the Trusteemismanaged the bankruptcy estatesthereby causing loss and damage tothe claimants. The Court in addition

to the duty under s.304 Insolvency Act1986 also had to consider whether atrustee owes any duty at common lawto a bankrupt.Proudman J held, at §34, that there isno common law duty in negligenceowed to a bankrupt outside the dutyset out in statute. The Trustee owes astatutory duty to the bankrupt incircumstances where the estateproves to be solvent. As to the claimsraised by the claimants pursuant tosection 304, Proudman J found againstthem and so dismissed their claim.[John Briggs]

JOHN BRIGGS

to set aside that demand expired on 1July 2014. The debtor by his solicitorsprovided the Court office with fourcopies of an application to set thestatutory demand aside on 1 July 2014.Three copies were date-stamped 1 July,one of which was immediately handedback to the debtor’s solicitors.On 2 July 2014, by way of a paperreview a bankruptcy registrar decidedthat the application to set aside thestatutory demand should not bedismissed summarily. The registrarwrote his time estimate for the hearing

of the applications and initialled them.The applications where then date-stamped 4 July 2014 and sent to theparties. The date of issue on the court’scomputer record was 1 July 2014although the copy of the applicationthat was sent to the creditor seekingsubstitution was stamped 4 July 2014.As a result of the 4 July stamp, thesubstituting creditor argued that thedebtor’s application had been issued outof time. The decision of Andrews v Bohm[2005] EWHC 3520 (Ch) was consideredby the Court and Rose J held that, on the

evidence, the debtor had applied to setaside the statutory demand on 1 July asopposed to 4 July when the applicationwas stamped. The relevant date was thedate of issue and this was before thereview by the bankruptcy registrar. As aresult the creditor seeking substitutionwas denied substitution. Rose J alsostated, in obiter, that the date-stamp usedby the court office was not appropriateto signify that an application had beenissued. The stamp was more suited toreceipt of correspondence. [Mark PhillipsQC, WIlliam Willson, Adam Al-Attar]

(1) Sheida Oraki (2) Ardeshir Oraki v (1) Timothy Bramston (2) IanDefty [2015] EWHC 2046 (Ch) (Proudman J, 15 July 2015)Professional negligence - duty of Trustee in bankruptcy to bankrupt

ANDREW SHAW

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TBAC Investments Ltd v Valmar Works Ltd [2015] EWHC 1213 (Ch) (Keith Prosser QC(sitting as a deputy judge of the High Court), 1 May 2015)Validity of notices – receivers – summary judgment

TBAC Investments Ltd (“TBAC”)acquired the freehold to certaincommercial premises (together, “theProperty”) from Valmar Works Ltd(“Valmar”). The acquisition wasfunded by a loan from Zurich Bank(“the Bank”) secured by a legalmortgage over the Property. TBACsubsequently defaulted on the loanand the Bank appointed Mr Pick andMr Thomas as receivers over theProperty (“the Receivers”).Following the appointment of theReceivers, a contract for the sale of

the Property was entered intobetween TBAC, as seller, Valmar, aspurchaser, and the Receivers (“theSale Contract”). Mr Pick executed theSale Contract on behalf of theReceivers and also on behalf of TBAC.A clause in the Sale Contractstipulated that in selling the Property,TBAC would be “acting by theReceivers”. The Sale Contract alsostipulated that at any time on or afterthe defined completion date, anyparty “ready, able and willing tocomplete” could give notice of that

fact to the other party. If completiondid not occur within 10 working daysof the giving of such a notice, thenTBAC could rescind the Sale Contractand keep any deposit. The SaleContract did not complete on thedefined date, which was 15 March2013, and three days later TBAC’ssolicitors served a document onValmar and its solicitors headed“Notice to Complete” (“the Notice”)and which purported to give noticethat if the sale of the Property did notcomplete within 10 working days then

borrowing from the Investors norauthorised the Firm to act as itsagent. In the further alternative, theInvestors asserted a restitutionaryclaim upon the alternative bases ofpayment by mistake and failure ofconsideration.At first instance, Hildyard J gavejudgment for the Investors. Herejected the Investors’ allegation thatthe monies were held on Quistclosetrust, but accepted that they hadbeen held on an analogous impliedresulting trust. Hildyard J alsoupheld the Investors’ claim that themonies were held on resulting trustas the Firm had received the monieswithout authority from AFL. Nofinding was made on therestitutionary claim, although thejudge indicated that he wassympathetic to it. On appeal, theexistence of any Quistclose trust,either express or implied, wasrejected. Briggs LJ held that sincenone of the Investors had set out thebasis on which it had paid themonies to the Firm orally or inwriting, this could only bedetermined by “an intense focus uponthe terms of the invitation to which[the Investors] responded by makingthose payments, set in its proper

context.” Having carried out thisexercise, he concluded that theInvestors had made payments intothe Firm’s client account asimmediate loans to AFL and on theunderstanding that the payment ofthe loaned monies into the Firm’sclient account was at the direction ofAFL. Accordingly, the Firm held themonies on trust for AFL. Briggs LJemphasised that he did not disagreewith Hildyard J’s findings in relationto primary facts, although he diddiffer on the inferences to be drawnfrom those facts.The Investors’ alternative case wasthat the monies were held onresulting trust for them by the Firm.This argument was based upon thefact that the engagement letter wassigned by a Mr Cummings, who onlybecame the beneficial owner of AFL’sshares after the date of theengagement letter, and theengagement letter was notsubsequently ratified by AFL.Briggs LJ rejected this analysis. He heldthat the intention of the Investors wasthat the loan monies should belongbeneficially to AFL, and it was commonground that at the time of the paymentsthe Firm had become AFL’s solicitorsfor the purpose of handling the

acquisition of land, which the loanmonies from the Investors indirectlyfunded. In these circumstances, heconsidered that payment to AFL byway of the Firm’s client account wassufficient to transfer the beneficial titlein the loan monies to AFL.In dealing with the Investors’restitutionary claim, Briggs LJ held thatthe Firm had not been unjustlyenriched because from the moment ithad received the payments from theInvestors in its client account it hadheld them on trust for AFL. He alsoconsidered that the Firm would havehad a change of position defence; thishad been rejected by Hildyard J on theground that the Firms’ disbursement ofthe monies without sufficient certaintyas to the basis on which they had beenreceived from the Investors, or as to theFirm’s authority to receive the monies,was commercially unacceptable. BriggsLJ disagreed, holding that the paymentof the loan monies to the Royal Bank ofScotland by the Firm on behalf of AFLwas not commercially unacceptable soas to vitiate a change of positiondefence because the Firm owed noduties or responsibilities to theInvestors. Underhill and Moore-Bick LJJagreed with Briggs LJ and the Firm’sappeal was allowed.

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CASE DIGESTS

SPORT Digested by ROBERT AMEY

Re CJSC Football Club Dynamo Moscow (UEFA Club Financial ControlBody, Adjudicatory Chamber, 19 June 2015)

UEFA Club Licensing and Financial Fair Play Regulations – break-even requirement

Since 2011, the UEFA Club Licensingand Financial Fair Play (“CL&FFP”)Regulations have obliged clubsqualifying for UEFA competitions toprove that they do not have overduepayables towards other clubs, theirplayers and social/tax authoritiesthroughout the season. Since 2013,clubs have also been assessed against

break-even requirements, whichrequire clubs to balance their spendingwith their revenues and restrict clubsfrom accumulating debt.Dynamo Moscow was referred to theCFCB Adjudicatory Chamber in April2015 following an investigation by theUEFA Club Financial Control Body. TheInvestigatory Chamber had discovered

a considerable break-even deficitamounting to more than !13 millionfor 2012 and !23 million for 2013. Theinvestigation had examined the closerelationship between the club and JSCVTB Bank, the main shareholder in andprincipal sponsor of the club, and afteradjusting the VTB sponsorship deal toits fair value, determined that the club

ROBERT AMEY

TBAC Investments Ltd (“TBAC”)acquired the freehold to certaincommercial premises (together, “theProperty”) from Valmar Works Ltd(“Valmar”). The acquisition wasfunded by a loan from Zurich Bank(“the Bank”) secured by a legalmortgage over the Property. TBACsubsequently defaulted on the loanand the Bank appointed Mr Pick andMr Thomas as receivers over theProperty (“the Receivers”).Following the appointment of theReceivers, a contract for the sale ofthe Property was entered intobetween TBAC, as seller, Valmar, aspurchaser, and the Receivers (“theSale Contract”). Mr Pick executed theSale Contract on behalf of theReceivers and also on behalf of TBAC.A clause in the Sale Contractstipulated that in selling the Property,TBAC would be “acting by theReceivers”. The Sale Contract alsostipulated that at any time on or afterthe defined completion date, anyparty “ready, able and willing tocomplete” could give notice of thatfact to the other party. If completiondid not occur within 10 working daysof the giving of such a notice, thenTBAC could rescind the Sale Contractand keep any deposit. The SaleContract did not complete on thedefined date, which was 15 March

2013, and three days later TBAC’ssolicitors served a document onValmar and its solicitors headed“Notice to Complete” (“the Notice”)and which purported to give noticethat if the sale of the Property did notcomplete within 10 working days thenTBAC would rescind the Sale Contactand forfeit and keep the deposit.Valmar did not complete the SaleContract by the stipulated date andconsequently TBAC rescinded the SaleContract and arranged a sale toanother party. The completion of thislatter sale was thwarted by the entryof unilateral notices against theProperty by Valmar, which disputedthe validity of the Notice. TBAC thenapplied for a declaration that the SaleContract had been rescinded, for thecancellation of the unilateral noticesentered by Valmar and for aninjunction preventing Valmar enteringany other restrictions with the LandRegistry in relation to the Property.Valmar counterclaimed for specificperformance of the Sale Contract.The facts were not in dispute betweenthe parties and TBAC sought summaryjudgment. Valmar resisted this onfour grounds:1/. The Notice was not signed, thusindicating that it was only a draft andso never intended to take effect.2/. The Notice was not given by Mr

Pick, and since the relevant party tothe Sale Contract was TBAC, “acting bythe Receivers” and did not specificallyincluded the Receivers’ successors-in-title, the Notice was not valid.3/. The Notice contained a number oferrors which meant it was confusingto the recipient and was thereforeinvalid.4/. The completion date in the Noticewas erroneously given as 1 April 2012,and so the Notice was confusing to itsrecipient and thus invalid.The judge held that if the Notice wereconstrued in a manner consistentwith business common sense then itsmeaning and effect would have beenclear to a reasonable recipient. Hefurther held that the party to the SaleContract who could give notice tocomplete was TBAC and that phrase,“acting by the Receivers” was simply adescription of the Receivers functionas agents and should not be construedas words of limitation that preventedTBAC from acting directly. Even ifTBAC were compelled to act by theReceivers, the term “Receivers” in theSale Contract included theirsuccessors-in-title and allowed actionsto be carried out by any one Receiver.Accordingly, the Judge rejected eachof these assertions, entered judgmentfor TBAC and dismissed thecounterclaim.

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had a break-even deficit. As a result,UEFA determined to withhold therevenue obtained by the club inEuropean club competitions for the2014/15 season. Unusually, the club didnot settle the dispute with theInvestigatory Chamber, and the disputeproceeded to the AdjudicatoryChamber.In the Adjudicatory Chamber, the clubsought to justify its default on the basisthat (1) the Russian television marketgenerates less revenue thancomparable television markets in otherEuropean states, thereby creating aneconomic disadvantage for the Russianclubs; (2) the Russian league imposesrestrictions on foreign players; and (3)the situation had been exacerbated byexchange rate fluctuations.The Adjudicatory Chamber rejectedthe club’s explanation, holding that (1)although the Russian television market

provided low revenues, this was not aproper excuse; (2) restrictions onforeign players are not unique toRussia and cannot justifyoverspending; and (3) although theimpact of exchange rate fluctuationsare a relevant consideration to takeinto account, the effect in the presentcase was negligible when comparedagainst the scale of the club’s default.The club then sought to argue that itsplans would allow it to fulfil the break-even requirement in the future. Theclub argued that its new stadiumwould allow it to generate morerevenue, that it could raise cash from ashare issue and new sponsorship andretail opportunities, and that newinternal guidelines including a salarycap and increased reliance onrecruitment from the youth teamrather than external player purchaseswould ameliorate the position. The

Adjudicatory Chamber was notpersuaded by this, holding that theclub’s proposals were “vague insubstance and its projections … overlyoptimistic”.Imposing a ban from the next UEFAclub competition for which the clubwould otherwise qualify in the nextfour seasons, the AdjudicatoryChamber noted that the objectives ofthe FFP Regulations includedencouraging clubs to operate on thebasis of their own revenues (ensuringthe protection of the long-termviability and sustainability ofEuropean football) and the principlethat all clubs competing in UEFA’s clubcompetitions must be treated equally.Although the sanction was a harshone, the Adjudicatory Chamber notedthat it was “the only appropriatemeasure” in view of the club’s seriousdefault.

THE HOME OF DYNAMO MOSCOW FROM 1928 TO 2011, THE HISTORIC DYNAMO STADIUM IN PETROVSKY PARK, CLOSED AND DEMOLISHED IN 2011 TO MAKE WAY FORTHE VTB ARENA DUE FOR COMPLETION IN 2016.

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On 14 and 15 October 2014 the Supreme Court(comprising Lord Neuberger, President, andLords Mance, Clarke, Sumption, Carnwath,Toulson and Hodge) heard the case of Jetivia SA vBilta (UK) Limited (in liquidation). The caserelated to the principle or rule of public policyknown as ex turpi causa non oritur actio (a Latintag meaning “from a dishonourable cause anaction does not arise”) or, putting it another way,the so-called illegality defence. Judgment [2015]UKSC 23 was given some six months later on 22April 2015 and comprised four separatejudgments: one from Lord Neuberger (withwhom Lords Clarke and Carnwath agreed), onefrom Lord Mance, one from Lord Sumption and acombined judgment from Lords Toulson andHodge. The judgments run to 215 paragraphsspread over 88 pages.

As explained in further detail below, theSupreme Court was unanimous in its decision todismiss the appeal holding that the illegalitydefence could not bar Bilta’s claims on the basisthat the conduct of the directors could not beattributed to the company. However, there wasdisagreement between members of the SupremeCourt (in particular, Lord Sumption on the onehand and Lords Toulson and Hodge on the other)as to the proper approach to the illegalitydefence. This article reviews where we are nowin relation to this contentious defence.

BackgroundThe ex turpi causa defence is of considerableantiquity. One old case that is often cited insupport of the principle took place in 1725 (when

George I was on the throne). John Everet of theParish of St James’ in Clerkenwell and JosephWilliams went into partnership. Their businesswas that of being highwaymen, something theyappear to have practised in places like HounslowHeath, Finchley, Blackheath, Bagshot, Salisbuyand Hampstead, removing watches, rings,swords, canes, horses, bridles, saddles and otherthings from their owners. Perhaps inevitably,Everet and Williams fell out, there being nohonour amongst thieves. Everet thought hispartner had been getting too much of the profitfrom their partnership. Somewhat astonishinglyEveret presented a bill in equity at the Court ofthe Exchequer. He claimed discovery, an accountand general relief from Williams. The case wasdismissed as scandalous and impertinent. Thesolicitors were arrested and fined £50 each forcontempt in bringing such a case before the court(and were committed to the Fleet prison untilpayment). Williams was arrested and tried. Hewas hanged at Maidstone in 1727. Everet faredlittle better. He was hanged at Tyburn in 1730.Finally, one of the solicitors involved in theaction, Wreathock, was convicted of robbery in1735 and sentenced to hang, but his sentence wascommuted and he was transported Australia.

Whilst the defence of ex turpi causa is an old

one, one often-used starting point in relation to it in modern discussions is Lord Mansfield CJ’s

statement in Holman v Johnson (1775) 1 Cowp 341 at 343: “No court will lend its aid to a man who founds his cause of action on an immoral or an illegal act”. Whilst this is what Lord Sumption

described in Bilta as an “apparently simple

Ex Turpi Causaso where are we after Bilta?

David Alexander QC and Marcus Haywood reviewwhere the defence of ex turpi causa lies following theSupreme Court’s recent decision in Jetivia SA v Bilta

EX TURPI CAUSA

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proposition”, he went on to say that over thecourse of the two centuries which followedHolman v Johnson this rule of public policybecame “encrusted with an incoherent mass ofinconsistent authority” mainly because judgesdecided each case in its own factual and legalcontext without regard for a broader legalprinciple.

The late twentieth and early twenty-firstcenturies have seen a search for such a broaderlegal principle. We describe some of the key casesbelow.

Euro-Diam v BathurstIn 1987 the illegality defence came to be considered by the Court of Appeal (Kerr and Russell LJJ and Sir Denys Buckley) in Euro-Diam v Bathurst [1990] 1 QB 1. The Court of Appeal, in the words of Lord Sumption in Bilta, treated “the whole body of authority as illustrative of a process which was essentially discretionary in nature”. Kerr LJ (who gave the only reasoned judgment) stated that the test was whether “in all the circumstances it would be an affront to the

public conscience to grant the plaintiff the reliefwhich he seeks because the court would therebyappear to assist or encourage the plaintiff in hisillegal conduct or to encourage others in similaracts”. He also said that this was something whichshould be approached “pragmatically and withcaution, depending on the circumstances”. Thetest thus became essentially a discretionary one.

Tinsley v MilliganThe illegality subject then came to be consideredby the House of Lords (Lords Keith, Goff, Jauncey,Lowry and Browne-Wilkinson) in Tinsley vMilligan [1994] AC 340. Stella Ruth Tinsley andKathleen Milligan were, to use the judge’sexpression, “lovers”. They bought a house in MissTinsley’s sole name using funds generated by abusiness they ran together running lodginghouses. However their understanding was thatthe property was jointly owned. The purpose ofthis arrangement was to defraud the Departmentof Social Security. Over the years that followedMiss Milligan, with Miss Tinsley’s help, madefalse benefit claims. Miss Tinsley also made her

IN 1725 THE EX TURPI CAUSADEFENCE PREVENTED ONE

HIGHWAYMAN FROM SUINGANOTHER

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EX TURPI CAUSA

own false claims. Miss Milligan later confessedher frauds to the DSS. A quarrel broke outbetween Miss Tinsley and Miss Milligan. MissTinsley gave Miss Milligan notice to quit andbrought proceedings claiming sole ownership ofthe house. Miss Milligan counterclaimed for adeclaration that the house was held jointly. Thejudge dismissed Miss Tinsley’s claim and allowedMiss Milligan’s counterclaim. The Court of Appealdismissed the appeal on the basis that in thecircumstances the public conscience would notbe affronted (i.e on the basis of the Euro-Diampublic conscience test). The House of Lordsrejected the Euro-Diam test. Their Lordshipsdetermined that the illegality defence was basedon a rule of law and was not discretionary.Nevertheless, a majority of their Lordshipsdetermined that Miss Milligan was entitled to theinterest that she claimed because she did notneed to rely on any illegality to make her claim.So the test effectively became one of whether theplaintiff/claimant needed to rely on an illegalityin order to succeed in his or her cause of action.If so, then the ex turpi causa principle applied. Ifnot, it did not.

Stone & Rolls v Moore StephensNext came the well-known decision in Stone &

Rolls Ltd (in liquidation) v Moore Stephens [2009]1 AC 1391. The Claimant was an Englishcompany. It was owned and managed by MrZvonko Stojevic, a Croation national, who was itssole directing mind and will. The companyemployed the defendant as its auditors. After thecompany had been placed into liquidation,proceedings were brought on its behalf againstthe auditors for US $174 million. The allegationwas that the auditors had been negligent infailing to detect Mr Stojevic’s dishonest activitiesin procuring the company to engage in frauds onbanks, particularly one Czech bank. Needless tosay, Mr Stojevic benefitted from a largeproportion of the funds channelled through thecompany. Against this background, the auditorsapplied for summary judgment or for the claimto be struck out.

The judge (Langley J) held that the state ofmind of Mr Stojevic was to be attributed to thecompany. However he went on to find for thecompany on the basis that the auditors were notallowed to rely on the ex turpi causa principlebecause detection of fraud was the very thingthey were engaged to undertake. The Court ofAppeal (Mummery, Keene and Rimer LJJ) decidedthat, since the company was to be attributed withresponsibility for the fraudulent activities, the

DAVID ALEXANDER QC

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auditors could rely on the principle of ex turpicausa. The appeal was therefore allowed and theclaim struck out. The House of Lords (LordsPhillips, Scott, Walker, Brown and Mance), in ajudgment running to nearly 150 pages, dismissedthe appeal by the company (an appeal on whichJonathan Sumption QC, as he then was, appearedfor the auditors) on the grounds that (i) the fraudcould be attributed to the company (and that theprinciple in Re Hampshire Land Co (No.2) [1896] 2Ch. 7431 did not apply); and (ii) that it was notrelevant that the claimant’s illegal conduct wasthe “very thing” that the defendant was under aduty to prevent.

The judgments of the House of Lords in Stone &Rolls are, however, confusing and their reasoningvaries markedly. In 2010 the Law Commissionsaid in a Report on the illegality defence (one offour produced between 1999 and 2010) that “[i]tis difficult to anticipate what precedent, if any,Stone & Rolls will set regarding the illegalitydefence”, explaining that, in their view at anyrate, “there was no majority reasoning” with themembers of the committee “reaching differentconclusions on how the defence should beapplied”.

20142014 was a busy year for the ex turpi causaprinciple in the Supreme Court. There were noless than three cases which considered thedefence there that year. Firstly, at the end ofMarch/beginning of April 2014, the SupremeCourt (comprising Baroness Hale, DeputyPresident, and Lords Kerr, Wilson, Carnwath andHughes) heard Hounga v Allen Secondly, on 10June 2014 the Supreme Court (comprising LordNeuberger, President, Mance, Clarke, Sumptionand Toulson) heard Les Laboratoires Servier vApotex Inc. Thirdly, on 14 and 15 October 2014the Supreme Court (comprising Lord Neuberger,President, and Lords Mance, Clarke, Sumption,Carnwath, Toulson and Hodge) heard Bilta.Judgment was given in Hounga on 30 July 2014(so after the argument had taken place in LesLaborotoires but before judgment). Judgment

was given in Les Laboratoires on 29 October 2014(so after the hearing had taken place in Bilta butbefore judgment). Judgment was given in Bilta inApril 2015.

Hounga v Allen [2014] 1 WLR 2889In Hounga v Allen the Respondents, Mr and MrsAllen, offered to employ a 14 year old Nigeriangirl, Miss Hounga, as a home help in the UK inreturn for schooling and £50 per month. To dothat the Respondents helped Miss Hounga get afalse identify. Miss Hounga then lived in theRespondents’ home and looked after the children.She knew it was illegal for her to work in the UK.She was never enrolled at school. And she wasnever paid her £50 per week. The Respondentsthen evicted her and dismissed her. Miss Houngaissued proceedings in the employment tribunalclaiming unlawful discrimination in relation toher dismissal. The tribunal upheld her complaint.The Employment Appeal Tribunal dismissed anappeal. The Court of Appeal allowed a furtherappeal. They said that the illegality of thecontract of employment formed a material partof the complainant’s complaint and that touphold it would be to condone the illegality. TheSupreme Court allowed the appeal. In summary,they appear to have held that the application ofthe defence of illegality to a claim based in tortwas based on the public policy of preserving theintegrity of the legal system by not allowing aclaimant to profit from wrongful conduct.

There were two reasoned judgments. Firstly,by Lord Wilson (with whom Baroness Hale andLord Kerr agreed). Secondly by Lord Hughes(with whom Lord Carnwath agreed).

Lord Wilson said that the application of thedefence of illegality to a claim founded oncontract often has its own complexities. He saidthat while the defence of ex turpi causa willsometimes defeat an action in tort, thecircumstances in which it will do so have neverbeen fully settled. He said that the defence ofillegality rests on public policy. Rules which reston public policy are capable of expansion andmodification. It is, therefore, necessary to ask two

1/. The Hampshire Land principle may be summarised as follows: where an agent is party or privy to the commission of afraud upon or misfeasance against his principal, his knowledge of such fraud or misfeasance, and of the facts andcircumstances connected therewith, is not imputed to the principal.

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questions: (1) What is the aspect of public policywhich founds the defence and (2) is there anotheraspect of public policy to which application of thedefence would run counter?

As regards the first, Lord Wilson said that thebasis of the power to bar recovery in tort lies inthe duty of the courts to preserve the integrity ofthe legal system, and is exercisable only wherethis concern is in issue. This concern, he said, isin issue where damages awarded in a civil suitwould allow the person to profit from illegal orwrongful conduct, or would permit an evasion orrebate of a penalty imposed by criminal law. Theidea common to these instances, he said, is thatthe law refuses to give by its right hand what ittakes away by its left hand. Lord Wilson thenwent on to apply that test in the case of MissHounga. He concluded that considerations of

public policy which militated in favour ofapplying ex turpi causa scarcely existed. He alsoconcluded that there was another aspect ofpublic policy which ran counter to an ex turpicausa defence, namely a public policy againsttrafficking and in favour of protection of victims.He said that the public policy in support of theapplication of the ex turpi causa defence, to theextent it exists at all, must give way to the publicpolicy to which it is an affront. He and BaronessHale therefore allowed the appeal.

Lord Hughes (who also allowed the appeal asdid those who agreed with him) said that ageneralised statement of the conceptual basis forthe doctrine under which illegality may bar acivil claim has always proved elusive. He saidthat, given that all were agreed about the result,this appeal was not the time to formulatesomething which has been so difficult toformulate. He set out what he saw as twoprinciples: First, the law must act consistentlyand not give with one hand and take with theother. Second, before the ex turpi causa defenceeven operates, there has to be a sufficiently closeconnection between the illegality and the claimmade. However, Lord Hughes was at pains tostate that neither proposition was acomprehensive test. Indeed, he said that LordMansfield’s statement could not itself be treatedas a comprehensive test. When the court islooking at illegality, he said, it is essentiallyfocusing on the position of the claimant vis a visthe court from which relief is sought.

Les Laboratoires Servier v Apotex [2014] 3WLR 1257In Les Laboratoires Servier, Servier was a Frenchpharmaceutical company. It originated acompound for treating hypertension and cardiacinsufficiency, perindopril erbumine. Apotex, theRespondent, were a Canadian pharmaceuticalgroup, specialising in manufacturing andmarketing of generic products. A number ofpatents had been granted to Servier. Apotex toldServiver that they intended to market in the UK ageneric perindopril. They did that. Servier got aninjunction on the usual cross-undertaking as to

EX TURPI CAUSA

MARCUS HAYWOOD

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damages. The claim was then dismissed and theinjunction discharged. An appeal against thatdecision was dismissed. The court then held anassessment of damages hearing as to how muchshould be paid under the cross-undertaking indamages. Servier applied to the Judge hearing theassessment to amend to include an illegalitydefence, namely, it was contrary to public policyfor Apotex to recover damages for beingprevented from selling a product whosemanufacture in Canada would have been illegal(on account of the fact it would have infringedServier’s patent there).

The first point in the case was whether theinfringement of foreign patent rights was arelevant illegality. It was unanimously held thatit was not. So that in effect was the end of thecase. However Lord Sumption dealt with what hecalled “The Illegality: a rule of law”. He did thatbecause the Court of Appeal’s (in particular LordJustice Etherton’s) approach had been to say thatworking out whether the ex turpi causa defenceapplied:

“required in each case … an intense analysis ofthe particular facts and of the proper applicationof the various policy considerations underlyingthe illegality principle so as to produce a just andproportionate response to the illegality”.

Lord Sumption disagreed. He said that, whilstTinsley v Milligan has had its critics, to his mindthe present state of the law in England was laiddown in it (although he did not refer to thedecision in Hounga). Similarly Lord Mance saidthat the Court of Appeal’s reasoning in LesLaboratoires did not easily sit with Tinsley vMilligan. However, Lord Toulson was not criticalof the Court of Appeal for considering whetherpublic policy considerations merited applying thedoctrine of illegality to the facts in LesLaboratoires. He said that in doing that the Courtof Appeal was adopting a similar approach to themajority of the Supreme Court in Hounga. Heconcluded by saying that there might come a casewhere it was necessary for the Supreme Court tocarry out a detailed re-analysis of Tinsley vMilligan in the light of subsequent authoritiesand other materials.

Bilta: The FactsBilta was an English company. It was wound upon a petition presented by HMRC. Bilta’sliquidators then brought proceedings against twoformer directors (a Mr Chopra and a Mr Nazir)and against Jetivia, a Swiss company and its ChiefExecutive (a Mr Brunschweiler). The claimalleged that the four defendants were party to anunlawful means conspiracy to injure Bilta by afraudulent scheme which involved the twodirectors of Bilta breaching their duties to Biltaand Jetivia and its Chief Executive dishonestlyassisting them. The liquidators, through Bilta,claimed damages in tort from all four defendants.They also claimed, again through Bilta,compensation based on constructive trust. Thedefendants applied to strike out Bilta’s claim onthe basis of ex turpi causa.

IN STONE & ROLLS V MOORESTEPHENS THE ALLEGATION

WAS THAT THE AUDITORS HADBEEN NEGLIGENT IN FAILING TO

DETECT STONE & ROLLS’ZVONKO STOJEVIC’S (ABOVE)

DISHONEST ACTIVITIES INPROCURING THE COMPANY TO

ENGAGE IN FRAUDS ON BANKS,PARTICULARLY ONE CZECH

BANK, KOMERCNI BANK(RIGHT)

38

EX TURPI CAUSA

In July 2012 the case came before the thenChancellor, Sir Andrew Morritt. He decided thatthe defence of ex turpi causa did not bar theclaims against the first and second defendants fordishonest breaches of their fiduciary duties. Healso decided that there was no basis on which thedefence could be available to those who hadfraudulently conspired and dishonestly assistedin the breaches of the first and seconddefendants’ duties as directors.

In May 2013 the case was heard by the Court ofAppeal (comprising Lord Dyson MR and Rimerand Patten LJJ). The Court of Appeal dismissedthe appeal.

Bilta: The Decision of the Supreme CourtThe Supreme Court unanimously dismissed theappeal. So far as illegality is concerned, they didso on the basis that illegality could not be raisedby Jetivia or Mr Brunschweiler as a defenceagainst Bilta’s claim because the wrongfulactivity of Bilta’s directors and shareholdercould not be attributed to Bilta in theproceedings. In doing this Lord Neuberger saidthat, with limited exceptions, the time has comefor the decision in Stone & Rolls to be, as LordDenning graphically put it in relation to anothercase, “put on one side and marked ‘not to belooked at again’”.

Lord Neuberger summarised the SupremeCourt’s reasoning for its decision in Bilta asfollows (at [7]): “Where a company has been thevictim of wrongdoing by its directors, or ofwhich its directors had notice, then thewrongdoing, or knowledge, of the directorscannot be attributed to the company as adefence to a claim brought against the directorsby the company’s liquidator, in the name of thecompany and/or on behalf of its creditors, forthe loss suffered by the company as a result ofthe wrongdoing, even where the directors werethe only directors and shareholders of thecompany, and even though the wrongdoing orknowledge of the directors may be attributed tothe company in many other types ofproceedings.”

However the four separate judgments revealthat there is, at least at present, considerabledisagreement even at the highest level as to whatthe position is in relation to the ex turpi causarule. Lord Sumption remained of the view thatthe law is as stated in the judgments of the Houseof Lords in Tinsley v Milligan which he followedin Les Laborotoires Servier. Lords Toulson andHodge did not agree. Instead they favoured theapproach of the majority of the Court of Appealin Tinsley v Milligan: so they were back to thepublic conscience test. Furthermore they tookthe view that Lord Wilson in Hounga supportedthat approach. At [129] of Bilta Lords Toulsonand Hodge said as follows in this regard: “It hasbeen stated many times that the doctrine ofillegality has been developed by the courts onthe ground of public policy. The context isalways important. In the present case the publicinterest which underlies the duty that thedirectors of an insolvent company owe for theprotection of the interests of the company’screditors, through the instrumentality of thedirectors’ fiduciary duty to the company,requires axiomatically that the law should notplace obstacles in the way of its enforcement. Toallow the directors to escape liability for breachof their fiduciary duty on the ground that theywere in control of the company wouldundermine the duty in the very circumstancesin which it is required. It would not promote theintegrity and effectiveness of the law, but wouldhave the reverse effect. The fact that they were insole control of the company and in a position toact solely for their own benefit at the expense ofthe creditors, makes it more, not less, importantthat their legal duty for the protection of theinterests of the creditors should be capable ofenforcement by the liquidators on behalf of thecompany.”

Given those differences of opinion, LordNeuberger (with whom Lords Clarke andCarnwath agreed and Lord Mance supported insubstance) said that the proper approach toillegality is a difficult and important topic onwhich there can be strongly held contrasting

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views. He said that the debate could be seen asepitomising the tension between the need forprinciple, clarity and certainty in the law on theone hand with the equally important desire toachieve a fair and appropriate result in eachcase. In these circumstances, Lord Neubergersaid that the proper approach to the defence ofillegality needs to be addressed by the SupremeCourt as soon as appropriately possible. He said itneeded to be addressed by a panel that shouldcertainly consist of seven judges and conceivablywith a panel of nine judges. He said that Bilta wasnot the case in which the Supreme Court shouldaddress that question because the argument inthat case had focused on the question ofattribution: it would be unwise to seek to decidesuch a difficult and controversial question in acase where it is not determinative of the outcomeand where there had been little if any argumenton the topic.

Lord Neuberger said that the question hadbeen addressed in Les Laboratoires not because itwas necessary to decide the appeal, but becausethe Supreme Court thought the Court of Appealhad adopted an approach that was inconsistentwith Tinsley. He said that the question had beenaddressed in Hounga (possibly also when it wasnot necessary), where it had been subject toargument and Lord Wilson expressed a viewwith which two of the other four members hadagreed. He said that whilst Les Laboratoiresprovided a basis for saying that Tinsley had beenre-affirmed, it had not been argued in LesLaboratoires that Tinsley was wrongly decided.Furthermore, the majority decision had beenreached without addressing the reasoning inHounga. He considered that there was room forargument that the Supreme Court had refused tofollow Tinsley in Hounga. In any event, he said,given the Law Commission Report (referred toabove), the subsequent decisions of the Court ofAppeal and the decisions of other common lawcourts, it is appropriate for the Supreme Courtto address this difficult and controversial issue –but only after having heard and read fullargument on the topic.

So where are we on Ex Turpi Causa?A number of things now appear to be plain:1/. In so far as a claim by a company inliquidation against its directors is concerned,where the company has been the victim ofwrongdoing by its directors, or of which itsdirectors had notice, then the wrongdoing, orknowledge, of the directors cannot be attributedto the company as a defence (even where thedirectors were the only directors andshareholders of the company). The same is alsotrue of a claim against those who dishonestlyassisted the directors or knowingly receivedproperty from them.2/. Stone & Rolls will be a very difficult case todeploy in the future. It is a case to be “put on oneside and marked ‘not to be looked at again’”.3/. The ambit of or proper approach to the wholetopic of illegality, including the ex turpi causadefence, remains uncertain. Is the properapproach the discretionary test proposed in Euro-Diam? Is it the rigid rule propounded by theHouse of Lords in Tinsley? Is it the test preferredby the Court of Appeal in Les Laboratoires? Orthat preferred by the Supreme Court in Hounga?Or is the approach that favoured by LordsToulson and Hodge in Bilta? Indeed, one mightadd is it a combination of one or more of theseapproaches or is it something else altogether?Certainly, there appears to be considerableunhappiness with the test laid down by theHouse of Lords in Tinsley and it is at leastarguable that Tinsley was not followed in Hounga.

4/. This an important and a difficult topic whichgenerates strongly-held opposing views even atthe highest levels. The case has highlighted theneed for a review of ex turpi causa in theSupreme Court. However it will probably be awhile before an appropriate case works its wayup there.

The ambit of or proper approach to thewhole topic of illegality, including the ex turpi causa defence, remains uncertain

40

African Farms to African Minerals:developments in common lawjudicial assistance

Stephen Robins examines the latest case law on cross-borderinsolvencies and extra-terratoriality

IntroductionThis article considers the recent case ofWormleighton & Anor (JointAdministrators of African Minerals Ltd(In Administration)) v Madison PacificTrust Ltd [2015] HKCFI 645, which isthe first attempt to apply, in practice,the new rules of cross-border judicialassistance at common law laid down bythe Privy Council in Singularis HoldingsLtd v PricewaterhouseCoopers [2015] 2WLR 971.

SingularisOn the basis of a long line of authoritiesbeginning with Re African Farms [1906]TS 373, the majority of the PrivyCouncil held in Singularis that theCourts have a common law power toassist foreign office-holders where therelief sought is (i) consistent with theforeign insolvency law under whichthe foreign office-holder wasappointed1 and (ii) within the scope of

the assisting court’s inherent powers(including common law powers).2

In Singularis itself, the second ofthese requirements was met: LordSumption held that the Court has aninherent power to compel theproduction of documents, as illustratedby the existence of the NorwichPharmacal jurisdiction.3 Lord Sumptionsaid at [23]:

“The present case is not a NorwichPharmacal case. The significance ofNorwich Pharmacal in the presentcontext is that it illustrates the capacityof the common law to develop a powerin the court to compel the production ofinformation when this is necessary togive effect to a recognised legalprinciple”.

The decision in Singularis turned onthe first of the two requirementsidentified above. The insuperabledifficulty faced by the Caymanianliquidators in seeking to obtain the

auditors’ working papers in Bermudawas that such relief would not havebeen available to the Caymanianliquidators under the laws of theCayman Islands.4 Lord Sumption heldat [29]:

“It is right for the Bermuda court,within the limits of its own inherentpowers, to assist the officers of theCayman court to transcend theterritorial limits of that court’sjurisdiction by enabling them to do inBermuda that which they could do in theCayman Islands. But the order soughtwould not constitute assistance, becauseit is not just the limits of the territorialreach of the Cayman court’s powerswhich impede the liquidators’ work, butthe limited nature of the powersthemselves. The Cayman court has nopower to require third parties to provideto its office-holders anything other thaninformation belonging to the company.It does not appear to the Board to be a

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1/. Lord Sumption held at [25]: “It is a power of assistance. It exists for the purpose of enabling those courts to surmount the problems posed for aworldwide winding up of the company’s affairs by the territorial limits of each court’s powers. It is not therefore available to enable them to dosomething which they could not do even under the law by which they were appointed”.2/. Lord Sumption held at [19]: “the court can only ever act within the limits of its own statutory and common law powers. What are those limits? Inthe absence of a relevant statutory power, they must depend on the common law, including any proper development of the common law”.3/. Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133.4/. Lord Sumption noted at [29]: “The material which they seek in Bermuda would not be obtainable under the law of the Cayman Islands pursuant towhich the winding up is being carried out there”.

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proper use of the power of assistance tomake good a limitation on the powers ofa foreign court of insolvency jurisdictionunder its own law”.

African Minerals: The FactsThe case of African Minerals involvedan attempt to apply the Singularisprinciples.

African Minerals Limited (the“Company”) was the owner of shares(the “Shares”) in subsidiaries (the“Subsidiaries”) which owned an ironore mine in Sierra Leone (the “Mine”).The Shares were subject to security infavour of a security trustee, MadisonPacific Trust Limited (the “SecurityTrustee”), which acted on behalf of themajor secured creditor of the group,Shandong Steel Hong Kong ZengliLimited (“Shandong”). Theintermediate holding companySubsidiaries (the “Holdcos”) wereincorporated in Bermuda. Theoperating company Subsidiaries (the“Opcos”) were incorporated in SierraLeone, where the Mine was located.The Security Trustee and Shandongwere both incorporated in Hong Kong.

The facility agreement between theCompany, the Security Trustee andShandong (the “PXF Facility”) wasgoverned by English law and subject tothe exclusive jurisdiction of the Englishcourt. The share pledges in respect ofthe Shares (the “Charges”) weregoverned by the laws of Bermuda andsubject to the jurisdiction of theBermuda court.

The Company went intoadministration in England on 26 March2015. The English administrators (the“Administrators”) concluded that theCompany’s default under the PXFFacility had been precipitated by theactions of the Shandong group. It alsobecame apparent to the Administratorsthat the Security Trustee was proposing

to take steps to enforce the security byexercising its power of sale of theShares under the Charges. TheAdministrators had serious concernsabout the proposed sale of the Shares.Among other things, the SecurityTrustee had provided potential bidderswith a period of only one week inwhich to conduct due diligence, whichthe Administrators feared would deterpotential bidders and reduce thequantum of any bids.

It then became apparent that theSecurity Trustee was intending to sellthe Shares to the Shandong group for aprice well below the level of the debtdue to the Shandong group under thePXF Facility. However the evidencesuggested that the Mine could be worth

considerably more than that. TheAdministrators were thereforeconcerned that the Security Agent wasproposing to sell the Mine to theShandong group at a significantundervalue.

The Administrators wished to bring astop to the sale process, so that theycould review the evidence and satisfythemselves that any sale would occurat a proper price. However theAdministrators were not able to seekan injunction, as they were not in aposition to offer a cross-undertaking indamages. The Administrators thereforedecided to seek a letter of request fromthe English court5 asking the HongKong court (the Security Trustee beingincorporated in Hong Kong) to grant

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5/. The letter of request is the well-established mechanism for the communication of a request for cross-border judicial assistance. The English courthas an inherent jurisdiction to issue a letter of request addressed to a foreign court. See Re Nortel Networks SA [2009] BCC 343 per Patten J at para9: “The High Court has an inherent jurisdiction to issue a letter of request to a foreign court in appropriate circumstances and the only issue which Ihave to decide is whether I should exercise this jurisdiction in this particular case”.

THE TONOKILLI IRON ORE MINE IN SIERRA LEONE WAS OWNED BY AFRICAN MINERALS

42

STEPHEN ROBINS

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6/. Hong Kong has nothing equivalent to section 426 of the Insolvency Act 1986. Further, it has not enacted the UNCITRAL Model Law on cross-border insolvency. Cross-border judicial assistance in Hong Kong is governed by the common law.7/. On the significance of the words “wherever situated” in insolvency legislation, see Stichting Shell Pensioenfonds v Krys [2015] AC 616 at [14] perLord Sumption.8/. As Millett J held in Re International Tin Council [1987] Ch 419 at 446-447: “[In] theory the effect of the [winding-up] order is world-wide. Thestatutory trusts which it brings into operation are imposed on all the company’s assets wherever situate, within and beyond the jurisdiction”.Similarly, in Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852, Lord Hoffmann held at para 8: “in theory, such an order operatesuniversally, applies to all the foreign company’s assets and brings into play the full panoply of powers and duties under the Insolvency Act 1986 likeany other winding up order”. See also Stichting Shell Pensioenfonds v Krys [2015] 2 WLR 289 per Lord Sumption at [14]-[15].9/. See Re Seagull Manufacturing Co Ltd (In Liquidation) [1993] Ch 345 at 354 per Peter Gibson J.10/. Bilta (UK) Ltd v Nazir (No 2) [2013] 2 WLR 825 per Morrit C at para 44; (a point upheld by the Court of Appeal and the Supreme Court).11/. Re Mid East Trading Ltd [1998] BCC 726 (CA).12/. Re Paramount Airways Ltd [1993] Ch 223 at 239 per Sir Donald Nicholls V-C.13/. Jyske Bank (Gibraltar) Ltd v Spjeldnaes [2000] BCC 16; HMRC v Begum [2010] EWHC 1799 (Ch).14/. [14] Re Bank of Credit and Commerce International SA (No. 10) [1997] Ch. 213 at 236 per Sir Richard Scott V-C.

judicial assistance at common law6 in theform of a moratorium against theenforcement of the Charges by theSecurity Trustee.

African Minerals: Stage OneApplying Singularis, the firstrequirement was for the Administratorsto show that a moratorium against theenforcement of security over assetssituated in Bermuda and Sierra Leoneby a security trustee incorporated inHong Kong – in other words, a

moratorium with extra-territorial effect– would be consistent with Englishinsolvency law.

The Security Trustee argued that themoratorium on security enforcementunder English law, in paragraph 43(2) ofSchedule B1, is strictly territorial inscope, and that it does not have extra-territorial effect, relying on thepreliminary view expressed by StanleyBurnton LJ in Bloom v Harms OffshoreAHT “Taurus” GmbH & Co KG [2010] Ch187.

On the basis of the Security Trustee’sargument, this was a case of theAdministrators seeking to achieve inHong Kong “something which theycould not do even under the law bywhich they were appointed” (per LordSumption in Singularis at [25]).

The Administrators disagreed withthis contention and argued thatparagraph 43(2) of Schedule B1 hasextra-territorial effect as a matter ofEnglish law.

The Administrators relied on the factthat paragraph 43(2) prevents theenforcement of “security over thecompany’s property” and that the term“property” is defined by section 436 toinclude “every description of propertywherever situated”7.

They also relied on the fact thatEnglish insolvency proceedings haveworldwide effect and that theprovisions of the Insolvency Act 1986in respect of the preservation,collection, realisation and distributionof assets apply extra-territorially.8

The Administrators also pointed tothe fact that many provisions of theInsolvency Act 1986 and theInsolvency Rules 1986 have been heldto have extra-territorial reach,including section 1139; section 21310;section 23611; sections 238 and 23912;section 42313; and Rule 4.9014.

Finally, the Administrators arguedthat Harms Offshore was irrelevant, asit is a decision on paragraph 43(6),which prevents creditors from seekingremedies from the Court. Paragraph43(6) has been held to be limited

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15/. In Re Oriental Inland Steam Co, Ex p Scinde Railway Co (1874) LR 9 Ch App 557, Mellish LJ said at pp 559–561: “I quite agree that the 87thsection of the Companies Act 1862 (25 & 26 Vict, c 89), providing that no action shall be brought without the leave of the court, and the 163rd section,enacting that no execution shall issue, apply only to the courts in this country. Of course, Parliament never legislates respecting strictly foreigncourts”. This was followed in Re Vocalion (Foreign) Limited [1932] 2 Ch 196, in which Maugham J held that “it is reasonably clear that section 177 [ofthe Companies Act 1929] has no application to actions or proceedings in foreign Courts”.16/. See, for example, Shiloh Spinners Ltd v Harding [1973] AC 691 at 722 per Lord Wilberforce: “There cannot be any doubt that from the earliesttimes courts of equity have asserted the right to relieve against the forfeiture of property. The jurisdiction has not been confined to any particulartype of case. The commonest instances concerned mortgages, giving rise to the equity of redemption, and leases, which commonly contained re-entryclauses; but other instances are found in relation to copyholds, or where the forfeiture was in the nature of a penalty”. See also Cukurova FinanceInternational Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 2 at paras 90 to 97, in which the Privy Council held that this inherent equitable powercould be exercised to prevent the enforcement of a charge over shares.17/. Lord Sumption referred in [19] to “proper development of the common law” and Lord Collins held at [38] that “those powers can be extended ordeveloped from existing powers through the traditional judicial law-making techniques of the common law”.

court’s inherent powers.The Administrators argued that the

Hong Kong court has an inherentequitable power to interfere with theenforcement of security rights, asillustrated by the existence of theability of borrowers to seek relief fromforfeiture.16 Applying Lord Sumption’sapproach in Singularis at [23], theAdministrators sought to persuade theHong Kong court that this inherentequitable power could be exercised byway of judicial assistance in the cross-border insolvency context in order togive effect to paragraph 43(2) ofSchedule B1.

Unfortunately for theAdministrators, the Hong Kong courtwas not persuaded by thesesubmissions. Harris J held that theHong Kong court had no inherentpower to prevent the Security Trusteefrom enforcing the Charges, so as togive universal effect to the Englishadministration of the Company. Heheld at [12] that the Hong Kong courtcould grant an injunction “if it could bedemonstrated that the proposedenforcement would improperlyprejudice the equity of redemption” andthat the Hong Kong court could grantrelief from forfeiture “if it could bedemonstrated that the company afterhaving failed to meet its paymentobligations had become able to do so”.

territorially, on the basis thatParliament cannot have intended torestrict the powers of foreign Courts.15

However, this reasoning is inapplicableto paragraph 43(2), which prevents theenforcement of security and is notconcerned with court proceedings.Harms Offshore does not consider theterritorial reach of paragraph 43(2).

As a result of the Administrators’arguments, Newey J held that it wasarguable that paragraph 43(2) ofSchedule B1 applied extra-territorialityto the property of the Companywherever situated, including anyproperty of the Company situatedoutside England and Wales.

Accordingly Newey J issued a letterof request addressed to the Hong Kongcourt, asking the Hong Kong court to“make Orders in the exercise of itsinherent common law and/or equitablepowers which produce, in the territoryof the Hong Kong SpecialAdministrative Region, the same orsubstantially the same effect asparagraph 43(2) of Schedule B1 to theInsolvency Act 1986 … on the stepswhich the Security Trustee is takingand/or proposing to take to enforce the[Charges]”.

African Minerals: Stage TwoThe next step was for theAdministrators to take the letter ofrequest to Hong Kong and to seek relieffrom the Hong Kong court to preventthe Security Trustee from enforcingthe Charges. In accordance withSingularis, it was necessary for theAdministrators to show that such reliefwas within the scope of the Hong Kong

The decision of the Hong Kong court inAfrican Minerals shows that this area oflaw is still developing

However Harris J held the powers ofthe Hong Kong court did not go beyondthese established categories of reliefand that it had no “power at commonlaw to grant an order that has the effectof restraining the sale of the chargedshares to aid the administration inEngland”.

Whilst recognising that the PrivyCouncil had referred in Singularis tothe possibility of the development offurther common law powers17, Harris Jheld that the relief sought by theAdministrators would be “animpermissible extension of the commonlaw principle that requires the court torecognise foreign liquidators and assistthem”.

Accordingly, Harris J declined togrant assistance; and the SecurityTrustee proceeded with the sale of theShares.

ConclusionThe practical application of the PrivyCouncil’s approach in Singularis is stillbeing worked out. The decision of theHong Kong court in African Mineralsshows that this area of the law is stilldeveloping, as the outer limits of theSingularis jurisdiction are beingexplored.Stephen Robins acted for the JointAdministrators of African MineralsLimited

44

Sufficient connectiononce again: doestrouble lie ahead?Richard Fisher highlights issues of practice and principle rising outof the recent VGG judgment

Justice Snowden in the VGG case1

[2015] EWHC 2151 (Ch) (22 July 2015).As counsel for the opposing

creditor in Apcoa before his elevationto the bench, Mr Justice Snowden isvery familiar with the arguments thatcan be launched against a schemewhich a creditor regards asexorbitant or unfair. The VGGschemes were sanctioned. But hisjudgment serves as a timely reminderof the degree of scrutiny that schemesmay be subjected to at what arefrequently unopposed or ex partehearings, and the obligations of thosewho present the scheme to the Court.The decision also highlights somepoints or expectations on the part ofthe Judge which potentially differfrom the practice currently adoptedin this area, and suggests a concernon the part of Mr Justice Snowden asto whether a number of relativelyrecent decisions relating to sufficientconnection based on jurisdictionclauses were correctly decided.

ProcedureHaving reminded us of theimportance of bringing to the Court’sattention all matters potentially

Those who live and work in therarefied world of restructuringforeign companies using schemes ofarrangements have had a good run.Following a series of successfuldevelopments of the schemejurisdiction, last year’s decisions in ReApcoa Parking Holdings GmbH [2014]EWHC 1867 (Ch) and 3849 (Ch)settled, at least at first instance, thequestion of whether changing the lawgoverning debts owed by a foreigncompany to English law suffices inand of itself to establish the requiredsufficient connection between thecompany and the English jurisdiction.Provided that the change is validunder the law governing the debt atthe time that the change is made, asufficient connection can beestablished i.e. the Court can besatisfied that the exercise of itsjurisdiction would not be exorbitantor inappropriate, or otherwisecontrary to international comity.

But a word of warning to Englishpractitioners, and a crumb of comfortfor many of our European brethrenwho are concerned that we havepushed the envelope too far, arises inthe form of the judgment of Mr

relevant to jurisdiction and theexercise of the Court’s discretionparticularly in cases involvingforeign companies ([6]), severalremarks were made by Mr JusticeSnowden by way of general guidanceas to the procedure which should beadopted in future cases ([3]).

First, the extent of the informationwhich should be provided tocreditors regarding the alternativeoutcome if the scheme is notsanctioned (see [22]-[24]). At [24],having indicated that he wasprepared to accept that thealternative under a formalinsolvency proceeding was likely tobe far less advantageous for allconcerned, Mr Justice Snowdencommented:

“I would, however, indicate for thefuture that companies that seek theconsent of their creditors and thesanction of the court to a scheme ofarrangement that is put forward as amore advantageous outcome forcreditors than formal insolvencyproceedings may be well advised toensure that greater detail is provided,both in the Explanatory Statementand in the evidence before the court,

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1/. Van Gansewinkel Groep B.V. and associated companies. Scheme were sanctioned in respect of 5 Dutch companies and 1 Belgian company, none ofwhom had their COMI in England, nor any establishment or significant assets in England.

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as to the possible alternatives to thescheme and the basis for the predictedoutcomes. The provision of suchinformation is likely to be essential ifthere is a challenge to the scheme.”

It is common that the informationprovided in the ExplanatoryStatement and supporting evidenceis relatively brief. That recorded inthe VGG Judgment (taken from theExplanatory Statement) wascertainly not unusual in its content,and probably better than many. Theprincipal purpose of suchinformation is usually to satisfy theCourt and the creditors that schemecreditors are likely to receive morethan they would receive in thealternative if there was no scheme(otherwise the scheme would beinherently unfair: see Re T&N [2004]EWHC 2361 (Ch) at [82]). The precisepence in the pound (such as mighthave been seen in an old style Rule 2.2Report) tend not to be articulated (ormay not even be known to the schemecompany: the exercise would bepotentially very difficult and verycostly in many cases where largegroups of companies with interrelateddebt are being restructured). Absent achallenge to the proposition that therewill be a better outcome, the limitedinformation provided in theExplanatory Statement and evidenceis normally the only material reliedupon at the sanction hearing.

Mr Justice Snowden’s comments area clear indication that he considersthat greater detail than has previouslybeen included in many schemes iswarranted. In light of the judge’sextensive experience of dealing withschemes, it will therefore certainly beprudent to try and expand thefinancial information provided infuture schemes, and explain in asmuch detail as possible how the viewhas been reached (and by reference towhich comparator) that the scheme islikely to lead to a better outcome forcreditors. But, ultimately, the questionremains whether the Court and

RICHARD FISHER

creditors can be satisfied that thescheme is likely to lead to a betteroutcome than the relevant alternative.That is a judgment that has to be madeand, in many cases, the financialposition of the scheme company is sopoor that it will not take much todemonstrate that a scheme (ifsanctioned) is likely to lead to a muchbetter outcome for the schemecreditors.

As to the final sentence of [24], it hasalways been the case that, if achallenge is launched, the companymay have to develop the evidence thatit is relying on in order to meet thechallenge. Such further evidence inrelation to the question of

comparative outcome will be essentialif the challenge is to that proposition.But if the focus of the challenge is onan entirely different issue, it shouldprobably be assumed for now that theusual evidence sufficient todemonstrate that the scheme is likelyto lead to a better outcome remains allthat is required.

Second, the way in which questionsof international jurisdiction have todate been dealt with. Matters going tothe general jurisdiction of the Court tosanction a scheme have always givenrise to a practical problem because ofthe potentially huge waste of time andcosts which occur if meetings areconvened (and a vote is held) only for

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The VGG decision provides at least two interesting pointers as to the issues that otherschemes relating to foreign companies mayface going forward

to say, the practice adopted varies. Asobserved by Mr Justice Snowden at[31], such an issue is not dealt withexpressly in the Practice Statement.International jurisdiction is normallyraised (if an issue) at the conveninghearing, but often on the basis that itis appropriate to assure the Court thatit has jurisdiction and is not makingan order in vain. It will also beaddressed again at sanction as amatter going to the court’s discretion.

What is clear from the judgment ofMr Justice Snowden is that if a schemecompany wishes to obtain adetermination of the internationaljurisdiction issue (in a similar sense tothe determination of classes) in amanner that will, absent good reason,prevent creditors from raising theissue again at the sanction hearing(unless they are able to satisfy theCourt that the decision at the sanctionhearing was plainly wrong: see theapproach adopted by the Judge toclasses at [53]), it will be necessary to(i) draw creditors’ attention to thisapproach in the Practice Statementletter and (ii) ask the Court to recordin the order (and probably in areasoned decision) the determinationmade (see [32]-[34], and [55]-[56]).Absent such an approach, the Courtmay consider that it is obliged torevisit the issue in full.

There can be little to complain aboutin adopting such an approach.Creditors ought to be told if there areissues beyond the constitution ofclasses that the scheme company isseeking to have determined at theconvening hearing. It has always beenthe case that questions such aseffectiveness of the scheme in foreignjurisdictions have been addressed insubstance at the sanction hearing, but

the Court to conclude at the sanctionhearing that it has not got jurisdictionto sanction the scheme. This issueprincipally arose historically inrelation to the question of classes and,for many years, the company wasrequired to run the risk of beingshown at the sanction hearing that ithad got the constitution of the classeswrong (such that the Court had nojurisdiction to sanction the scheme).

Post Re Hawk Insurance Co Limited[2001] 2 BCLC 480, and the criticismsmade of this practice by Chadwick LJ,a Practice Statement was issued whichaimed to enable the scheme companyto give notice to creditors, and ask thecourt to determine the correctcomposition of the classes of creditorsat the convening hearing rather thanat the sanction hearing (see [2002] 1WLR 1345). Other issues going tojurisdiction have increasingly beenraised at the convening hearing and,although the determination of such anissue at the convening hearing cannotentirely preclude the issue beingraised at the sanction hearing (asexplained by David Richards J in ReT&N Limited (No. 3) [2007] 1 BCLC 563at [20]), the Court is reluctant to revisitsuch matters unless satisfied that theyare clearly wrong.

The decision on classes is, of course,reflected in the convening order. Thetypical Practice Statement letteridentifies for creditors that thequestion of classes is to be determinedat the convening hearing and thatgood reason will be required if theywish to re-open such a decision at thesanction hearing.

The procedural position as to howbest to address questions ofinternational jurisdiction has alwaysbeen less clear and, it is probably true

that they may be mentioned at theconvening hearing in order toascertain whether there is any furtherevidence that the Court considers itmay be assisted by receiving at thesanction hearing. The same approachmay well be adopted in future inrelation to international jurisdictionunless the scheme company wishes toseek a formal determination of theissue at the sanction hearing. If it does,it will need to make this very clear inthe Practice Statement letter.

Sufficient connectionBecause Mr Justice Snowden feltcompelled to address internationaljurisdiction in substance, the VGGdecision provides at least twointeresting pointers as to the issuesthat other schemes relating to foreigncompanies may face going forwards,including an issue that manyconsidered settled at least at firstinstance.

First, jurisdiction clauses. Havingnoted the various arguments raised todate as to the applicability of therecast Judgments Regulation toschemes of arrangement (see [41]-[44]), Mr Justice Snowden adopted thecourse of many other judges in thisarea of analysing what the positionwould have been if the JudgmentsRegulation applied. But, having madethat assumption, the Judge concludedthat the jurisdiction clauses reliedupon by VGG were (as a matter ofconstruction) insufficient to constitutea submission to the jurisdiction by thescheme creditors rather than thescheme companies (and thereforethat he could not accept the basis onwhich the arguments had beenadvanced before Mr JusticeHenderson at the convening hearing).This point is notable because it isunderstood that, at the hearing, theJudge voiced concerns regardingwhether the standard form wordingin many of the jurisdiction clausesrelied on would suffice and, inparticular, whether scheme

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Mr Justice Snowden gives permissionto appeal in due course to anycreditor who wishes to challenge theprinciple established by Apcoarelating to changing the governinglaw in order to establish a sufficientconnection with the jurisdiction.

Guarantees and third partiesMr Justice Snowden neatlysummarised the current positionregarding releases of claims held byscheme creditors against third parties(i.e. non-scheme companies) at [63]:

“It is well settled that it is possible, aspart of a scheme, to require schemecreditors to give up rights against thirdparties (such as guarantors) where sucha release is necessary to give legal orcommercial effect to the compromise orarrangement between the schemecompany and its creditors: see eg ReLehman Brothers (Europe)International [2010] 1 BCLC 496 atparagraph 65.”

This approach is used to justify therelease of claims held by schemecreditors against guarantors of thedebt owed by the scheme company,but may also extend to other claimswhich could give rise to ricochetclaims or which it is necessary torelease in order to give effect to thecommercial deal embodied in thescheme. What was notable, however,was the concern raised by the Judge asto whether or not the Scheme, in theabsence of an ancillary release deed,provided a sufficiently clear release tobe granted in favour of a company thatwas not a party to the scheme. MrJustice Snowden was of the view thatthe (relatively standard) terms of thescheme were not sufficiently wide torelease the third party. He was,however, content to accept a suitabledeed of release being executed under

proceedings would constitute a“dispute” within the meaning of therelevant clauses.

If that is right, reliance on standardform jurisdiction clauses for thepurpose of establishing a sufficientconnection may become much moredifficult. It is unclear whether MrJustice Snowden is of the view (incontrast to comments in cases such asRe Vietnam Shipbuilding IndustryGroup [2014] BCC 433 at [9]) that, evenif the clause can be construed to extentto scheme proceedings, non-exclusivejurisdiction clauses in favour of theEnglish Courts would not, withoutmore, amount to a sufficient connectionwith the jurisdiction although the Judgewas prepared to accept that suchclauses (including the clause in issue inVGG) could amount to a “furtherconnection” with England (see [69]).

The VGG companies were thereforeforced to rely on presence of creditorsdomiciled in England in order to justifyjurisdiction if the JudgmentsRegulation did apply. There was nodifficulty in them doing so (see [50]and [51]) and it is notable that MrJustice Snowden was satisfied that allthat was required was at least onecreditor domiciled in England incircumstances which rendered itexpedient to hear the claims against allother scheme creditors (c/f thereference to 50 per cent of schemecreditors in Re Rodenstock [2012] BCC459.)

Second, change of law. Havingnoted at [4] that permission to appealwas granted in respect of the decisionin Re Apcoa [2014] EWHC 3849 (Ch),albeit the appeal was compromised,Mr Justice Snowden described thedecision in the following terms at [68]:

“Specifically, this case does not raiseany of the more controversial issueswhich arose in Apcoa as a result of achange in the governing law to Englishlaw for no reason other than topersuade the English court to exerciseits scheme jurisdiction.”

It would not be at all surprising if

the power conferred on the SchemeCompanies to execute any otherdocuments considered necessary ordesirable to give effect to therestructuring. Because the ExplanatoryStatement had made clear that therelease was intended, the Judgeaccepted that it was appropriate tosanction this new or different releasewhich was not currently provided forin the Scheme or ancillary documents.

The current tendency in schemes isto provide a relatively short schemedocument conferring the power on anattorney to execute variousrestructuring documents which willcontain the operative provisionsamending the creditors’ rights.Although some concerns have beenraised in the past as to whether it isentirely satisfactory to have theoperative provisions contained in therestructuring documents rather thanthe scheme itself, this method ofdrafting did not cause Mr JusticeSnowden a concern (see [16]). However,his focus (again, quite rightly) on themanner in which the ancillarydocuments operated, and whether theywere effective to achieve the intendedcompromise, illustrates a potentialdownside of this approach: byproviding a suite of inter-lockingdocuments, the task for the advocatesand the Court becomes increasinglycomplicated to ensure that the new“Bible” of documents is effective. Thepractice sometimes seen of replicatingthe core elements of the debtcompromise in the Scheme as well asthe restructuring documentsthemselves may become moreattractive, as well as ensuring that (asin VGG) there is a catch all power toexecute any documents considerednecessary or desirable to give effect tothe wider restructuring.

By providing a suite of inter-locking documents,the task for the advocates and the Courtbecomes increasingly complicated

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Company & Insolvency LawNew LegislationHilary Stonefrost sets out the significant changes to the Companies Act 2006, theInsolvency Act 1986 and the Directors’ Disqualification Act 1986 that have been orwill be brought about by the Small Business, Enterprise and Employment Act 2015and the Deregulation Act 2015.

A significant number of importantand diverse changes have recentlybeen made to company andinsolvency legislation. It would beeasy to miss these changes given thatthere is no clue in the title of thestatutes of the nature or scope of therevisions.

THE SMALL BUSINESS ENTERPRISEAND EMPLOYMENT ACT 2015The Small Business, Enterprise andEmployment Act 2015 (the SBEE Act)became an Act of Parliament on 26March 2015. The SBEE Act coverseclectic topics including theregulation of pub-owning businesses,the regulation of child care togetherwith new statutory provisionsgoverning insolvency,disqualification of directors and theregulation of companies.

While the title suggests that thestatutory provisions are directed atsmall companies, this is not the case;this statute makes significant changesto company law and the corporategovernance of all companies.

Some of the statutory provisionshave already come into force; othersare coming into force at later dates.

There will be secondary legislationand guidance on the new provisions,but these are still in the process ofbeing drafted.

COMPANY LAWThe company law provisions of theSBEE Act, in parts 7 and 8 of theCompanies Act 2006 (the 2006 Act).

The main changes to companylegislation directed primarily but notexclusively at company transparency,are as follows:1/. The requirement that companydirectors are natural persons.2/. The changes to the definition ofand to the scope of the duties ofshadow directors.3/. The creation of a register of peoplewith significant control.4/. The abolition of bearer shares.

Company directorsThe SBEE Act intends to increasetransparency about who is acting as adirector of a company by restrictingthe practice of companies acting ascorporate directors to limitedcircumstances by amending the 2006Act. The existing law requires at leastone director to be a natural person

(section 155 of the 2006 Act), butimposes no restrictions on corporatedirectors.

In November 2014 there was aconsultation on whether theSecretary of State should makeregulations setting out exemptionsfrom the ban on corporate directors.In March 2015 the Department forBusiness Innovation and Skills (BIS)published a questionnaire onwhether there should be a “principlesbased exemption” to the ban oncorporate directors. The proposalcovered the following issues:

1/. Whether a company couldappoint a corporate director if all thedirectors of the corporate directorwere natural persons and, if thecorporate director is an overseascompany, certain details of theindividual directors of that corporatedirector were disclosed in a publicregister.

2/. Whether a corporate directorcould be an entity other than a UKincorporated company, for examplean overseas LLP, and, if so, whetherall of its members would need to benatural persons and if it were anoverseas entity who would be the

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equivalent of the directors whowould have to be natural persons,and what details of these personswould need to be publicly available?

The deadline for response to theseproposals was 27 April 2015. Theimplementation of these restrictionson corporate directorships has beendelayed and no revised timetable hasyet been announced.

Shadow directorsThe SBEE Act applies directors’ dutiesto shadow directors so far as they arecapable of applying.

A shadow director, as is wellknown, is a person in accordancewith whose directions or instructionsthe directors are accustomed to act. A

person is not, however, to beregarded as a shadow director byreason only that the directors act onadvice given by him in a professionalcapacity; section 251(1) and (2) CA2006.

The exclusions that are added bythe new legislation are: a person isnot regarded as a shadow director ifexercising a function conferred by orunder a statutory provision; or, ifguidance or advice is being given by aperson in their capacity as a Minsterof the Crown.

The general statutory duties thatapply to de jure and de facto directorsunder the 2006 Act do not all apply toshadow directors. The 2006 Act states:1

“The general duties apply to shadow

directors where, and to the extent that,the corresponding common law rulesor equitable principles so apply.”

The law, as from 26 May 2015, isthat:

“The general duties apply to ashadow director of a company whereand to the extent they are capable ofso applying.”

This provision is subject to anyregulations about the application ofgeneral duties of directors to shadowdirectors.2

Persons with significant controlThe principal change concerning theaccountability of companies isintended to make it easier to see whoowns or controls the company and

THE SBEE ACT IS INTENDED TO MAKE IT EASIER TO SEE WHO OWNS OR CONTROLS A COMPANY AND WHO IS MAKING THE DECISIONS ABOUT HOW IT IS RUN.

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1/. Section 170(5) of the 2006 Act. See also Ultraframe (UK) v Fielding [2005] EWHC 1638 (Lewison J) and Vivendi SA v Murray Richards [2013]EWHC 2006 (Newey J) on the state of the law on duties of shadow directors.2/. Section 89 of the SBEE Act.

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who is making the decisions abouthow it is run.

The main change is that companiesare to be required to obtain and holdinformation on who ultimately ownsand controls them. There will be acentral registry that records not onlyownership of the company but alsowho influences and controls thecompany, for example, by being ableto vote on shares owned by otherpeople (the PSC register).

Companies will be required tohold and maintain their own PSCregister from January 2016 and tofile this information with CompaniesHouse by April 2016 when theydeliver their confirmation statementwhich is to replace the annualreturn.3 The Company is required toconfirm this information annually.4

A “person with significant control”is any individual who:1/. Owns, directly or indirectly, morethan 25 percent of the shares;2/. Holds, directly or indirectly, morethan 25 percent of the voting rights;3/. Has the right, directly orindirectly, to appoint or remove themajority of the board of directors;4/. Otherwise has the right toexercise or actually exercisessignificant influence or control overthe company; or,5/. Has the right to exercise oractually exercises significantinfluence or control over a trust orfirm that is not a legal entity, whichin turn satisfies conditions (1) to (4)above.

Where there are corporate groups

another group company rather thanan individual is likely to satisfy oneor more of those conditions andthese legal entities which are withinthe definition of a “person withsignificant control” are called“relevant legal entities”. Not allrelevant legal entities are registrableon the PSC register; for example,where there is a corporate chaineach of the companies (other thanthe company at the bottom of thechain) falls within the definition of arelevant legal entity but only theentity at the top of the chain will beregistrable. The purpose of this is toavoid duplication as the informationon ownership and control can betracked through the corporate chainto the registrable relevant legalentity at the top.

The same approach is adoptedwhere an individual holds hisinterest through a chain of relevantlegal entities, all the informationabout the ownership and control ofthat group of companies will beregistered in respect of the legalentity at the top of the chain.

Under the SBEE Act, for there to bea chain of relevant legal entities,each company in the chain (abovethe company at the bottom of thechain) must have a “majority stake”.A “majority stake” is defined asholding or controlling the majority ofthe voting rights; having the right toappoint or remove a majority of theboard of directors; or, otherwisehaving the right to exercise oractually exercising dominant

The Government’s objective in the introductionof the central register is to increase transparency,to improve trust and increase investment in UKregistered companies

influence or control. There are companies that already

have to provide information abouttheir ownership under otherregulatory regimes; the provisions ofthe SBEE Act allow some companiesto be exempted from the disclosurerequirements. Under the draftregulations companies that arerequired to comply with theFinancial Conduct Authority’sDisclosure Rules and TransparencyRules (DTR5 issuers) are to beexempted from having to keep a PSCregister.

Each company that is not exemptfrom this requirement has a duty toinvestigate and obtain informationand update information on theregistrable persons and will commitan offence if it fails to do so. Furtherif a registrable person knows orought reasonably to know that theirname should be on the PSC registerbut it is not there, that person has anobligation to notify the company.

The statute requires the Secretaryof State to issue guidance on themeaning of “significant influence orcontrol”. A working panel ofcompany law experts has beenappointed to draft that guidancewhich is expected to be published inOctober 2015. In addition a workinggroup was set up in January 2015 toproduce non-statutory guidance toassist companies and shareholdersto understand their obligations inrelation to the PSC Register.

The government has sought viewson the draft Register of People withSignificant Control Regulations(2015); the deadline for response was17 July 2015.

The SBEE Act gives privatecompanies the option not to hold thePSC register but where a companymakes this choice, the informationwill still be held at CompaniesHouse.

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3/. This change is explained further below.4/. SBEE Act sections 81 and 82 and Schedule 3 thereto, together with a new part 21A and Schedule 1A to the Companies Act 2006.

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HILARY STONEFROST

Abolition of bearer sharesIn support of the Government’smeasures to increase transparencyand accountability in corporategovernance, the SBEE Act hasprevented companies from issuingbearer shares from May 2015. Bearershareholders have a nine-monthperiod during which they cansurrender their bearer shares andhave their name entered as aregistered shareholder of thecompany.

Companies with bearer shareswere required to have given notice toholders of bearer shares by 26 June2015 of their right to surrender theseshares for registered shares. To pushbearer shareholders intosurrendering their shares withoutdelay, the statute provides that all therights attached to the bearer shareswill automatically be suspended if thebearer shares are not surrendered by26 December 2015. Dividends andother distributions will not be paid tothe holder but will be paid into aseparate bank account.

Companies with bearershareholders are required to givefurther notice of the right tosurrender by 26 January 2016. If, by26 February 2016, a company still hasbearer shares that have not beensurrendered by the holder, thecompany must apply, within threemonths of that date, for a“cancellation order”. The company isrequired to notify the shareholder ofthe application. If the court issatisfied that the company hascomplied with the noticerequirements the court must make acancellation order; if it is not sosatisfied, the court will make asuspended cancellation order and thecompany must notify the shareholderwho will then have two months inwhich to surrender the shares.

Within 14 days of a cancellationorder being made, the company mustpay into court the nominal value ofthe cancelled shares, any premium

on those shares and any dividendsaccrued. In the period between sixmonths and three years from thecancellation date the former holderof the bearer shares can apply toclaim payment of the sums held incourt. In order to receive payment theformer holder will have to satisfy thecourt that there were exceptionalcircumstances that prevented theholder of those shares fromsurrendering the bearer shares before26 February 2016.

This measure will not have anyimpact on most UK companies. Thereare only some 2,400 companies whichhave issued bearer shares; this is only

some 0.05% of 2.5 million UKregistered companies.

Company filing requirements Companies are no longer required todeliver an annual return toCompanies House. A company will berequired to deliver a “confirmationstatement” every 12 months thatcertain information has been filedwith the Companies House and, in thisstatement, will be required to givenotice of any changes in the relevantinformation (including informationon the PSC Register). This is intendedto give companies more flexibility tochange the date of their annual filing.

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INSOLVENCY LAW The provisions in Part 10 of the SBEEAct amend the Insolvency Act 1986.(As to when the provision came intoforce see footnote 5)5

New powers for administrators tobring claimsThe SBEE Act introduces statutoryprovisions to enable wrongful tradingand fraudulent trading claims to bebrought by administrators. Thestatutory provisions are the same,mutatis mutandis, as those that enableliquidators to bring such claims. Thisis not yet in force.

New power to assign causes ofactionUnder the current law, claims thatcome into existence as a consequenceof the company’s insolvency andwhich can only be brought in thename of the insolvency practitionercannot be assigned; namely, claimsfor wrongful and for fraudulenttrading, transaction at undervalueclaims, preference claims andextortionate credit transactions.Liquidators and administrators willbe given the power to assign suchclaims.

The legislation also provides thatwhere a liquidator or administratorrecovers proceeds from this type ofclaim these proceeds will besegregated from the assets availableto meet the claims of the holders of

any floating charge security and willbe distributed to unsecured creditors(after the payment of the expensesincurred in the insolvency). Thesestatutory provisions are not yet inforce.

Removal of requirements to seeksanction Liquidators in voluntary liquidations,under the existing legislation, arerequired to obtain sanction toexercise the powers in Part I ofSchedule 4 of the 1986 Act, whichincludes the power to bring legalproceedings under provisions of thatact. Liquidators in compulsoryliquidations were required not only toobtain sanction to exercise powers inPart I but also Part II of Schedule 4,which gave liquidators powers todefend legal proceedings and to carryon the business of the company so faras it may beneficial for the windingup. The legislation makes all thepowers exercisable by a liquidator inSchedule 4 to the 1986 Act, whether ina creditors’ voluntary liquidation or acompulsory winding up, withoutsanction. This provision came intoforce on 26 May 2015.

The change to the position ofcreditorsThis legislation will remove therequirement to hold creditors’meetings save in certaincircumstances.

There are significant changes made to proceedings brought by office-holders

The starting point is that thedecision may be made by “anyqualifying procedure P thinks fit”,where “P” is the person seeking adecision about any matter from thecompany’s creditors or contributories,save that the procedure cannot beused if the requisite minimumvalue/number of creditors ask for ameeting. The requisite minimum for acreditors’ meeting to be convened is10% in value of the creditors; 10% innumber of the creditors; or, 10creditors.

As an alternative, the “deemedconsent procedure” may be usedinstead of the “qualifying decisionprocedure” (unless the rules provideotherwise or the court orders thedecision to be made by the “qualifyingdecision procedure”). This proceduremay be used where the relevantcreditors are given notice of thefollowing: a matter about which theyare to make a decision, the decisionthat is intended should be made, theeffect of fewer than the “appropriatenumber” of creditors approving thedecision, the fact that decision can bedeemed to be made and theprocedure for objecting to thedecision. If fewer than theappropriate number of relevantcreditors object to the proposeddecision, the decision is deemed to beapproved.

Relevant creditors are defined asthose who, if decisions were to bemade by a “qualifying decisionprocedure” would be entitled to votein the procedure. The “appropriatenumber” of relevant creditors is 10%in value of creditors.

Schedule 8 to the 1986 Act, whichsets out provisions capable of

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5/. Section 164 of the state provides for specified provisions to come into force “at the end of the period of two months beginning with the day onwhich this Act is passed”. The provisions that came into force on 26 May 2015 relate to the removal of requirements to seek sanction;administration; small debts; and, voluntary arrangements. The Small Business, Enterprise and Employment Act 2015 (Commencement No. 1)regulation 2015 provides that on 26 May 2015 the provisions on registration of people with significant control, and the provision on the position ofcreditors (the abolition of the requirement to hold meetings and the provison enabling creditors to opt-out) came into force for the purpose ofenabling the exercise of any power to make provision by regulations, rules or order made by statutory instruction or to prepare or issue guidancebut are not yet in force otherwise. The legislation concerning proceedings by office-holders; the power to assign proceedings that can be brought byoffice-holders; and, the regulation of insolvency practitioners have not come into force in any respect as yet. These provisions will come into force onsuch dates as the Minister of the Crown may, by regulations, appoint.

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inclusion in the Insolvency Rules, isamended to enable rules to be madegoverning the decisions by creditorsand contributories, includingprescribing procedures by whichcreditors and contributories maymake decisions and authorising theuse of other procedures to makedecisions if those procedures complywith prescribed requirements.

Similar provisions in respect ofindividual insolvency are included inthe legislation.

Creditors can opt not to receivecertain notices Where a creditor chooses not toreceive notices from the office-holderthe rule requiring the office-holder togive notice to creditors does not applyin relation to those creditors, save inrelation to a notice of distribution orproposed distribution. There is alsoprovision to permit the court torequire notice to be given to allcreditors.

AdministrationThe period of office of anadministrator, which under the 1986Act can be extended by consent for sixmonths, can be extended by one year.This is in force.

The administrators’ powers areamended. Schedule 1 to the 1986 Actgives the administrator the power tosell, hire out or otherwise dispose ofthe property of the company bypublic auction or private contract.The amendment provides that thispower is subject to any regulationsthat may be made by the Secretary ofState and the Secretary of State isgiven the power to make provisionfor prohibiting or imposingrequirements or conditions inrelation to the disposal, hiring out orsale of property of a company by theadministrator to a “connectedperson”. A “connected person” is a

“relevant person” in relation to thecompany or a company connectedwith the company. A person is a“relevant person” if they are adirector or other officer or shadowdirector of the company; a non-employee associate of such a person;and a non-employee associate of thecompany. This is in force.

Changes of this kind are to beexpected to have a significant effecton the process that needs to befollowed for there to be a sale of acompany’s business to the companycontrolled by the company’sdirectors, in particular where the saleis by way of pre-pack.

Creditors with small debtsThe statute provides that theInsolvency Rules can be amended tomake provision for a creditor whohas not proved a small debt to betreated as having done so for thepurposes of distribution of acompany’s property or anindividual’s property. “Small debt” isto be defined in the prescribed rules.This in in force.

Individual voluntaryarrangementsThere is a new time limit forchallenging individual voluntaryarrangements. The time limit ischanged in section 262(3) (a) of the1986 Act. At present the legislationprovides that an application tochallenge an individual voluntaryarrangement cannot be made: “afterthe end of the period of 28 daysbeginning with the day on which thereport of the creditors’ meeting wasmade to the court…” The legislationsubstitutes, from “the report” to theend: “the creditors decided whetherto approve the proposed voluntaryarrangement or, where a report wasrequired to be made to the courtunder section 259(1) (b) on the day

the report was made.” 6

Fast-track individual voluntaryarrangements have been abolished.Both these changes came into forceon 26 May 2015.

Recognition of professionalbodiesThe most significant provisions are:1/. The recognised professionalbodies are to continue to licenceinsolvency practitioners, however,the continuation of the professionalbodies is in the context of theSecretary of State now having areserve power to introduce a singleregulator of insolvencypractitioners.2/. The Secretary of State will nolonger licence individualpractitioners, but has the power toapply to court for sanctions againstindividual insolvency practitioners.3/. Statutory regulatory objectivesare introduced, which includehaving a system of regulatinginsolvency practitioners that securesfair treatment for persons affectedby their acts and omissions andensures consistent outcomes. 4/. The Secretary of State, withoversight of the recognisedprofessional bodies, can imposesanctions on the recognisedprofessional bodies, in the form offinancial penalties and reprimands.The Secretary of State can alsorevoke the recognition.

The Secretary of State is also giventhe power to apply to the court fordirect sanctions against anindividual insolvency practitioner ifthe Secretary of State considers thatit would be in the public interest forsuch an order to be made. Theseprovisions are not yet in force.

DISQUALIFICATION OF DIRECTORSThe provisions of Part 9 of the SMEEAct amend the Company Directors’

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6/. The requirement to report to the court only applies where the meeting is summoned under section 257 of the IA 1986 (see section 259(1) of thatstatute).

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Disqualification Act 1986 (the CDDA).(As to when these statutory provisionscome into force see footnote 7)7

New reporting requirements forinsolvency practitionersThere are new requirements to beimposed on liquidators,administrators and administrativereceivers for the reporting ofmisconduct by directors. The office-holder is required to submit a reportin respect of every director of aninsolvent company, not only those inrespect of whom the office-holderdecides to make a report. Thesereports are required to describe anyconduct that may assist the Secretaryof State to decide whether to apply fora disqualification order against thatdirector and must be submitted within3 months of the “insolvency date”.

The period of time during which theSecretary of State is required to applyfor a disqualification order has beenincreased from two years to threeyears.

The Secretary of State may require“any person” to provide information inproceedings brought under section 6of the CDDA.

New grounds for disqualifying adirectorThere are to be two new grounds fordisqualification:1/. Where a person has been convictedof a company-related offenceoverseas, for example an offencecommitted in connection with thepromotion, formation, management,liquidation or striking off of acompany which corresponds to anindictable offence under the law inthis jurisdiction; and,2/. Where a person has instructed adisqualified director. A person whogave directions or instructions to a

This restriction is removed by theprovisions of the SBEE Act such thatthe Secretary of State no longer needsto rely on “investigative materials”.This change to the legislation willallow the disqualification of a directorof a solvent company on grounds ofunfitness.

Persons instructing unfit directorssubject to disqualificationThe new legislation permits adisqualification order against a personwhere a person, referred to as themain transgressor, who is or has beena director of a company (but not ashadow director) has beendisqualified or has given anundertaking and that person hasexercised the requisite amount ofinfluence over the main transgressor.A person exercises the requisiteamount of influence if any of theconduct for which the maintransgressor was disqualified: “is theresult of the main transgressor actingin accordance with the person’sdirections or instructions.” The givingof advice in a professional capacity isexpressly excluded as not fallingwithin the “requisite amount ofinfluence”.

The ability to disqualify a personwho has exercised the requisiteamount of influence existsirrespective of whether thedisqualification was under section 6 orsection 8 of the CDDA.

Civil compensationThe SBEE Act gives the court thepower to make a compensation orderagainst a person who has beendisqualified under the CDDA or whohas given an undertaking not to act as adirector and his conduct has causedloss to one or more creditors of aninsolvent company of which he was a

director which resulted in the conductthat led to the director beingdisqualified can also be disqualified.This could enable the court to makedisqualification orders against personswho nominate a director.

Determining unfitness matters tobe taken into accountThe court is to be required to haveregard to a broader category ofconduct in determining whether aperson is to be disqualified and theperiod of the disqualification.

This is reflected in amendments tothe statute and the revisions toSchedule 1, Part 1 of the CDDA whichsets out matters to be taken intoaccount. The misconduct is nowexpressed in more general terms andnow includes conduct in relation toother companies, including overseascompanies.

The court will be required to takeinto account in all cases the extent towhich a person was responsible forthe failures of the other failedcompanies or overseas companies andthe extent to which loss or harm wascaused by that person’s conduct.Where the person against whom theapplication is made is or has been adirector of such companies, the courtis also required to take into accountwhether there was a breach of anyfiduciary duty, a breach of anylegislative or other obligation and thefrequency of such conduct.

Directors of solvent companies canbe disqualifiedPursuant to section 8 of the CDDA aperson who was a director of a solventcompany could only be disqualified ifthere was “investigative material” thatwas such as to satisfy the court thatthe director was unfit to be concernedin the management of a company.

! !

7/. None of the provisions of Part 9 of the SMEE Act came into force under the commencement provisions of section 164 of that statute, The SmallBusiness, Enterprse and Employment Act 2015 (Commencement No. 1) Regulation 2015, which was made on 20 May 2015, states that the provisionsin Part 9 came into force on 26 May 2015, but they came into force only for the purpose of enabling the exercise of any power to make provision byregulations, rules, or order made by statutory instrument or to prepare and issue guidance but they are not otherwise in force.

COMPANY & INSOLVENCY LAW

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director. The Secretary of State also hasthe power to accept a “compensationundertaking” as an alternative toobtaining an order. A compensationundertaking/order is an order thatrequires a person to pay an amountspecified in the order to the Secretary ofState for the benefit of creditors specifiedin the order or to a class or class ofcreditors so specified or to make acontribution to the assets of the company.As to the date on which these provisionscome into force see footnote 9.

It is surprising that the statute appearsto permit a distribution other than inaccordance with pari passu principlesthat apply to distribution in insolventliquidations. Furthermore, the prospectof there being a financial penalty as wellas disqualification may deter a numberof directors from giving undertakingswhere they do so to avoid incurringcosts of litigation if the consequence ofso doing is likely to result in a claim forcivil compensation.

OTHER LEGISLATIONThe Deregulation Act 2015 is of muchless importance as it is primarilyintended to reduce burdens resultingfrom legislation for business and torepeal legislation that is no longer ofpractical use. The changes toinsolvency and company law aresummarised below.8

Deeds of Arrangement Act 1914. Thelegislation abolishes this statute. As towhen these statutory provisions comeinto force, see footnote below.9

Administration. There are twochanges. First, so far as theappointment of administrators are

concerned, the legislation expresslystates that where notice of intention toappoint administrators is filed bydirectors the appointment of theadministrators is not prevented if awinding up petition is presented afterthe notice of intention to appoint hasbeen filed. Second, administrators areentitled to be released without theapproval of unsecured creditors wherethere has been no distribution to themother than of the prescribed part.

Winding-up. There are also twochanges. First, the statute removes thecourt’s power to order a person whoowes money to the company to paythat money into an account with theBank of England. Second, where awinding-up order is rescinded, theperson who is liquidator at that time isreleased with effect from such time asthe court may determine.

Disqualification for unfit directors ofinsolvent companies. First, theSecretary of State’s powers to obtaininformation from officeholders inrespect of a person’s conduct as adirector and to produce or permitinspection of books, records andpapers relevant to that person’sconduct as a director pursuant tosection 7 of the CDDA is expanded topermit the Secretary of State to obtaininformation from “any person”.Second, the conduct about whichinformation can be required to begiven is no longer “any person’sconduct as a director of the company”,but is expanded to “that person’s oranother person’s conduct as a directorof a company which has at any timebecome insolvent (whether while that

person was a director or subsequently”.Bankruptcy. There are three changes.First, an extension of the court’s powerto appoint an insolvency practitioneras an interim receiver, who could laterbe appointed as a trustee. Second, it isno longer a mandatory requirementfor a debtor to produce a statement ofaffairs. Third, this change providessome protection to bankers fromclaims by trustees where the trusteehas not served notice on the bankerthat he (the trustee) has a claim inrespect of after-acquired property inorder to facilitate the operation ofbank accounts for undischargedbankrupts.

Insolvency practitioners. Theauthorisation of nominees andsupervisors in relation to voluntaryarrangements is repealed as is theprovision for authorisation ofinsolvency practitioners to be grantedby competent authority.

Liabilities of administrators. Thisamendment deletes the words “wagesor salary” for the purpose ofdetermining the liabilities ofAdministrators/AdministrativeReceivers for expenses and prioritiesto bring the insolvency legislation inline with employment law.

CONCLUSIONIn this article I have tried to drawattention to the recent changes thathave been made and to the mainchanges that are to be made tocompany and insolvency law. It couldbe all too easy to miss the fact that theSBEE Act is intended to bring aboutsome significant changes.

! !

8/. Section 19 and Schedule 6 of the Deregulation Act. There are also amendments to the requirements of company law in relation to proxies, but thisis merely directed at repealing unnecessary legislation.

9/. Section 115 of the Deregulation Act provides that some of these provisions are to come into force at the end of the period of 2 months beginningwith the day on which the Act was passed, but only so far as necessary for enabling the exercise on or after 26 March 2015 of any power to makesubordinated legislation. The provisions that came into force for this purpose on 26 May 2015 are: the provision stating that an administration ordercan be made notwithstanding a winding up petition has been presented after the notice of intention to appoint but before the appointment; the minoramendments bringing the coverage of expenses in administration in line with employment law. The Deregulation Act 2015 (Commencement No. 1and Transitional and Saving Provisions) Order 2015 did not bring any futher provisions of Schedule 6 of the Deregulation Act into force. The presentposition is that the other changes will be brought into force on such date or dates as the Secretary of State may by statutory instrument appoint.

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INSOL BERMUDA

INSOL InternationalBermuda One DaySeminar

This year’s INSOL International One DaySeminar on 4 June was the first of its kind to beheld in the beautiful islands of Bermuda.Hosted at the impressive Fairmont HamiltonPrincess on Hamilton harbour, the conferencewas attended by 110 delegates, with some 50per cent flying in from the Caribbean, the US,the UK and the Channel Islands.

South Square was there in force, with Gabriel

Moss QC, William Trower QC, David AlexanderQC, Hilary Stonefrost, Richard Fisher andWilliam Willson all in attendance.

This show of numbers from Chambersunderscores our continuing commitment bothto INSOL and to our friends/colleagues inBermuda, where many of us have spentconsiderable amounts of time over the years.

This year’s sponsors were: ASW Law andHurrion & Associates Limited (platinum); andAppleby and Deloitte (gold).

The conference kicked off with a sessioncalled “Statutory Star Trekkers v Common LawDinosaurs”. Chaired by Ian Kawaley, ChiefJustice of the Supreme Court of Bermuda, thepanel speakers included South Square’s GabrielMoss QC, James Farley (McCarthy Tétrault), theHon Arthur Gonzalez (New York University)and Nicholas Segal (Grand Court of the CaymanIslands). The panel debated various approachesto cross-border insolvency cooperation,drawing on last year’s decision of the PrivyCouncil in Singularis – a case particularly closeto the hearts of the chair and at least one panelmember (as, respectively, the first instancejudge and the Leading Counsel for theunsuccessful liquidators). Though the approach

William Willson reports from INSOL’s recent one day seminar inHamilton, Bermuda and found delegates grappling with the‘common law in all its splendid inadequacy’

THE FAIRMONT WAS THEVENUE FOR THE INSOL SEMINAR

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of the “pointy-eared” Privy Council came in forsome robust criticism, the conclusion drawnwas that the common law dinosaurs needed “tolook for positives [in the Singularis decision]”,“move on” and “find a different path”.

The second session, “Onshore/Offshore –where should the restructuring take place?”,was chaired by DLA Piper’s Craig Martin, andused an intricate case study to illustratedetermining factors when deciding where toundertake the restructuring if businessoperations are onshore and the domicile isoffshore. The panel was made up of SidleyAustin’s Jessica Boelter, Freshfields’ NeilGolding and Deloitte’s Stu Sybersma. Thesession was excellent: clinically prepared,clearly presented and full of pragmatism.

After a well-earned networking lunch, thefirst afternoon session “AlternativeReinsurance – Alternative RestructuringSolutions”, looked at the variousproducts/instruments available in a marketsaid to have grown to a size of $60 billion in2014. Chaired by KPMG’s Mike Morrison, panelspeakers included Jonathan Cogan (Kobre &Kim), Peter Ivanick (Hogan Lovells), JessShakespeare (Duff & Phelps) and Laura Taylor(Nephila Capital). The structures underconsideration included “cat bonds” and“sidecars” and the panel considered the casesof Camp Re, Mariah Re and Lehman Re, whereloss events have hit these structures leading todisputes and insolvency events. As one panel

member pithily put it: “Bad things happen tonice people’s collateral”.

The closing session, “Change is as good as arest”, considered recent case law developmentsin the Cayman Islands, Bermuda, BVI and theUS, drawing in on the perspectives of GregGrossman (Astigarraga Davis, US), KeiranHutchison (EY, Cayman), Martin Kenney(Martin Kenney & Co, BVI), Julie Nettleton(Grant Thornton, UK) and Jan Woloniecki (ASWLaw, Bermuda). In the wake of last year’sdecision in Fairfield Sentry on shareholderredemptions from Madoff feeder funds, thepanel considered competing solutions based oncommercial certainty on the one hand andcommercial reality on the other. The sessionended where the seminar had started in themorning – with, as one panellist described it,“the common law in all its splendid inadequacy”.

With the technical sessions complete, a largenumber of us repaired to the Fairmont’spoolside bar, 1609, to discuss the day’s events(and enjoy the new infinity pool). The delegatesthen hopped on board a ferry for a short rideacross the harbour and a fabulous sunsetdinner at the stylish Beau Rivage restaurant.Many thanks to Conyers Dill & Pearman andKMPG for generously sponsoring this andhosting us all so lavishly.

We look forward to seeing many of you againin Guernsey for INSOL’s Insolvency and TrustsOne-Day Seminar on 9 September.

Finally, many thanks to Penny Robertson fororganising another successful conference.

HIS HON MR. JUSTICE IANKAWALEY, JAMES FARLEY QC,

GABRIEL MOSS QC, NICKSEGAL AND THE HON ARTHUR

GONZALEZ

WILLIAM WILLSON

58

How is it possible to improve the co-ordination and effectiveness of cross-border insolvencies involving offshorejurisdictions in the future? Which offshore jurisdictions are perceived to be high performers? What can be learnedfrom these jurisdictions as well as those that are perceived as less successful? These questions and others wereasked of UK and offshore senior lawyers and other professionals at the forefront of cross-border insolvency. Theirresponses form the basis for a new report From discord to harmony.

South Square joined with Grant Thornton UK LLP to commission this research. The resulting report explores thefactors regarded by participants as shaping the attractiveness of an offshore jurisdiction, and to what extent differentjurisdictions are perceived as meeting these criteria. From discord to harmony explores strategies for fosteringgreater collaboration between jurisdictions to improve cooperation and consistency, and ends by focusing on thefollowing eight offshore jurisdictions: Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, HongKong, Ireland, Isle of Man and Jersey.

South Square and Grant Thornton are extremely grateful to all participants who took part in the online research, andparticularly to those who gave up additional time to provide further input and assistance with this project.

Summary of findingsSix important headlines emerge from the research:

1. Cross-border insolvency practitioners anticipate an increase in future activity in offshore centres.63% of respondents think that the number of insolvencies involving offshore jurisdictions will increase over the nextthree years. One in five of the respondents (19%) suggest that the level of activity will ‘increase considerably’ overthis period. It is, perhaps unsurprisingly, predicted that an up-surge will largely be driven by an increase in activity inthe financial services sector.

2. Jurisdictions need to ensure that their basic legal process and infrastructure is fit for purpose.Getting the basics right is critical for effective cross-border insolvency proceedings, yet respondents expressed theview that these basics are not consistently provided by offshore centres at the moment. Legal process andinfrastructure is cited by two-thirds (67%) of respondents as the most important factor contributing to theattractiveness of an offshore jurisdiction. On average the respondents score the current performance of offshorecentres as less than (and sometimes considerably less than) seven out of 10.

From discord to harmony:the future of cross-border insolvency

New report published by South Square and Grant Thornton UK LLP

CROSS-BORDER INSOLVENCY REPORT

om discorFre of crthe futur

mony: d to harom discoross-bore of cr

mony: der insolvencyoss-bor

der insolvency

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3. The Cayman Islands emerges as a preferred jurisdiction. Among all the offshore jurisdictions explored in this research, the Cayman Islands is most frequently identified byrespondents as the jurisdiction with the most effective insolvency laws. Almost two-thirds of respondents (63%)place the Cayman Islands among the three most effective offshore jurisdictions, followed by the British Virgin Islands(48%) and Hong Kong (37%).

4. Singapore is a very strong location for cross-border insolvency, but those with no experience of itsprocesses are not aware of its strengths. Three-quarters (75%) of respondents with direct experience of undertaking multi-jurisdictional insolvency inSingapore place it among the three most effective offshore jurisdictions. However, Singapore is not scored so highlyby respondents who provided feedback on the jurisdiction without direct experience there. This suggests asignificant perception gap exists and that Singapore might have a PR battle to wage.

5. All jurisdictions have room for improvement, with perception scores noticeably low. It is clear that no single jurisdiction has got everything right, with each offshore location demonstrating both strengthsand weaknesses according to research respondents. When asked to rate each jurisdiction against a range ofdifferent attributes the average scores received are noticeably low, and in most cases below 6 out of 10.

8 From discord to harmony

The legal process and infrastructure 84%

63%

40%

38%

28%

14%

14%

7%

1%

1%

1%

1%

1%

0%

6%

Cross-border assistance provisions

Enforceability of foreign court orders and judgments

Providing rescue mechanisms for corporate financial difficulties e.g. administration and reorganisations involving courts

Ability to put a foreign company into liquidation or other insolvency processes

Ability to obtain financial information about companies e.g. from banks and auditors

Ability to appoint provisional liquidators

Transparency regarding a company’s affairs e.g. publicly available registers of companies

Provisions relating to corporate directors

Indemnities for directors and officers

Treatment of antecedent transactions – whether requirement of fraudulent intent

Treatment of antecedent transactions – timescale

Provisions relating to shadow directors

Provisions relating to directors’ disqualification

Other

What makes a jurisdiction attractivePerceptions of offshore centresFor complex cross-border insolvencies to work effectively and efficiently requires a fine balance between consistently applied international standards and frameworks, and being attuned to local needs and priorities. Success therefore depends on having two fundamental aspects in place in any offshore jurisdiction: a well-run court infrastructure, and clear and robust insolvency laws.

Getting the basics rightIt is rather telling that when asked to rate the most important factors for evaluating the effectiveness of a jurisdiction’s insolvency legal framework, having basic processes and provisions in place emerges as the most frequently cited factors. For the most part, participants were concerned about the feasibility of undertaking insolvency: are the right mechanisms in place to make it happen in offshore centres? Of lesser importance for respondents when evaluating offshore jurisdictions are provisions relating to corporate or shadow directors, and the treatment of antecedent transactions both in terms of timescale and whether there is a requirement for fraudulent intent.

Two-thirds (67%) of respondents place the legal process and infrastructure as their most important factor, with 84% placing it within their top three factors, see Figure 3. This is followed by the need to have an adequate and appropriate range of cross-border assistance provisions, which was placed in the top three factors by 63%, and the enforceability of foreign court orders, cited by 40%. Without these basics in place, a jurisdiction will not be perceived as a particularly appealing place to undertake insolvency.

Figure 3. Which of the following are the three most important factors when evaluating the attractiveness of a jurisdiction’s insolvency legal framework? – Aggregated top three factors

Legal process and infrastructure is cited as one of the top three factors for evaluating the attractiveness of offshore jurisdictions by more than four out of every five respondents.

Figure 1.

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CROSS-BORDER INSOLVENCY REPORT

12 From discord to harmony

Instructing knowledgeable lawyers on the ground and developing strong communication and project management capabilities are two ways to ensure insolvency matters are dealt with as effectively and efficiently as possible. From a wider perspective, fostering greater collaboration between jurisdictions is necessary to address many of the systemic issues encountered when undertaking multi-jurisdictional insolvencies involving offshore centres.

The benefits of greater collaborationEnhanced collaboration can help bring about a greater level of consistency between jurisdictions. Harmonising processes and protocols can in turn help increase the efficiency and timeliness of insolvency proceedings involving increase offshore jurisdictions. This research illustrates a clear rationale for greater collaboration: increased cooperation helps to enable a more positive view of jurisdictions overall. As one UK lawyer neatly summarises: “Bringing a jurisdiction’s insolvency laws into harmony should make it a more attractive place to do business and therefore act as an incentive for the jurisdiction to sign-up.”

Take transparency of reporting as an example. As illustrated in Figure 4 on page 9, the ability to obtain financial information about companies and directors and the transparency of corporate reporting is an area in which offshore jurisdictions are currently perceived as particularly weak, scoring just 4.60 out of 10 on average. The level of disclosure of information available in the public domain differs significantly between jurisdictions. There may be local reasons why confidentiality has historically been prized, but in the current climate secrecy has become a dirty word. This is just one instance where more consistency between jurisdictions could be helpful and would help close the performance gap between the best perceived jurisdictions and the rest.

A strong desire for further cooperationAn overwhelming majority of research respondents (85%) agree that courts in different jurisdictions should collaborate more to make multi-jurisdictional insolvencies a fairer, more efficient process, see Figure 7. This compares with just 10% who believe greater collaboration is not required. This strength of feeling is echoed

Call for consistencyFostering collaboration and harmonisation

Figure 7.Do you think that the courts in different jurisdictions should collaborate more to make multi-jurisdictional insolvencies a fairer, more efficient process?

An overwhelming majority believe that courts in different jurisdictions should collaborate more.

85% said

Yes

No

Don’t know

Yes

10%

85%

5%

About the researchSouth Square and Grant Thornton UK LLP commissioned independent consultancy Meridian West to conduct the research among lawyers and other insolvencyprofessionals with experience of conducting multi-jurisdictional insolvencies involving offshore jurisdictions. In total, 81 people based around the world took part in theonline research, together representing views from 50 of the leading firms involved in cross-border insolvency. This online research was supported by a series of in-depthinterviews.

6. Respondents want to see collaboration rise further up the agenda for offshore jurisdictions.85% of respondents say that courts in different jurisdictions should collaborate more to make multi-jurisdictionalinsolvencies fairer and more efficient. (It is, perhaps, surprising that this did not get a 100% vote in favour, and evenmore surprising that 5% of respondents did not know whether there should be or not). Suggestions for fosteringfurther collaboration range from formal mechanisms such as enacting the UNCITRAL Model Law, through to informalchannels for greater dialogue and information sharing between judges.

A trigger for wider debateThe research project was led by Felicity Toube QC of South Square and Steve Akers, Head of Complex andInternational Insolvency at Grant Thornton UK LLP.

Commenting on the report, Felicity Toube QC says: “From discord to harmony provides interesting and usefulinsights into the perceptions of leading practitioners on undertaking cross-border insolvencies in major offshorejurisdictions. We hope our research will be a trigger for wider debate about how all those involved in the legislativeand judicial process might learn from each other and work more closely together to improve consistency andcollaboration across offshore jurisdictions. We look forward to discussing the findings with our clients and othercolleagues in the international insolvency community.”

For more information and a copy of the full report, contact Joanna Colton at joannacolton@southsquare.com

FELICITY TOUBE QC

STEVE AKERS

Figure 2.

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Richard Sheldon QC retired from the Bar, andas a full member of Chambers, on 31 July 2015.He will now become an Associate Member ofSouth Square.

Richard joined Chambers in 1980 and has hada long and successful career as a barrister. Hewas called to the Bar in 1979, was appointedQueen’s Counsel in 1996 and has sat as a DeputyHigh Court Judge since 2003. He is a Bencher ofGray’s Inn.

Richard was involved in most of the majorinsolvency cases in the past quarter of acentury, starting with the collapse of BCCI in1991, and including Maxwell, Barings,Landsbanki, Madoff and Lehman Brothers. Heworked on major restructurings, including theBank of Cyprus, Sea Containers, MyTravel,Global Crossing and Telewest. His practice alsocovered work offshore notably in the CaymanIslands and Bermuda. Richard, a loyalsupporter of Arsenal, also became involved infootball club litigation with Portsmouth FC.

Richard has always been a key member ofSouth Square. He was generous with the timethat he devoted to the internal running ofChambers, and his sound judgement, fair-mindedness and sense of humour wereinvaluable in reaching a sensible solution to thevarious management issues which arose.

Always keen to share his experience withmore junior barristers, Richard helped to formthe careers of numerous junior members ofChambers. Each year those who had been ledby him, or who had assisted him with bookwriting, were invited to a dinner cooked (atleast in part) by him. Helen, his wife, alwaysplayed an important role in the proceedings.The delicious food was always accompanied bygreat wine from Richard’s impressive winecellar. The dinners which had become atradition were always terrific fun. It is a shamefor the junior members of Chambers that therewill now be no more of them.

Richard Sheldon QC retires

RICHARD SHELDON QC

Richard is not cutting his ties with the lawcompletely. He intends to continue his role as avisiting professor at Nottingham TrentUniversity and will also retain his position asgeneral editor of the leading publication Cross-Border Insolvency which now bears his name.

We will miss Richard very much. But happilyfor him he will now have more time to spendnot just with his family, but also on his othergreat passions: music and mountains.

62

EU/EAA UPDATE

EU/EEA LAW UPDATERobert Amey and Andrew Shaw look at EU/EEA developments.

Prior to 2008, the Nortel Group(“Nortel”) was one of the world’sleading providers oftelecommunications networksolutions. The Canadian companyNortel Networks Limited (“NNL”) heldthe majority of Nortel’s worldwidesubsidiaries, including NortelNetworks SA (“NNSA”), a companyincorporated under French law.Nortel engaged in extensive researchand development (“R&D”) activities,which it pursued through specialistsubsidiaries (“R&D centres’). NNSAwas one of those subsidiaries. Almostall the intellectual property resultingfrom Nortel’s R&D activities wasregistered (mainly in North America)in the name of NNL as the legal owner.NNL granted the R&D centresexclusive licences to exploit Nortel’sintellectual property. The R&D centresalso retained beneficial ownership ofthat intellectual property, in aproportion based on their respectivecontributions to the research anddevelopment activities.

In 2008, following serious financialdifficulties, Nortel decided to arrangefor the opening of insolvencyproceedings simultaneously inCanada, the United States and theEuropean Union. By order of 14

January 2009, the English High Courtopened main insolvency proceedingsin respect of all the companies in theNortel group situated in the EuropeanUnion, including NNSA, pursuant toArticle 3(1) of the InsolvencyRegulation. On 28 May 2009, on theapplication of NNSA, the tribunal decommerce de Versailles openedsecondary proceedings in France.

On 7 July 2009, industrial actionbegan at NNSA, and was brought to anend on 21 July 2009 by the signing of amemorandum of agreement settlingthe action by NNSA, the comitéd’entreprise (“Works Council”) ofNNSA and representatives of thestriking employees. That agreementprovided for the making of aseverance payment, of which one partwas payable immediately and anotherpart, known as the deferred severancepayment (“deferred SP”), was to bepaid, once operations had ceased, outof any sale proceeds after fullpayment of the administrationexpenses. It was provided that theamount of the deferred SP woulddepend on the amount of fundsavailable.

In order to secure a better price forNortel’s assets, the liquidators in thevarious insolvency proceedings

throughout the world agreed thatthose assets would be sold on a globalbasis. It was agreed that NNL’ssubsidiaries would at the appropriatetime waive their industrial andintellectual property rights relating tothe activities being sold, that all theproceeds from the sale of the group’sassets at world level would be placedin escrow accounts in the UnitedStates and that none of the sums heldin those accounts could be distributedoutside an agreement concluded by allthe relevant entities in the group. Inaccordance with this agreement,NNSA’s assets were sold and theproceeds (around US$7.2 billion) wereplaced in escrow in the United States.

The Works Council subsequentlysought declarations from the Frenchcourt to the effect that the secondaryproceedings relating to NNSA had anexclusive and direct right over a shareof the overall proceeds from the saleof the Nortel group’s assets. TheFrench insolvency proceedings weresecondary proceedings. Accordingly,the Insolvency Regulation providedthe effect of the French proceedingswould be “be restricted to the assets ofthe debtor situated in [France]”(Article 3(1) and Article 27).Furthermore, Article 2(g) providedrules for determining in whichMember State assets were situated.

The French court referred twoissues to the ECJ, asking (1) whether it

Recast Insolvency Regulation

The Recast Regulation (“RR”) enteredinto force on 26 June 2015 (RR Article92). Plenary sessions of the Parliamenton the 7 and 20 May 2015 adopted the“first reading position” of the Council,and the legislative process was

completed by the formal act of signingby the respective Presidents of theParliament and of the Council, whichduly took place on the same day,namely 20 May 2015. The RR waspublished in the Official Journal on 5June 2015 as Regulation (EU)No.2015/848. The RR will only be

applicable to insolvency proceedingsopened on or after 26 June 2017. Theprevious Insolvency Regulation isrepealed by RR Article 91 butcontinues to apply to insolvencyproceedings which fall within its scopeand which were opened before 26June 2017.

C-649/13 Comité d’entreprise de Nortel Networks SA and others vRogeau

ROBERT AMEY ANDREW SHAW

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AUGUST 2015 SOUTH SQUARE DIGEST

This was an application by the fourthdefendant, Kaupthing Bank hf(“Kaupthing”), and the fifthdefendant, Jóhannes Jóhannsson (“JJ”)a member of Kaupthing’s winding upcommittee seeking dismissal or a stayof proceedings brought against themin England by the claimants. Theseproceedings concerned various tortsalleged to have been committed bythe defendants in relation to anabortive investigation into VincentTchenguiz and related entities by theSerious Fraud Office (“the Englishproceedings”).

The first ground relied upon byKaupthing was that the Claimantswere barred from bringingproceedings in England because ofthe effect of Directive 2001/24/EC onthe Reorganisation and Winding Upof Credit Institutions (“the 2001Directive”) as enacted in England bythe Credit Institutions(Reorganisation and Winding Up)Regulations 2004 (“the 2004Regulations”), which is to give directeffect in England to Icelandicinsolvency law. The provisions ofIcelandic insolvency law include astay of court proceedings against aninsolvent bank such as Kaupthing(“the insolvency ground”).

The second ground, relied upon byboth Kaupthing and JJ was that theEnglish courts had no jurisdictionunder the Convention on Jurisdictionand the Recognition and Enforcementof Judgments in Civil and Commercial

Matters (“the Lugano Convention”)because the English proceedings fellwithin the exception at Article 1(2)(b)of the Lugano Convention, whichexcludes “bankruptcy proceedingsrelating to the winding up of insolventcompanies or other legal persons,judicial arrangments, compositionsand analogous proceedings” from itsscope (“the jurisdiction ground”).

The claimants argued that theEnglish proceedings were clearlywithin the Lugano Convention and,where the Lugano Conventionapplied, the 2001 Directive onlyapplied to proceedings which fellwithin the scope of its Article 1(2)(b).They further disputed that the effectof the 2001 Directive and the 2004Regulations was to give Icelandexclusive jurisdiction in relation tothe winding up of Kaupthing.

Carr J held that the effect of the2001 Directive was to give Icelandexclusive jurisdiction to wind upKaupthing and that Icelandic lawgoverned the effects of those windingup proceedings on individualcreditors, relying in particular on thejudgment of Gloster J in LornameadAcquisitions Ltd v Kaupthing Bank hf[2013] 1 BCLC 73. She further heldthat the 2004 Regulation hadimplemented the 2001 Directive inEngland and so the Icelandic staywould have effect in England

In dismissing the claimants’contention that the 2001 Directiveonly applied to proceedings within

Article 1(2)(b) of the LuganoConvention. Carr J drew a distinctionbetween the concepts of jurisdictionand choice of law. While the ECRegulation No 1346/2000 onInsolvency Proceedings (“theInsolvency Regulation”) and theLugano Convention dovetailed asregards jurisdiction, there was noreason to suppose that suchdovetailing also applied to questionsof choice of law. The choice of lawrules imposed by the InsolvencyRegulation and other insolvencyinstruments played no part in theLugano Convention. Accordingly,Kaupthing succeeded on theinsolvency ground.

Recognising that to fall within thescope of Article 1(2)(b) of the LuganoConvention, proceedings must derivedirectly from the bankruptcy orwinding up and be closely connectedwith the insolvency proceedings, CarrJ considered that on the facts theEnglish proceedings did not meet thisrequirement. The Englishproceedings did not derive directlyfrom the winding up of Kaupthing,nor was their principal subjectmatter. The claimants did not rely inthe English proceedings on anyinsolvency aspect of the winding upand nor did they rely upon anybreaches by JJ of his duties in hiscapacity as a member of the windingup committee. Although the claimswere connected with the winding upproceedings, the connection was nota close one. Thus the Englishproceedings were within the LuganoConvention and JJ and Kaupthingfailed on the jurisdiction ground.

Tchenguiz & Others v Grant Thornton & Others [2015] EWHC 1864(Comm)

had jurisdiction to rule on what assetsfell within the scope of the secondaryproceedings (and whether it sharedthis jurisdiction with the English courtas the court seised of the mainproceedings) and (2) if it hadjurisdiction, what law it should applyto determine where the relevantassets were situated.

The ECJ, following the opinion of theAdvocate General, held as follows. Acourt seised of secondary proceedings

must be competent to determinewhether it has jurisdiction overcertain assets. Accordingly, althoughthe French proceedings were limitedto assets situated in France, the Frenchcourt was competent to determinewhether assets were situated inFrance in the first place. However, thecourt seised of main proceedings alsohad concurrent jurisdiction todetermine the matter, and to avoidinconsistent judgments, the first in

time would prevail (see Article 25,which would require the second courtto recognise a judgment which hadbeen handed down previously by adifferent court). In determiningwhether assets are situated within thecourt’s jurisdiction, the French courtshould apply the rules in Article 2(g) ofthe Insolvency Regulation, andconsider where the assets weresituated at the date that the Frenchproceedings were opened.

64

NEWS in brief

The Criminal Bar Association (CBA)voted to refuse new legal aid work,supporting solicitors’ strike actionagainst the government’s cuts tolegal aid.

The industrial action is an attemptto reverse the 8.75 per cent cut tosolicitors’ fees, introduced on 1 July.

Fees have been reduced by 17.5

JudicialAppointments ! Simon Derek Picken Esq QC wasappointed to be a Justice of the HighCourt with effect from 8 June 2015,assigned to the Queen’s BenchDivision. His appointment follows theretirement of Mr Justice MacDuff.Simon Picken was called to the Bar byMiddle Temple in 1989, taking Silk in2006. He was appointed a Recorder in2005.

! Alistair MacDonald QC wasappointed as a High Court Judge witheffect from 2 June 2015 to sit in theFamily Division. His appointmentfollows the retirement of Mr JusticeGriffith Williams. Alistair MacDonaldwas called to the Bar by the InnerTemple in 1995. He took Silk in 2011and was appointed a Recorder in2009.

SIMON PICKEN QC

ALISTAIR MACDONALD QC

CoA case timetableupdated for first timeThe Court of Appeal (CoA) hasrevised the guidelines for hear-bydates for the first time in over 10years.

The updated timetable willextend the average waiting timefor cases to be heard and givelawyers a “reliable timescale” forhearings.

Lawyers have increasinglycomplained about the long delayson CoA hearings.

The CoA has now amended thecurrent hear-by dates to ensure“efficient management of thework of the court” and to “reflecta 67 % increase in permission to

appeal applications since the lastpractice note was issued in 2003”.

The time extension will varydepending on the type of case andwhether permission to appeal wasgranted in the lower court.

Cases will be ranked in order ofpriority and the CoA will continueto expedite urgent matters.

Hear-by dates are measuredfrom the date an appellant’snotice is issued in the CoA to thedate the appeal is likely to beheard. The new hear-by dates willcome into effect on 1 August 2015and apply to all cases filed after 31July 2015.

CBA votes to refuse new legal aid work per cent over the last 15 months.

There are approximately 14,000barristers in England and Wales,around 4,000 of whom are membersof the CBA (which voted in favour ofaction by 982 votes to 795).

Justice Secretary Michael Govesaid he was “disappointed” with theresult.

Increase of UK litigants inLondon’s Commercial Court The UK accounted for 37 per cent ofthe total number of commercialcourt litigants this year, up from 23per cent the preceding year,according to figures disclosed inconsultancy service Portland’sannual report, Who Uses theCommercial Court?

The court heard 207 cases intotal, an increase of 88 from theprevious year.

Idil Oyman, head of Portland’slegal disputes practice, said: “We’llhave to see in 12 months’ time ifthe resurgence of UK litigants is aone-off or whether this is the startof a longer-term reversal of thedominance of foreign litigants inthe Commercial Court”.

Outside of Europe, Eurasia, theMiddle East and North Africatopped the list.

65

AUGUST 2015 SOUTH SQUARE DIGEST

South Square is once again holding aLitigation Forum with Mourant Ozannes.The 2015 Forum will take place onWednesday 4 November (12.30-5.30pmfollowed by networking drinks) at DexterHouse in London. The focus of this year’sevent will be key developments in financiallitigation. RISA Conference - Tuesday 24 NovemberRISA is holding a conference in associationwith South Square on Tuesday 24 November(2-5pm followed by a drinks reception) at theRitz-Carlton in Grand Cayman. MichaelCrystal QC will be moderating the event.

Programme and speaker details for bothevents will be available soon. For moreinformation, contact joannacolton@southsquare.com.

Save the dates

Silvio Berlusconi convicted but spared jail timeSilvio Berlusconi was sentenced tothree years in jail and banned fromholding public office for five yearshaving been found guilty of briberycharges by a Naples court in June.However, the former Italian PrimeMinister, who denied the charges,will not have to serve his sentencebecause a statute of limitations comesinto effect later this year before an

appeal can be held. Berlusconi issueda payment of 3m euros to Sergio DeGregorio, then a senator from theanti-corruption Italy of Values Party,to switch to his People of Freedomparty. The disgraced politician, foundguilty of tax fraud last year, iscurrently appealing against a prisonsentence for having sex with anunderage prostitute.

UAE approves bankruptcy lawThe United Arab Emirates' cabinethas approved a draft financialregulation law which is expected tohelp bail out businesses at risk ofbankruptcy.

UAE Prime Minister and Ruler ofDubai, Sheikh Mohammed said in astatement on Emirates news agencyWAM: “The draft law aims toregulate accumulated debts, easesrestructuring of companies as wellas support troubled businesses.”

“The draft law aims to mitigate

risk of bankruptcy and ensure asafe and attractive businessenvironment in the UAE thatnurtures and supportsinvestments,” he continued.

The new law was drawn upfollowing in-depth consultationwith local and internationalexperts in the field of bankruptcyand financial restructure.

“In light of its global investmentposition, the UAE governmentseeks to provide incentives to

investors to invest in the countryby ensuring a supportingenvironment and benefits todevelop businesses in the UAE,”Sheikh Mohammed said.

The next stage is for the draft lawto go to the Federal NationalCouncil for approval. If it is passed,it will be then be referred to therulers of the seven emirates beforeobtaining final approval from UAEPresident, Sheikh Khalifa bin Zayedbin Sultan Al Nahyan.

BERLUSCONI FREE FOR NOW

A Spanish high court has rejected LionelMessi’s latest appeal, paving the way forthe Argentina and Barcelona footballerto stand trial for alleged tax fraud laterthis year.

The provincial high court in Barcelonasaid it believed there was evidence thatMessi, whether knowingly or not, hadbenefitted from a complex network ofcompanies which kept !4.1m fromSpanish tax authorities between 2007and 2009.

Messi’s father, Jorge Horacio Messi, isaccused of selling the footballer’s imagerights using shell companies in Uruguay,Belize, Switzerland and the UK to avoidreporting earnings in Spain.

Messi to face !4.1m tax fraud trial

66

NEWS in brief

Increased hostility towards those whoavoid or evade paying what HMRevenue & Customs deems to be the“right amount” of tax is not going todrop down the government’s agendaas it seeks to recover £5bn a year.

The scope of crackdown is now setto widen – HMRC is expected to raise£7.2bn from closing in on tax fraud,offshore trusts and the hiddeneconomy, which will be funded with£800m of additional investment. Thiswill cover “imbalances” to the taxsystem that disproportionatelybenefit certain groups or structures.

The removal of the climate changelevy exemption for renewableelectricity marks the largest singleitem in the clampdown, which willyield up to £910m a year.

Tax-motivated incorporation isanother “imbalance” the chancellor is

set to tackle in a bid to raise a further£2bn over the course of theparliament, in addition to the £2bn ayear tax dividend increase.

A measure to stop capital gains taxavoidance by private equity firms isexpected to recover £1.8bn over thenext five years.

Osborne’s budget - tax avoidanceand evasion crackdown widens

OSBORNE: CLOSING IN ON TAX FRAUD

INSOL International has appointedqualified mediators Glen Davis QCand Felicity Toube QC among the firstmembers of the new INSOLInternational College of Mediation(IICM) Panel, which was launched on 1July.

The IICM will focus on theresolution of insolvency, restructuringand related disputes that emerge inthe course of insolvency proceedings.The Panel is composed of mediatorsfrom a number of differentjurisdictions, all of whom haveparticular insolvency andrestructuring expertise aspractitioners or as judges.

Glen and Felicity are the onlybarristers and English-based lawyersto have been appointed to the 14-strong panel. They are available tomediate domestic and internationalinsolvency disputes.

Glen Davis QC and FelicityToube QC Appointed toIICM

Pro bono walkersraise £2,500South Square’s London Legal Walkteam would like to extend theirthanks to all those who sponsoredus this year. Richard Sheldon QC,Lloyd Tamlyn, Hilary Stonefrost,Charlotte Cooke, Toby Brown,Robert Amey, Joanna Colton,Hannah Pini, Orietta Bergamo andOberon Kwok participated in the 5kwalk alongside more than 9,000fellow fundraisers, raising morethan £2,500 for the Bar Pro BonoUnit, the Free Representation Unit

and the London Legal SupportTrust.

GLEN DAVIS QC FELICITY TOUBE QC

Director disqualifications doubleNew figures released by the InsolvencyService show that the number ofcompany directors disqualified forcriminal activity has almost doubled inthe last year.

In the last financial year, 119 directorswere struck off by the Insolvency Servicefor wrongdoing including fraud and falserecord keeping. This marks an 83 percent increase on the previous year and ismore than double the figure for 2013,which witnessed 53 directordisqualifications. UP TO 9000 TOOK PART IN THE PRO BONO WALK

67

AUGUST 2015 SOUTH SQUARE DIGEST

Swoopingseagull alert at RCJ"CAUTION. BEWARE.NESTING/SWOOPING SEAGULLS,”read the warning signs dotted aroundthe Royal Courts of Justice in July. Thealert came in response to reports ofdefensive gulls protecting a chickwhich had found its way onto anenclosed, paved outdoor area in thecourts’ complex.

The news hit the Metro and theEvening Standard, which reportedthat a barristers’ society based nearthe courts now deploys a falconer toscare the offending birds away.

A SEAGULL, AND SEAGULL JNR

Law firm in North Korea blunderA Scottish law firm was left red facedlast month having erroneouslyannounced on Twitter that it was thehonorary consulate for North Korea.

At a ceremony attended by SNPLeader Nicola Sturgeon, the

Edinburgh office of GillespieMacandrew was in fact named thehonorary consulate for the Republicof Korea, otherwise known as SouthKorea. The firm was quick to replacethe misleading tweet and issued an

American rapper 50 Cent filed forbankruptcy in July, just days afterbeing ordered to pay $5m to a womanwho claimed he posted her sex tapeonline without permission. The 40-year-old musician, real name CurtisJames Jackson III, filed for Chapter 11protection in the US BankruptcyCourt for the District of Connecticut.He listed both his assets and debts asworth between $10m and $50m.Jackson, also known as Fiddy, burstonto the music scene in 2003 with hisgangsta rap anthem “In Da Club”. Hesubsequently released five

commercial albums and carved out asuccessful film career. Forbes notedhis wealth in 2007, ranking himsecond behind Jay-Z in the rapindustry. The Sunday Times recently reported

the route of 50 Cent’s woes was thevast Connecticut mansion he boughtfrom his idol, former heavyweightboxing champion, and fellowbankrupt, Mike Tyson. Tyson hadtried to warn Fiddy off the purchaseof the property, the upkeep of whichhad effectively led him tobankruptcy.

50 Cent the latest celebrityto file for Bankruptcy

50 CENT (INSET) AND THE MANSION HE BOUGHT THAT RUINED MIKE TYSON

apology to the Korean embassy. It is understood Nicola Sturgeon

and North Korea have yet to strike updiplomatic relations, despite reportsof Kim Jong Un’s effusiveness forScottish independence.

68

SOUTH SQUARE CHALLENGE

Welcome to the South Square Challenge for the August 2015 edition of the Digest. This time all you have to do iswork out what the eight clues represent and what connects them. Please send your answers to kirstendent@south-square.com or by post to Kirsten at the address on the back page. To the winner, if necessary drawn out of the wigtin, goes the usual magnum of champagne and a South Square umbrella. Good luck. Answers by Friday 9 October 2015 please.

David Alexander QC

1 2

3 4

2015 1812

1932 2001

69

AUGUST 2015 SOUTH SQUARE DIGEST

JUNE CHALLENGEThe correct answers to the June 2015 South Square Challenge were:-1/. Re English Scottish and Australian Charter Bank. 2/. Re Hawk Insurance. 3/. Re Drax Holdings Limited. 4/. McCarthy & Stone PLC5/. Re Hellas Telecommunications (Luxembourg). 6/. Re Rodenstock. 7/. Bluecrest Mercantile NV v Vietnam Shipbuilding Industry Group8/. Zodiac Pool Solutions SAS. The connection is Schemes of Arrangement. The winner was Andrew Goodson of Griffins to whom go our congratulations, a magnum of champagne and a South Square umbrella.

And the connection is?

5 6

7 8

1983 1998

1813 1814

Diary Dates

South Square members will be attending, speaking at and/or chairing the following events:

INSOL International Insolvency & Trusts One Day Seminar9 September 2015 – The Duke of Richmond Hotel, Guernsey

INSOL Europe Annual Congress1-4 October 2015 – The Maritim Hotel, Berlin

Pinsent Masons Restructuring and Insolvency Conference6 October 2015 – The Brewery, London

RISA Conference in association with South Square24 November 2015 – The Ritz-Carlton, Grand Cayman

INSOL Dubai Annual Regional Conference24-26 January 2016 – The Madinat Jumeirah Hotel, Dubai

INSOL 2017 Tenth World International Quadrennial Congress19-22 March 2017 – Sydney

South Square also runs a programme of in-house talks and seminars – both in Chambers and onsite at our client premises –covering important recent decisions in our specialist areas of practice, as well as topics specifically requested by clients. For

more information contact events@southsquare.com or visit our website www.southsquare.com

The content of the Digest is provided to you for information purposes only, and not for the purpose of providing legal advice. If you have a legalissue, you should consult a suitably-qualified lawyer. The content of the Digest represents the views of the authors, and may not represent the views

of other Members of Chambers. Members of Chambers practice as individuals and are not in partnership with one another.

70

‘SOUTH SQUARE PROVIDES A WORLD-CLASS SERVICE’ Legal 500

Legal 500 2014

‘SOME OF THE MOST BRILLIANT BARRISTERS AT THE BARFOR HIGHLY COMPLEX FINANCIAL DISPUTES’.

3-4 South Square Gray’s Inn London WC1R 5HP UKTel. +44 (0)20 7696 9900. Fax +44 (0)20 7696 9911. LDE 338 Chancery Lane. Email practicemanagers@southsquare.com.www.southsquare.com

Michael Crystal QC

Christopher Brougham QC

Gabriel Moss QC

Simon Mortimore QC

Richard Adkins QC

Richard Hacker QC

Mark Phillips QC

Robin Dicker QC

William Trower QC

Martin Pascoe QC

Fidelis Oditah QC

David Alexander QC

Antony Zacaroli QC

Glen Davis QC

Barry Isaacs QC

Felicity Toube QC

Mark Arnold QC

Jeremy Goldring QC

David Allison QC

Tom Smith QC

John Briggs

Adam Goodison

Hilary Stonefrost

Lloyd Tamlyn

Daniel Bayfield

Richard Fisher

Stephen Robins

Joanna Perkins

Marcus Haywood

Hannah Thornley

William Willson

Georgina Peters

Adam Al-Attar

Henry Phillips

Charlotte Cooke

Alexander Riddiford

Matthew Abraham

Toby Brown

Robert Amey

Andrew Shaw