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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Fortress Value Recovery Fund I LLP v Blue Skye Special Opportunites Fund LP & Ors [2013] EWHC 14 (Comm) (16 January 2013) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2013/14.html Cite as: [2013] 2 BCLC 351, [2013] 1 All ER (Comm) 973, [2013] BPIR 276, [2013] EWHC 14 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
1) FORTRESS VALUE RECOVERY FUND I LLC (2) ZBS CAPITAL PARTNERS L.P. (A Firm) (3) CYPRESS WAY EUROPEAN ASSET INVESTORS II SĀRL |
Claimants |
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- and - |
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BLUE SKYE SPECIAL OPPORTUNITES FUND L.P. (A Firm) MR SALVATORE CERCHIONE MR GIANLUCA D'AVANZO STEPSTONE ACQUISTION SĀRL (IN BANKRUPTCY, REPRESENTED BY ITS OFFICIAL RECEIVER) BLUE SKYE GP LTD DBZ SPECIAL INVESTMENT (LUX) SĀRL (FORMERLY : BLUE SKYE (LUX) SĀRL) BENLOMOND CORPORATION SĀRL BLUE SKYE MANAGEMENT SĀRL BLUE SKYE CAPITAL SĀRL BLUE SKYE MANAGEMENT SĀRL SCS GREENTEA S.A. BLUE SKYE FINANCIAL HOLDINGS SĀRL OMEGA SKYE PARTNERS LIMITED PARTNERSHIP (A FIRM) OMEGA PARTNERS Sārl MR MATTIA MIRKO DANESE MR FRANCESCO PAOLO PADULA MR GIOVANNI CASLINI MRS VALERIE EMOND MR GEOFFREY HENRY MR ALBERTO MORANDINI BSKYE INVESTORS Sārl |
Defendants |
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Mr Tim Lord QC, Mr Thomas Plewman and Mr Craig Morrison (instructed by Reynolds Porter Chamberlain LLP) for the 2nd, 3rd, 5th, 7th-12th, 15th, 17th and 21st Defendants and the 1st-10th and 12th-13th Part 20 Defendants
Mr Craig Orr QC, Mr Jamie Goldsmith and Mr Alexander Brown (instructed by DAC Beachcroft LLP) for the 4th Defendant and Part 20 Claimant
Mr John Wardell QC and Mr Edward Sawyer (instructed by Withers LLP) for the 16th Defendant and 11th Part 20 Defendant
Hearing dates: 18, 19 and 20 December 2012
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Crown Copyright ©
The Honourable Mr Justice Flaux:
Introduction
Factual Background and the claims advanced
(1) The acquisition by BenLomond, the seventh defendant, then a subsidiary of Blue Skye Lux, the sixth defendant, of Blue Skye FH, the twelfth defendant, to which BenLomond then contributed its shareholding in Alfa Skye (comprising part of the Italian assets);(2) The transfer by Blue Skye Lux of the remainder of the Italian assets to Blue Skye FH in return for the allotment to Blue Skye Lux of Convertible Preferred Equity Certificates ("CPECs") issued by Blue Skye FH;
(3) The transfer by Blue Skye Lux of the Blue Skye FH CPECs to its subsidiary, BenLomond, in return for the allotment to Blue Skye Lux of CPECs issued by BenLomond. Those CPECs were subsequently contributed by Blue Skye Lux, together with the shares held by Blue Skye Lux in BenLomond, to the Blue Skye Fund on 10 May 2011, following which Blue Skye Lux was removed from the structure altogether;
(4) The incorporation of Greentea and Blue Skye SCS, respectively the eleventh and tenth defendants, at the direction of the second and third defendants.
(1) The contribution by BenLomond of the Blue Skye FH CPECs and shares (and therefore the Italian assets) to Blue Skye SCS in return for partnership units in Blue Skye SCS which the claimants and Stepstone allege was at an excessive premium, and the contemporaneous subscription for partnership units in Blue Skye SCS by BSkye Investors, the twenty first defendant. The result was that the units in the Blue Skye SCS partnership were held as follows: (i) 501 units or 49.85% by Blue Skye Capital, the ninth defendant, in return for 501; (ii) 498 units or 49.55% by BenLomond in return for 198,699,502; (iii) 5 units or 0.5% by BSkye Investors in return for 1,000,000 and (iv) 1 unit or 0.1% by Blue Skye Management, the eighth defendant, in return for 1.(2) The entry by Blue Skye Capital into an undertaking ("the Undertaking") with BenLomond to pay to BenLomond any dividends distributed to Blue Skye Capital by Blue Skye SCS or an amount equal to any proceeds of sale resulting from the disposal of Blue Skye Capital's partnership units in Blue Skye SCS.
(1) ZBS and Fortress claim against Stepstone for breach of the Loan Agreement and of the Security Assignment respectively.(2) ZBS and Fortress advance claims in tort against all defendants except Stepstone for unlawful means conspiracy and unlawful interference. Cypress Way has abandoned its claims in tort in the Amended Particulars of Claim.
(3) ZBS claims against all the defendants except Stepstone in tort for procuring breach by Stepstone of the agreements.
(4) Fortress claims as assignee in respect of Stepstone's loss (i) against the fifteenth and sixteenth defendants for breach of their fiduciary duties owed to Stepstone under Luxembourg law; (ii) against the fifth defendant for breach of the Partnership Deed; (iii) against all the other defendants except Stepstone for procuring that breach; and (iv) against all the other defendants except Stepstone for dishonest assistance of variously the fifth and/or fifteenth and/or sixteenth defendants.
(5) In the alternative to the English law tort claims, ZBS and Fortress claim against all the defendants except Stepstone in tort under Luxembourg law on the basis of intentional acts, alternatively negligent conduct or imprudence which is actionable in tort under Luxembourg law.
(6) All the claimants seek orders under sections 423 to 425 of the Insolvency Act 1986, unwinding the reorganisation of the structure and restoring the economic substance to what it was prior to the Scheme.
Procedural history
The Part 20 proceedings
(1) Stepstone accepts, vis-ā-vis the claimants that it was in breach of contract but alleges that such breach was caused by the defendants designing, orchestrating, implementing or participating in the Scheme. Accordingly Stepstone claims for "Liability Damage" ie the loss it has suffered from being liable to ZBS and Fortress for breach of the Loan Agreement and Security Assignment, either by way of a contribution or indemnity under the Civil Liability (Contribution) Act 1978 or as damages pursuant to causes of action which mirror those in the main action.(2) Stepstone claims that it has suffered further loss as a result of the other defendants' wrongful participation in the Scheme namely the loss of or diminution in value of its interest in the Blue Skye Fund ("Fund Damage"). It claims damages and/or compensation under the same causes of action, alternatively accounts of profits in equity.
(3) Stepstone seeks an order pursuant to sections 423 to 425 of the Insolvency Act 1986, alternatively Article 1167 of the Luxembourg Civil Code to unwind the reorganisation and restore the economic substance of the position as it was prior to the Scheme.
The matters still in issue on the applications to strike out and for summary judgment
(1) The defendants' application for summary judgment under CPR Part 24 on the applicable law of the claims in tort or delict;(2) The defendants' application to strike out the English law claim by ZBS for the ZBS loss.
(3) The defendants' application to strike out Fortress's claims for the Stepstone loss in so far as they fall outside the Security Assignment;
(4) The defendants' objection to the amendment to plead indemnity claims against Stepstone;
(5) The defendants' objection to the amendment in [74A] of the Amended Particulars of Claim;
(6) The defendants' objections to the claim under sections 423 to 425 of the Insolvency Act 1986;
(7) The costs of discontinuance of claims.
The relevant test on strike out and summary judgment applications
"4. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the [respondent's] prospect of successfully establishing the facts relied on by him is 'real', that is more than 'fanciful' or 'merely arguable..'
5. Although the test [whether the claim has a real prospect of success] can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the "no real prospect of success" test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials.
17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice.
18. In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."
"Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."
The applicable law of the claim in tort or delict
"Article 4
General rule
1. Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.
2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.
3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question."
"The place where the damage occurred (within the meaning of the first part of the jurisdictional rule in the Bier case) is not the place where a claimant simply suffers financial loss. It is necessary to see where the event giving rise to the damage produced its 'initial', 'direct', 'immediate' or 'physical' harmful effect. For example, in the Bier case, the direct loss was the application of saline waste to the nursery. In the Dumez France case (see §13 of the Judgment) the initial or direct damage was the withdrawal of support to the subsidiary. The harm to the plaintiffs in the Dumez France case was 'merely the indirect consequence of the financial losses initially suffered by their subsidiaries'. In the Marinari case it was the initial or direct act of interference with the notes."
(1) The various stages of the alleged scheme as summarised in [86] of the Particulars of Claim or Stepstone's Summary of the Background to the Claims are nearly all matters which occurred and had their immediate and direct consequences in Luxembourg.(2) The Stepstone loss which Fortress claims as assignee consists of the diminution in the value of the assets of a Luxembourg company and any decrease in value was directly and immediately caused and suffered in Luxembourg.
(3) The claimants' contention that the Stepstone loss occurred in England because one of its central elements was damage to the Blue Skye Fund, an English limited partnership, is focusing on only one element of the loss and also ignores the fact that the Fund was administered from and had its principal place of business in Guernsey.
(4) The ZBS loss arises from the fact that following the implementation of the scheme, the value of ZBS's security, i.e. Stepstone's assets, has been diminished so that they are insufficient to repay the ZBS loan. The claimants' contention that the ZBS loss occurred in England because the loan agreement is governed by English law and would otherwise be enforceable against Stepstone's interest in the Blue Skye Fund in England is misconceived, because the ZBS loss derived entirely from the Stepstone loss and irrespective of whether the ZBS loss is a recoverable loss, it should be regarded as an indirect consequence of the events alleged to comprise the scheme and thus is to be ignored for the purposes of Article 4(1).
(1) The Blue Skye Fund was an English registered limited partnership which was regulated by a Partnership Deed governed by English law and which provided for London arbitration. The Fund was at the heart of the original investment structure. Whilst the General Partner Blue Skye GP (the fifth defendant) may have been registered in and administered from Guernsey and clause 2.4 of the Partnership Deed said that the principal place of business of the Partnership was Guernsey or such other place as the General Partner should determine, the General Partner had delegated the management and operation of the Fund to the second and third defendants as "Key Managers" and they had run the Fund from London. The Fund accordingly carried on business in England.(2) The Stepstone loss assigned to Fortress consisted of the loss of its interest in the Fund, an English registered limited partnership, and the damage to its rights under a Partnership Deed governed by English law, by the transfer of assets from the Fund to the Luxembourg limited partnership Blue Skye SCS, the tenth defendant. Accordingly, for the purpose of Article 4(1), the Stepstone loss occurred in England. The ZBS loss consisting of the diminution in the value of its security because Stepstone's assets had been depleted by the Stepstone loss similarly occurred in England. Mr McQuater drew attention in this regard to the pleaded case at [140] and [142] of the Amended Particulars of Claim.
(3) The original investment structure set up in 2008 consisted of an interlocking network of agreements governed by English law and containing an exclusive English jurisdiction clause or a London arbitration clause, for example the Partnership Deed, the Loan Agreement and the Security Assignment. The only relevant agreements not subject to English law were those such as the Convertible Notes used by the defendants to implement the dishonest Scheme of which the claimants complain. The effect of the defendants' argument would be that the defendants could dictate the applicable law of the tort by formulating the reorganisation in a jurisdiction under the laws of which they would not be liable.
(4) The claimants rely upon a number of pieces of evidence in support of their case that it is strongly arguable both that the Fund was run by the second and third defendants from an address in Princes Street in London and that both those defendants lived in London at the relevant time when the scheme was being planned and then implemented.
(5) Article 4(2) can be of no relevance to the tortious claims by Fortress and ZBS against any of the defendants, neither of which is habitually resident in Luxembourg. So far as Cypress Way is concerned, it no longer pursues claims in tort.
(6) If the claimants are wrong that the direct damage they suffered occurred in England for the purposes of Article 4(1), then the matters set out at (1) to (4) above demonstrate a manifestly closer connection of the tortious acts and conduct alleged with England than with Luxembourg.
"It seems clear to me that I cannot decide this question without a full understanding of the facts. At the moment, I would regard it as likely that Cyprus law is the same as English law, and, in any event, am safe in adopting the presumption (which I could not adopt in relation to Kazakh law because I am told, as was Teare J, that there is no law of conspiracy in Kazakh law) that Cyprus law is the same as English law so far as the common law of conspiracy is concerned (see Dicey, Morris & Collins The Conflict of Laws (14th Ed) 9-025 and supplement), but even without the alternative candidacy of Cyprus law, I would regard it as a serious issue to be tried as to whether English law is the proper law of the tortious acts alleged."
"For my part I consider that the judge was wise to conclude that he could not reach even a provisional view as to the likely proper law of the tort without a full understanding of the facts. In concluding that there is a serious issue to be tried whether English law, or perhaps some other system of common law derived therefrom such as that of Cyprus, is the governing law, he did not I think err in his assessment. An assessment at this stage which ruled out the serious prospect of English law or some other common law derivation therefrom ultimately being shown to be the proper law of the obligations would, I think, have been over-confident. "
The ZBS loss
"...there is no logical reason why [the rule against reflective loss] should not apply to a shareholder in his capacity as a creditor of the company expecting repayment of his debt. Indeed, it is hard to see why the rule should not apply to a claim brought by a creditor (or indeed, an employee) of the company concerned, even if he is not a shareholder. While it is unnecessary to decide the point, as [the creditor] was a shareholder in [the debtor], it is hard to see any logical or commercial reason why the rule against reflective loss should apply to a claim brought by a creditor or employee, who happens to be a shareholder, of the company, if it does not equally apply to an otherwise identical claim by another creditor or employee, who is not a shareholder in the company."
"I can see nothing in the judgment of Neuberger LJ in Gardner (at paras 67-75) which mandates, or even suggests, the conclusion that a claim by a secured creditor attracts the rule against reflective loss. For reasons already given, it seems to me that there are fundamental distinctions between the position of an unsecured creditor and a secured creditor. No duty is owed by the receiver to the unsecured creditor and the unsecured creditor has no primary entitlement to the claimed loss. The unsecured creditor's prejudice arises only through the depletion of the assets of the company not, as in the present case, where the secured creditor has the primary entitlement to obtain and retain all damages awarded for the breaches of duty."
The scope of the Security Assignment
"3 Assignment
3.1 The assignment contained in this clause 3:
(a) is given to the Security Trustee as trustee for the Finance Parties;
(b) secures the payment and discharge of the Secured Obligations; and
(c) is given with full title guarantee.
3.2 The Assignor assigns absolutely all of the Rights which it now has and all of the Rights which it obtains at any time in the future in the Assigned Property and in any Rights accruing to, derived from or otherwise connected with them (including proceeds, insurances, guarantees and Security)."
The objection to the indemnity claims against Stepstone
"Article 4
Law applicable
1. Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened, hereafter referred to as the "State of the opening of proceedings".
2. The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. It shall determine in particular
(f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending; "
"Article 15
Effects of insolvency proceedings on lawsuits pending
The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending."
"255. This exception to the application of the law governing the insolvency proceedings has a twofold explanation: the fact that, as no enforcement action is involved, the principle of collective action inherent in the insolvency proceedings is not impaired; and the close link with the procedural laws of each State resulting from the fact that the lawsuit is already in course. Further explanation. The difference between subjecting individual enforcements to the lex fori concursus and subjecting ordinary processes to the lex fori processus is sufficiently explained if we consider the different consequences of each on the insolvent debtor's estate. In the first case, the creditor satisfies his interest directly. In the second case, he obtains a decision on the merits which does no more than allow him to join the body of creditors with an established claim.
256. The use of the term "solely" is aimed at preventing the cumulative application of different national laws. The meaning of this provision is to refer all questions concerning the possible effect of the opening of insolvency proceedings on lawsuits to the procedural law of the State where litigation is pending (or lex fori processus). This law will decide whether the proceedings are to be suspended or may continue subject to any procedural modification necessary in order to reflect the loss or the restriction of the powers of disposal and administration of the debtor, and the intervention of the liquidator in his place, which all Member States must recognise under Article 16."
"It is possible that the introduction of entirely new causes of action or parties is to be recognised as the bringing of entirely new proceedings, so that the timing of seisin (the article 30 question) has to be looked at from that point of view, as occurs for the purposes of article 27. Even so, it is not clear to me that in this connection article 27 and article 28 work in the same way: for article 27 is worded in terms of the bringing of actions with the same parties and the same cause of action ("Where proceedings are brought in the courts ") whereas article 28 is worded in terms of the pendency of related actions ("Where related actions are pending in the courts ") (emphasis added). That emphasises that the article 28 question is asked with relation to pending actions, and not, as the article 27 question is asked, with relation to the bringing of actions. In any event, the judge is in my respectful judgment mistaken to think that any amendment is analogous to the bringing of new causes of action or the addition or substitution of new parties. "
The defendants' objection to the amendment to introduce paragraph 74A
"On or about 7 December 2011, as evidenced by a written acknowledgment of that date, the Blue Skye Fund transferred all its assets to Stepstone by way of satisfaction of a request by Stepstone to withdraw from the Blue Skye Fund."
The relevance of this plea is apparent from the consequential amendments to [175A] and [178.2] by which the claimants plead that any right of relief of the Blue Skye Fund under sections 423 to 425 of the Insolvency Act 1986 was transferred to Stepstone and in turn has been assigned to Fortress under the Security Assignment.
Objections to the claims under section 423 to 425 of the Insolvency Act 1986
(1)This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if
(c)he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.
(2)Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3)In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose
(a)of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b)of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.
(4)In this section "the court" means the High Court or
(a)if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;
(b)if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.
(5)In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as "the debtor".
"The purposes of the scheme were inter alia to put the Italian Assets beyond the reach and/or out of the ownership of the Blue Skye Fund, Stepstone, Cypress Way, ZBS and/or Fortress VRF I in the event that they might assert a claim against Blue Skye (Lux) or any of its former subsidiaries to control or dispose of those assets. Alternatively, the purposes were to prejudice the interests of those parties in relation to such a claim."
"Further or alternatively, the Claimants will contend, insofar as necessary, that, for the purpose of section 423, the rights or abilities of the Claimants to recover the proceeds of the Italian Assets from the Blue Skye Fund (via action against Stepstone) and BenLomond (via Stepstone and the Blue Skye Fund) are claims by the Claimants against the Blue Skye Fund for the purpose of section 423 and that the purpose of the transactions was to put the Italian Assets beyond the reach or control of the Claimants in anticipation of those claims or to prejudice the Claimants' interests in respect of the claims."
"Section 423(5) defines a victim of a transaction as a person "who is, or is capable of being, prejudiced by it". In choosing the term "victim" and this definition, it is I think clear that it was intended to be a wider category than simply creditors. The words used are ordinary English words with no technical meaning and the correct approach in any given case is to ask whether, on the facts of the case, the claimant is a person who is, or is capable of being, prejudiced by the transaction."
"In my judgment there is nothing in section 423 which mandates this result. I have already observed that it is a feature of sections 423 to 425 that they are drafted in wide terms, and this is another example of their inbuilt elasticity. It is correct that normally the court would consider that it was not proportionate to hear an application unless it could be shown at that date that there was a person who could benefit by a positive finding under section 423. But there are bound to be cases where that cannot be shown, perhaps because the person who seems to have been prejudiced has to establish his claim in foreign proceedings, or because there are creditors whose claims have not yet matured into present debts .There is as it seems to me a deliberate avoidance of the term "victim" in section 423(1) and (3), which set out the conditions which have to be satisfied before the court can make an order under section 425. On the contrary, all that has to be shown is that the person is making or may at some time make a claim (see section 423(3)(a) and (b))."
"In the present context, in determining whether a relevant purpose is made out under s. 423(3) it would not matter whether Mr Simpson acted in order to protect his assets from possible claims by Mars or from possible claims by 4Eng. It would be sufficient for 4Eng to establish that he acted for either or both purposes, since it is not a requirement of s. 423(3) that the victim claiming relief in relation to a transaction was the very creditor whose claims the transferor was seeking to defeat it is sufficient that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him (see the reference in general terms in s. 423(3) to "a person who is making, or may at some time make, a claim against [the transferor]" and Sands v Clitheroe [2006] BPIR 1000)."
"The court's discretion: a sufficient connection with England
This conclusion is not so unsatisfactory as it might appear at first sight. The matter does not rest there. Parliament is to be taken to have intended that the difficulties such a wide ambit may create will be sufficiently overcome by two safeguards built into the statutory scheme. The first lies in the discretion the court has under the sections as to the order it will make. Section 423(2) provides that the court "may" make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. Sections 238, 239, 339 and 340 provide that the court "shall," on an application under those sections, make such order as it thinks fit for restoring the position. Despite the use of the verb "shall," the phrase "such order as it thinks fit" is apt to confer on the court an overall discretion. The discretion is wide enough to enable the court, if justice so requires, to make no order against the other party to the transaction or the person to whom the preference was given. In particular, if a foreign element is involved the court will need to be satisfied that, in respect of the relief sought against him, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element. This connection might be sufficiently shown by the residence of the defendant. If he is resident in England, or the defendant is an English company, the fact that the transaction concerned movable or even immovable property abroad would by itself be unlikely to carry much weight. Likewise if the defendant carries on business here and the transaction related to that business. Or the connection might be shown by the situation of the property, such as land, in this country. In such a case, the foreign nationality or residence of the defendant would not by itself normally be a weighty factor against the court exercising its jurisdiction under the sections. Conversely, the presence of the defendant in this country, either at the time of the transaction or when proceedings were initiated, will not necessarily mean that he has a sufficient connection with this country in respect of the relief sought against him. His presence might be coincidental and unrelated to the transaction. Or the defendant may be a multinational bank, carrying on business here, but all the dealings in question may have taken place at an overseas branch.
Thus in considering whether there is a sufficient connection with this country the court will look at all the circumstances, including the residence and place of business of the defendant, his connection with the insolvent, the nature and purpose of the transaction being impugned, the nature and locality of the property involved, the circumstances in which the defendant became involved in the transaction or received a benefit from it or acquired the property in question, whether the defendant acted in good faith, and whether under any relevant foreign law the defendant acquired an unimpeachable title free from any claims even if the insolvent had been adjudged bankrupt or wound up locally. The importance to be attached to these factors will vary from case to case. By taking into account and weighing these and any other relevant circumstances, the court will ensure that it does not seek to exercise oppressively or unreasonably the very wide jurisdiction conferred by the sections.
"I particularly note from the foregoing that Sir Donald Nicholls [in Re Paramount Airways] regarded no one factor as decisive. Each case will turn on its own facts with the weight to be given to connecting factors or their absence dependent on their real significance having regard to the overall situation. In Jyske Bank (Gibraltar) Limited v Spjeldnaes [1999] 2 BCLC 101 Evans-Lombe J, whose experience in this field is very considerable, exercised the jurisdiction even though as he expressly recognised there were present none of the sort of connections with England which the Vice Chancellor had set out."
Costs of discontinuance
"(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.
(2) If proceedings are only partly discontinued
(a) the claimant is liable under paragraph (1) for costs relating only to the part of the proceedings which he is discontinuing; and
(b) unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings."
"5. In most cases, in order to show good reason, the Claimant will need first to show a change of circumstances since the claim was made. This will demonstrate at least that there is something more than a simple re-evaluation. See Far Out at [3]. But even if circumstances have changed since the commencement of the claim, if they result from the very fact of the claim, for example the Defendant has run out of money because he has spent it all on defending it, the Claimant cannot invoke that. It may be different where the Defendant has rendered the Claimant's claim worthless because of something he has done on his own initiative, for example embarking on some other unsuccessful proceedings which led to his own bankruptcy. See Walker [39] commenting upon the decision in Everton v World Professional Billiards and Snooker Association (13 December 2001). Equally, if the chances of success had reduced in the Claimant's eyes because of what the Defendant produces on disclosure or because of some argument raised in the Defence, it would be very unlikely that this would assist the Claimant on costs if he then discontinues. That is because such changing circumstances are part and parcel of litigation.
6. In truth it is difficult to see how any change of circumstance could amount to good reason unless it is connected with some conduct on the part of the Defendant which deserves to sound in costs against him. Thus [11] of Maini refers to active misconduct. And at p541 of RTZ Potter LJ refers by way of example to the case of a Defendant who perversely encourages a plaintiff into action by concealing the existence of a defence although reasonably invited prior to proceedings to make disclosure. Another example is the unnecessarily aggressive approach and totally unreasonable and unjustified stance taken by the Defendant in relation to negotiations before discontinuance, as found by Lightman J in [53] of RBG. Or the failings by the Defendant accountant in his professional obligations to the liquidator in Doshi. It is to be noted that in the last two cases the result was a percentage reduction in the Defendants' recoverable costs, not an order that they pay any part of the Claimant's.
7. And even if there has been some conduct by a Defendant which has caused a change of circumstances this should not have an adverse impact against him if, having regard to all the circumstances it does not amount to a good reason to disapply the presumption; so a change of circumstances is simply the beginning of the enquiry, not the end of it."
Conclusion