Shaw & Anor v Breish & Ors

To explain the nature and purpose of the application presently before the court, it is unfortunately necessary to recite a good deal of procedural history.

In early 2014 the Libyan Investment Authority (“LIA”) began two actions in the English High Court. The relevant action for present purposes was brought against Société Générale SA and three related companies (whom I will collectively call “Société Générale”) and also against Mr Giahmi. In that action the LIA alleged that certain transactions between the LIA and Société Générale had been procured by fraudulent and corrupt means which involved payments made to Mr Giahmi as an intermediary. The LIA sought to have the transactions set aside and to recover sums in excess of US$2 billion.

In the course of the proceedings a dispute arose between different persons who each claimed to be the Chairman of the LIA and hence entitled to represent it. This dispute is a result of the civil strife in Libya and the fact that there are currently in effect three rival governments. Each of the rival factions has purported to appoint someone as the Chairman of the LIA. To resolve the impasse which would otherwise have arisen, in July 2015 Flaux J made an order appointing the present applicants as receivers and managers of property which included the rights sought to be enforced in the Société Générale action and the right to conduct that action. This receivership order was made on the joint application of the parties who each claim to be the Chairman of the LIA.

In May 2017 the Société Générale action was settled. Under the terms of the settlement Société Générale paid a sum in excess of US$1 billion to the LIA. The claim against Mr Giahmi was discontinued on terms that Société Générale should pay his costs.

On 15 September 2017, Flaux LJ made a second receivership order appointing the present applicants as receivers and managers of certain further potential claims arising from transactions between the LIA and other financial institutions. These transactions have been referred to as the “questionable LIA trades”.

For the purpose of deciding whether to bring proceedings in respect of the questionable LIA trades against persons who may include Mr Giahmi, the receivers wish to review a substantial volume of documents which were disclosed in the Société Générale action. On 29 September 2017 the receivers applied for permission from the court under CPR 31.22 to make such collateral use of the documents. I will refer to this application as the “collateral use application”. Société Générale did not oppose the collateral use application but Mr Giahmi did.

In a judgment given on 25 October 2017, Teare J decided that the receivers did not have power under the first receivership order made in July 2015 to make the collateral use application. (It was not suggested that the second receivership order made in September 2017 gave them such a power.) Teare J also concluded that, if the receivers had had the power to make the collateral use application, he would have granted it.

There was then a dispute as to whether, in the light of this decision, the collateral use application should be dismissed or whether the application should be adjourned to give the receivers an opportunity to seek to overcome the objection to it – either by obtaining ratification for the issue and pursuit of the application from the three competing “Chairmen” of the LIA or by obtaining an order from the court extending their powers. On 26 October 2017 Teare J granted such an adjournment. I understand that the collateral use application is due to come back before him on or after 6 December 2017.

On 27 October 2017 the receivers issued the present application asking the court to amend the first receivership order so as to add a power to apply to the court in the name of the LIA in the Société Générale action for orders permitting the receivers to review documents disclosed by the defendants in that action and to use such documents for the purposes of the second receivership. The receivers also sought an order that this amendment should take effect as from 21 September 2017.

Each of the three competing “Chairmen” of the LIA, who are the first three named respondents, has consented to the application. Société Générale has adopted a neutral position. Mr Giahmi has opposed both limbs of the application. Another interested party, who has been afforded anonymity and referred to as “Person B”, has indicated by a letter from his solicitors that he is neutral as regards the proposed amendment but objects to it having retrospective effect.

There are therefore two questions to be decided:

In their skeleton argument, counsel for Mr Giahmi opposed the receivers’ application root and branch. At the start of the hearing, however, Mr Kitchener QC indicated that Mr Giahmi would not oppose the proposed amendment to the receivership order subject to one point. This point was that the receivers should not simply be given “the power” to apply to the court in the name of the LIA for orders permitting them to make collateral use of documents disclosed in the Société Générale action; instead, the amendment should grant them only “such power as a validly appointed Chairman of the LIA may have” to make any such application. Mr Kitchener QC submitted that this formula should be adopted in order to preserve the ability of Mr Giahmi to make two arguments in opposition to the collateral use application which he previously raised as defences to the Société Générale action.

These two arguments are, in short, as follows:

In the Société Générale action each of these arguments was raised by Mr Giahmi in his defence to the claim as a ground for denying that the proceedings against him had been brought “with the necessary authority”. In June 2015, when the first receivership order was proposed, Mr Giahmi’s legal representatives requested that any receivership order should make clear that “it does not seek to improve, or have the effect of improving, the position of the LIA by ratifying, or by empowering the receiver to ratify, any lack of authority either in the commencement of the Actions or in their conduct since”. That point was accepted and, in consequence, a paragraph was included in the first receivership order (paragraph 12) which states:

“Nothing in this Order or done by the Receiver and Manager in accordance with this Order shall by itself be taken as amounting to ratification of either the commencement or the conduct of the Actions prior to the appointment of the Receiver and Manager.”

Mr Kitchener maintained that what Mr Giahmi is seeking to do in response to the present application is to preserve the right to make objections to the collateral use application of a similar kind to those which paragraph 12 of the order preserved in the context of the Société Générale action.

On behalf of the receivers, Ms Toube QC submitted that it is essential for the receivers to know what powers they have and that it is unacceptable to amend the receivership order in a way which leaves it uncertain whether they do or do not have the power to make the collateral use application.

In considering the arguments which Mr Giahmi has raised or wishes to be able to raise in opposition to the collateral use application, I think it essential to distinguish clearly between two questions which some of the submissions made on his behalf seem to me to have elided. One question is whether the LIA has the power to sue third parties. As mentioned, Mr Giahmi asserts that it does not because the only entity which has the legal capacity to enforce the LIA’s rights through litigation is the Libyan State Litigation Department. The other, separate question is whether the receivers are authorised to act on behalf of the LIA in relation to any proceedings which are brought.

The receivership orders deal only with the powers of the receivers in the sense of their authority to take steps on behalf of the LIA. They are not concerned with the rights and powers of the LIA itself and do not purport to confer on the LIA any rights or powers which it does not already have. Thus, making the amendment to the receivership order requested by the receivers would not affect the question whether the LIA had or has the power to sue Mr Giahmi – either in the Société Générale action or in any new proceeding. If the argument that the LIA lacks the ability to sue is a good one, it will provide Mr Giahmi with a defence to any future claim brought against him in the name of the LIA unless the Libyan State Litigation Department is bringing the claim.

Mr Kitchener indicated that on the adjourned hearing of the collateral use application Mr Giahmi intends to argue that the court needs to decide the issue of the LIA’s capacity before it finally determines that application. Leaving aside the question whether the court has already finally decided that issue against Mr Giahmi as the receivers maintain, I do not for my part see why it should be necessary to treat the question of capacity as one that has to be resolved before any order under CPR 31.22 permitting collateral use of documents is made – any more than it was thought necessary to determine that question before ordering disclosure of the documents and making other procedural orders in the Société Générale action. As in most circumstances where questions of substantive right (including questions of locus standi) are raised at a threshold or permission stage of proceedings, I see no reason why it should not be sufficient for the applicant to show an arguable or good arguable case that it has the capacity to sue Mr Giahmi.

Those are matters, however, for another day. In my view, they have no bearing on the question of what authority should be conferred on the receivers and provide no reason for limiting or qualifying the proposed extension of the receivers’ powers.

As I have indicated, the other argument which Mr Giahmi wishes to raise is an argument about authority to represent the LIA. Unlike the question of the LIA’s capacity to sue, this is an argument which can and should be considered now in deciding whether the receiver should be authorised to pursue the collateral use application (and any further similar application) on behalf of the LIA. It is not a matter which should be left over for argument at the adjourned hearing of the collateral use application, thus presenting the possibility that the receivers will, once again, find that they do not after all have the power to make the application on behalf of the LIA.

For present purposes I will assume, without investigating, that it is reasonably arguable that under the constitution of the LIA only the Board of Directors and not the Chairman is authorised to represent it. I do not accept that making that assumption provides any reason not to grant the additional power sought by the receivers.

The juridical basis for the receivership orders made in these proceedings is section 37(1) of the Senior Courts Act 1981. This gives the High Court a broad discretionary power to appoint a receiver “in all cases in which it appears to the court to be just and convenient to do so”. The essential rationale for making the receivership orders, as I understand it, is that disputes about who is authorised to give instructions on behalf of the LIA should not be allowed to frustrate the enforcement of the LIA’s rights to recover money of which it has been fraudulently deprived or which has been unjustly gained at its expense. Accordingly, what the court has done in the exercise of its power under section 37(1) of the 1981 Act is to appoint receivers and to give them authority to exercise whatever rights and powers the LIA has to recover any such money, leaving until a later date the resolution of disputes about who is authorised to represent the LIA.

So far at least, the only persons who have claimed to be authorised to represent the LIA are the three rival “Chairmen”. No claim to be the authorised representative of the LIA has been made by any group of people who claim to be its Board of Directors. No doubt if such a group of people were to come forward, attempts would be made to seek their approval for the steps that are being taken by the receivers. But if such approval was withheld – or for that matter if one of the rival “Chairmen” were to withdraw his approval for the actions being taken by the receivers – I do not at present see why this should in itself provide a reason to restrict the receivers’ powers. As it is, such questions are purely hypothetical. I was informed by Mr Kitchener that there is in fact no extant group of persons who claim to be the LIA’s Board of Directors. If this is correct, it seems to me only to reinforce the importance of not allowing the existence of unresolved questions about who (if anyone) currently has authority to represent the LIA to hinder or frustrate the process of collecting its assets.

Thus, I see no reason in justice why the fact that Mr Giahmi is seeking to argue none of the rival “Chairmen” has authority to represent the LIA should be regarded as a reason for declining to give the receivers authority which they need in order to make the second receivership order effective. If anything, it strengthens the case for doing so.

I would add that I see no parallel as suggested by Mr Kitchener between the present application to amend the receivership order and the justification for including paragraph 12 (quoted above) in the original order. That provision seems to me to have been carefully drafted so as to make it clear that the only defences based on alleged lack of authority to commence or conduct the proceedings which were being preserved were defences based on events which had already occurred prior to the appointment of the receivers. It is impossible to construe paragraph 12 as permitting Mr Giahmi to argue that steps taken by the receivers in the name of the LIA were only authorised if and to the extent that they are steps which could have been taken by a validly appointed Chairman. The approach that Mr Giahmi is now taking is therefore inconsistent with the approach reflected in paragraph 12 of the receivership order.

As mentioned earlier, as well as asking the court to amend the receivership order, the receivers applied for an order giving the amendment retrospective effect. Following discussion at the start of the hearing, Ms Toube QC on behalf of the receivers did not pursue this part of the application. That, in my view, was a proper concession to make, as I am unable to see any justification for backdating the effect of the order.

Two possible reasons were identified for asking the court to do so. The first was to forestall any argument that the collateral use application cannot succeed when it comes back before Teare J because the receivers had no authority to issue it. However, I cannot see why the absence of authority to make the application at the time it was issued should prevent the court from granting it if satisfied that there is authority to make the application at the time when it is finally determined by an order of the court. Mr Giahmi has not identified any reason why justice could be said to require the issue of a fresh application, let alone to require giving him an opportunity to re-argue points that have already been decided against him. Mr Kitchener helpfully made it clear that at the adjourned hearing of the collateral use application Mr Giahmi will not seek to take any point that the receivers ought to have issued and served a fresh application notice. There is therefore no need to consider whether the amendment to the receivership order should be made retrospective in order to preclude any such technical objection.

The second possible reason for asking the court to make the amendment retrospective would be to assist the receivers on the question of costs. I understand that, when the collateral use application is finally determined, there may be an argument about whether the receivers should be personally liable to pay the costs incurred by Mr Giahmi in opposing the application during the period when the receivers were pursuing it without authority. It seems to me, however, that the merits of that debate do not and should not depend on whether the amendment which will now be made to the receivership order is expressed to have retrospective effect. Put the other way around, if directing that the amendment shall take effect as at 21 September 2017 would affect what order should be made about costs, then that is a good reason why I should not include such a provision in the order, since I am not asked to deal with the costs of the collateral use application. It would therefore be wrong to make an order which would fetter or interfere with the court’s discretion in that respect.

For these reasons, the first receivership order will be amended in the manner requested by the receivers, save that the amendment will not be expressed to have retrospective effect.