Deutsche Bank AG v Sebastian Holdings Inc

The First Defendant (‘SHI’), a company registered in the Turks and Caicos Islands (‘the TCI’), was the personal investment vehicle of the Second Defendant (‘Mr Vik’). After a 45-day trial, on 8 November 2013 Cooke J gave judgment for the Claimant (‘Deutsche Bank’) against SHI. The judgment sum was c.US$243 million. There was an order for a payment of c.£34.5 million on account of costs. Cooke J dismissed SHI’s counterclaims. Deutsche Bank later obtained a non-party costs order against Mr Vik under s.51 of the Senior Courts Act 1981 requiring him to pay sums owed by SHI to Deutsche Bank in respect of costs. As a result, there has been some recovery by Deutsche Bank in respect of costs, but not yet in respect of the substantive judgment debt. With interest, that debt now exceeds US$320 million.

By Order dated 17 February 2017 (‘the Receivership Order’), on the application of Deutsche Bank ex parte, Popplewell J appointed Shane Crooks and Malcolm Cohen of BDO LLP (‘the Receivers’) joint receivers of certain assets of SHI’s, defined in the Order as the ‘Receivership Interests’. They are, in summary, SHI’s interests in, or its causes of action relating to, two private equity funds organised as limited partnerships registered in this jurisdiction that have been referred to as ‘Reiten VI’ and ‘Reiten VII’ (together, the ‘Reiten Funds’). SHI’s interests in the Reiten Funds were purportedly transferred to Sarek Holdings Ltd (‘Sarek’), a TCI company said to have been closely connected to Mr Vik but said now to be owned and controlled by Per Johansson, a business associate or former associate of Mr Vik’s.

On 4 December 2017, four applications were listed for hearing before me. I determined all of the applications, giving a brief indication of my reasons on the day, with more detailed reasons to follow in writing. These are my more detailed reasons. At the hearing, Deutsche Bank, SHI and the Receivers all appeared, each represented by leading and junior counsel. Mr Vik was not party to any of the applications and did not apply to be joined or to intervene. He did, however, instruct his solicitors (Brecher LLP) to write to the court with submissions in relation to the Receivers’ Application (as I define it below) and to attend the hearing, both of which they did.

The applications before me were the following:

At the hearing, I dismissed the Adjournment Application and the Challenge, with costs orders against SHI in favour of Deutsche Bank and the Receivers, I granted the Funding Application and I gave directions for the determination of the Receivers’ Application.

It was common ground that useful guidance on the approach to be adopted when faced with a late application for an adjournment on medical grounds is to be found in Decker v Hopcraft [2015] EWHC 1170 (QB), per Warby J at [21]-[30] and Levy v Ellis-Carr [2012] EWHC 63 (Ch), per Norris J at [32]-[36]. Of particular relevance to the present case are Warby J’s observations in the former at [28]: whether ill health will affect a litigant’s ability to participate effectively (or at all) at a hearing depends not only on the nature and consequences of the ill health “but also, and perhaps critically, on the nature of the hearing: the nature of the issues before the court, and what role the party concerned is called on to undertake. If the issues are straightforward and their merits have already been debated in correspondence, or on previous occasions, or both, there may be little more that can usefully be said. If the issues are more complex but the party concerned is capable, financially and otherwise, of instructing legal representatives in his or her place and of giving them adequate instructions their own ill-health may be of little or no consequence.”

That guidance, and Warby J’s observations in particular, fell to be applied in this case not to a litigant in person the advancement of whose cause requires their appearance in court to advance it, but to a corporate litigant represented by able and experienced solicitors instructing leading and junior counsel. Mr Olav, even if he is the ultimate beneficial owner of SHI, did not need to do anything to ensure that the Challenge was properly advanced or that SHI’s interests were properly represented in response to the Funding Application and the Receivers’ Application. To see how that is so, I need to set out the history of the Challenge in a little more detail.

The Challenge was launched by Charles Russell Speechlys LLP (‘CRS’), then SHI’s solicitors, by Application Notice dated 8 May 2017. The asserted basis for the Challenge was that (a) there was material non-disclosure in obtaining the Receivership Order because (so it was said) Popplewell J was not told about the effect of a ‘2012 Agreement’ or certain proceedings in New York concerning it, or in the alternative (b) the receivership should be stayed because the 2012 Agreement transferred the Receivership Interests to VBI Corporation (‘VBI’), a family company thought to be majority owned and controlled by Mr Vik’s father.

The 2012 Agreement is a document dated “as of September 26, 2012” that purports to be, or to record, a contract for the sale of assets by SHI to VBI for NOK 300 million. In the New York proceedings, brought by Deutsche Bank against Mr Vik, Mr Vik’s father, VBI and SHI and commenced in April 2016, Deutsche Bank hope to establish, as an interested creditor of SHI, that the 2012 Agreement was not effective to divest SHI of assets (including the Receivership Interests). At the time the Receivership Order was sought and made, those proceedings had been commenced but the jurisdiction of the New York courts had not been established. As things now stand, the New York proceedings have been dismissed for want of jurisdiction and Deutsche Bank has an appeal pending against that dismissal.

Mr Olav had no evidence to give in relation to the Challenge. He did not provide a witness statement to support it; nor was he even mentioned in the witness statement that was served. That was the 9^th Witness Statement of Mr Johansson dated 8 May 2017. Mr Johansson has had carriage of the Challenge throughout, acting as a ‘litigation consultant’ to SHI.

Deutsche Bank responded to the Challenge by the 16^th Witness Statement dated 19 June 2017 of Thomas Snelling of their solicitors, Freshfields Bruckhaus Deringer LLP (‘Freshfields’; ‘Snelling 16’). By letter dated 29 June 2017, CRS sought from Freshfields a 21-day extension, to 24 July 2017, for service of any evidence from SHI in reply, saying “We continue to prepare SHI’s evidence, with a view to serving it as swiftly as possible. An extension is, however, required given the volume of your client’s evidence, and the continued effect of this firm’s having been instructed only recently …”. There was neither evidence nor reason to suppose that anyone other than Mr Johansson had been liaising with CRS. According to Mr Johansson’s 10^th Witness Statement (‘Johansson 10’), served in support of the Adjournment Application, he did not even discuss Snelling 16 with Mr Olav when it arrived or at any time in the 4½ months thereafter, before Mr Olav’s illness in early November. Mr Davenport QC confirmed that the Adjournment Application was not put on the basis that Mr Olav’s personal input on any matter of fact was required to pursue the Challenge to a conclusion. By reply on 30 June 2017, Freshfields offered to agree instead a 14-day extension, to 17 July 2017. CRS accepted that offer by letter dated 3 July 2017 and notified the court of that agreed deadline.

In the event, SHI did not file or serve any reply evidence. CRS ceased acting for SHI on 14 July 2017, the working day before reply evidence (if any) was due, although that was formalised only a little later, by Order of Leggatt J dated 28 July 2017. There was no evidence before me as to why CRS came off the record. As a result, in particular there was no basis for any suggestion that their doing so prevented SHI from serving reply evidence. I do not regard it as credible to suppose – but in any event it would have been for SHI to show by evidence, and there was none – that if there was indeed reply evidence to serve, it could not have been served by CRS before they came off the record, or by Mr Johansson promptly thereafter.

Meanwhile, the hearing of the Challenge was listed for 4 December 2017, based on the availabilities of all concerned (including Mr Davenport QC for SHI).

Nothing more was required for the Challenge to be dealt with except that bundles be prepared, skeleton arguments be filed and the hearing take place. But with no solicitors on the record for SHI and no application for anyone else to represent it (only in very exceptional circumstances does this court permit corporate litigants to be unrepresented by solicitors), Freshfields fairly wondered whether the Challenge was still pursued. They wrote to the court on 2 October 2017 inviting it to vacate the hearing. In response, Mr Johansson confirmed by email on (Sunday) 8 October 2017 that SHI was pursuing the Challenge and would have new solicitors “this coming week”. There was no real explanation in evidence for why SHI did not retain new solicitors shortly after CRS came off the record. I infer that Mr Johansson secured the services of new solicitors, in fact Archerfield Partners LLP (‘Archerfield’), only when prompted to do so by the threat of losing the hearing date.

In the event, SHI retained Archerfield on 20 October 2017, although they contacted Freshfields on 12 October 2017 to indicate that they anticipated being instructed (Freshfields having asked to be told by that evening who SHI’s new solicitors were to be). When retained to act, Archerfield were told by Mr Olav to take their instructions on behalf of SHI from Mr Johansson. They came on the record formally by filing a Notice of Change on 26 October 2017.

All that was needed to ready the Challenge for hearing on 4 December 2017 was that Archerfield liaise with Freshfields to agree an index for hearing bundles, prepare those bundles and agree counsel’s brief fees in time for them to prepare and file their skeleton argument, which was due on 29 November 2017. Of course, as new solicitors coming to the litigation they would have a degree of reading into the case to do first; but plainly their first priority should have been to understand what was being heard on 4 December 2017 and what needed to be done for that hearing. There is, however, no evidence of any work being done towards preparing the Challenge for the hearing, whether before or after Mr Olav was struck by illness, when he suffered a heart attack on 5 November (of which Archerfield were not informed until 22 November, though Mr Johansson learned of it on 6 November). I was not satisfied, in those circumstances, that Mr Olav’s medical emergency had any impact at all on the prosecution of the Challenge.

On 17 November 2017, Freshfields served a relatively short 18^th Witness Statement of Mr Snelling (‘Snelling 18’) updating the court on recent developments. Mr Olav and his connection to SHI is mentioned briefly, but I am confident there is nothing in Snelling 18 that Mr Johansson could not have dealt with and, I repeat, Mr Davenport QC confirmed that the Adjournment Application was not put on the basis that Mr Olav’s personal input was required as to the facts. (In fact, when it came to considering the Challenge, it did not seem to me that Snelling 18 actually added anything of relevance to the facts anyway.)

I turn, then, to consider the evidence I was given as to Mr Olav’s heart attack. The key, independent medical evidence was a medical certificate and hospital discharge summary issued by Dr Ane Kristine Natvik of Vestre Viken Hospital Trust to Mr Olav’s GP, each dated 8 November 2017. The medical certificate confirms that Mr Olav was hospitalised during 6-8 November 2017 with “an acute, serious illness”. The discharge summary records that Mr Olav was admitted on 5 November and discharged on 8 November. He is recorded as having woken on 5 November with pain in the left hemithorax radiating to the left arm. The diagnosis was “acute transmural myocardial infarction in inferior wall”, i.e. a heart attack. He was treated by “primary PCI” (which I understand to be percutaneous coronary intervention, an urgent non-surgical balloon angioplasty) and fitted with a medication-dispensing stent. Once the PCI procedure had been carried out, Mr Olav was free of pain and recorded as feeling “fairly well”. He was discharged with recommendations that his GP follow up with cholesterol and blood pressure checks and that he attend the hospital’s heart clinic as an outpatient. How often is not indicated. Dr Natvik recommended that Mr Olav lose some weight and prohibited him from driving for four weeks.

I have no doubt that this will have been a scare for Mr Olav and I must guard against underestimating its consequences. However, the evidence I have just summarised seemed to me to give no support to the proposition that Mr Olav was materially incapacitated for the purpose of giving instructions for the hearing of the Challenge, if he needed to be personally involved at all.

A letter from Mr Olav’s solicitors in Oslo, Advokatfirmaet Elden, dated 28 November 2017 claimed that Mr Olav had been informed by the hospital that “he must avoid working and exposing himself to any kind of stress (thereunder work related) during the next at least 12 weeks”. No source of information was identified (there was no suggestion that Adokatfirmaet Elden had spoken to the hospital themselves) and there was no hint of that supposed longer-term and more wide-ranging recommendation in the discharge summary.

In Johansson 10, Mr Johansson said he had learned of Mr Olav’s heart attack on 6 November 2017. He claimed that he was told later (a) that Mr Olav was seriously ill, (b) that no contact was possible with him because his doctors had ordered him not to engage in any work activities of any kind “until he had successfully completed his recovery programme” and (c) that his family were being very protective. He asserted that “Consequently, I have not been able to communicate with Mr Olav since his heart attack.” The source of all of this supposed information was not identified, nor did Mr Johansson say when it had supposedly been given to him or what effort, if any, he had actually made to contact Mr Olav. Again, there was no support in the discharge summary for the suggested further restrictions on Mr Olav’s activities by doctors.

On the other hand, there was evidence that Mr Olav was in fact engaged in business-related activities, posting commentary on the financial markets and political events on his Twitter account, and I infer from a further letter from Advokatfirmaet Elden, dated 29 November 2017, that they had been in contact with Mr Olav and were receiving instructions from him, with a view to filing in the week of the hearing before me an application to reopen a criminal verdict against Mr Olav under which he has been sentenced to imprisonment for four years, a sentence due to be enforced on Mr Olav in January 2018 unless now deferred because of the new challenge to the verdict or on medical grounds. Were they somehow undertaking that work without having contact with Mr Olav and without receiving instructions from him, I am confident in the circumstances that they would have said so in their letter.

In other New York proceedings, an effective hearing took place on 21 November 2017, at which SHI committed to filing briefs by 21 January 2018, in opposition to a motion to compel to be filed by Deutsche Bank on or before 15 December 2017, and a return date of 29 January 2018 was set. Mr Olav’s health does not appear to have been mentioned. Mr Davenport QC suggested that this was to be distinguished from the circumstances surrounding the Challenge, on the basis that the hearing in New York followed preparatory work prior to Mr Olav’s heart attack, so his involvement for the hearing itself may not have been required. There was no evidence, however, that Mr Olav had not been personally involved, to whatever limited extent may have been needed or he may have wanted; and as regards the hearing of the Challenge before me, Mr Davenport QC’s suggestion seemed to me more a point of similarity than a point of distinction, indicating therefore that there was no real reason why the hearing should not go ahead as scheduled. To my mind, the New York hearing was explicable on the basis that either Mr Olav is not in truth, and does not need to be, involved personally in SHI’s current litigation (because Mr Johansson is handling it), or his heart attack and brief hospital admission had not got in the way of such limited personal involvement as he may have needed or wanted to have. Either way, it told the lie to the notion that his heart attack was an impediment to the fair resolution of the Challenge at the hearing before me, fixed some months previously.

Thus, although Mr Olav had suffered a serious, acute medical episode resulting in a short stay in hospital, I was entirely unpersuaded that his health provided any reason for the hearing of the Challenge to be postponed, even if there were a need for him to have some personal involvement. In particular, I was not satisfied that Mr Johansson could not have got hold of Mr Olav if there really were a need for his input.

In any event, I did not accept Mr Johansson’s claim that Mr Olav’s personal involvement was needed. According to the evidence before me, Mr Olav may be neither a shareholder nor an officer of Rand AS, the present owner of SHI. There was evidence before me that Mr Olav’s wife, as chairman of Rand, was capable of acting and did in fact act to look after SHI’s interests independently of Mr Olav when necessary.

Mr Johansson’s assertion that having not spoken to Mr Olav since the heart attack, (a) he had no instructions as to how SHI should proceed on the Challenge and (b) SHI’s English legal team was therefore without instructions, was plainly wrong. It was clear to me that Mr Johansson had general authority to conduct the Challenge for SHI. He did not need to speak to Mr Olav to give the limited instructions necessary for the hearing. If he felt nonetheless that he needed Mr Olav’s confirmation that the Challenge was to be pursued, he must have had that in order to write as he did on 8 October 2017 saying that it was indeed pursued, so as to avoid the vacation of the hearing.

In the circumstances, it seemed to me quite possible that Mr Johansson was simply not telling the truth in relation to the Adjournment Application. But it was not necessary to take a final view on that. At its best (for him), Mr Johansson inexplicably delayed informing Archerfield of Mr Olav’s illness and then chose to instruct them (a) to seek an adjournment and (b) not to pursue the Challenge if there were no adjournment. The second choice was not necessitated by the first; and Mr Johansson cannot reasonably have thought it was. It seemed to me to be a tactical choice, perhaps made in the hope that it would maximise the prospects of achieving an adjournment.

In all the circumstances, I did not believe that Mr Olav’s heart attack on 5 November was or gave rise to any real reason for adjourning. It did not make it arguably unfair to SHI to go ahead with the hearing of the Challenge.

The conclusion that not pursuing the Challenge at the hearing before me, if the Adjournment Application were dismissed, was tactical, would have been sufficient basis in itself to dismiss the Challenge, the adjournment having been refused. But the material facts were clear, having been in evidence since May/June 2017. (For these purposes, whilst I can understand a desire on Mr Snelling’s part to keep the court up to date generally, it did not seem to me that Snelling 18 added anything of any relevance.) Further, the complaint of material non-disclosure at the ex parte hearing before Popplewell J had at least some flavour of criticism of Deutsche Bank and its lawyers about it; and if upon examination the Challenge were seen to be hopeless or very weak (albeit acknowledging that SHI’s side of any argument would not have been fully developed before me), that would reinforce the lack of unfairness to SHI in not adjourning. I therefore considered the Challenge on its merits and did not dismiss it merely because of SHI’s tactical choice over the adjournment.

On the evidence, the following conclusions were plain:

I also agreed with a further submission by Mr Foxton QC that the Challenge in fact served only to reinforce the appropriateness of the Receivership Order sought and made. By the Challenge, SHI did not seek to gainsay any element of the detailed factual basis originally set out by Deutsche Bank as justifying such an order; instead, SHI took only a point contrary to its own interests, in favour of a third party (VBI) that had shown no indication of taking it. The notion that, in those circumstances, the court would revisit the justice and convenience of having the Receivers, as independent officers responsible to the court, in charge of securing value from the Receivership Interests, if possible, seemed to me fanciful.

Conscious though I was that SHI’s argument had not been developed fully before me, I had no hesitation in concluding, in the circumstances, that the Challenge had no significant prospect of success in any event. It was therefore dismissed, with costs.

The dismissal of the Challenge, with costs, satisfied the contingency on which the Funding Application was advanced. It therefore fell to be dealt with on its merits. Mr Olav’s illness did not create any reason, in my judgment, for adjourning consideration of the Funding Application to another day. I needed to be satisfied that there was likely to be a properly arguable application to be made by Deutsche Bank for a non-party costs order in relation to the costs of the Challenge, and that an order for disclosure of SHI’s funders was required to enable Deutsche Bank to know against whom to make any such application. There was no difficulty about considering those matters on the basis of the material prepared for the determination of the Challenge. Thereafter, any non-party costs order application itself will be a matter between Deutsche Bank and SHI’s funders.

Considering the Funding Application on its merits, then, the position seemed straightforward. It was quite possible that Mr Vik, against whom Deutsche Bank already has a non-party costs order in the proceedings, or Mr Johansson, who it is said owns or controls Sarek, funded the Challenge as a means of furthering or seeking to protect his own interests. But the position was uncertain; and both Mr Vik and Mr Johansson have sought to emphasise their (or their companies’) independence (now, as they assert) from SHI. At the same time, it was plain that SHI was in no position itself to have been funding the legal costs involved in the Challenge.

In those circumstances, there was good reason to believe that a properly arguable application for a non-party costs order under s.51 will be available to be made by Deutsche Bank, yet uncertainty as to the proper target for any such application. Subject to points of detail on the wording of the order to be made, then, it seemed to me the Funding Application was well-founded and should be allowed.

I shall take the Receivers’ Application last, and most briefly, not least because the basis upon which I dealt with it makes it preferable to say as little as possible pending the judgment of the Chief Justice of the TCI, now awaited, to which I refer below. To be clear, though, not doing more at this stage than setting directions for a future determination of the Receivers’ Application, if required, is unrelated to Mr Olav’s illness or its consequences. The Adjournment Application was therefore dismissed in its entirety, and I gave the Receivers their costs against SHI of that Application.

Rather, and as I say very briefly, the Receivers’ Application sought to vary the Receivership Order so as to render moot one of the objections raised by Mr Vik in the TCI to the proceedings brought there by the Receivers in SHI’s name. That objection is Mr Vik’s claim that the Receivers went beyond the limits of their authority under the Receivership Order. He says that the Receivers, having not obtained recognition of their authority under the Receivership Order from the TCI court prior to commencing the proceedings, did not raise the issue of their authority with the TCI court at the first opportunity. Mr Vik’s various objections to the TCI proceedings, including that one, were fully argued before the Chief Justice on 8 and 9 November 2017. Her judgment is awaited. To my mind, although Mr Penny QC for the Receivers sought to persuade me otherwise, comity between this court and the TCI courts renders it unwelcome to contemplate intervening in advance of that judgment to render moot one of the arguments otherwise due to be settled by it. Moreover, this court’s view as to whether it is appropriate to relax, and if so how far to relax, the limits of the Receivers’ authority as set by the Receivership Order, in order to facilitate their recovery effort in the TCI courts, is likely to be influenced by knowing how exactly (if at all) the limits as they stand have caused any real difficulty.

It was also clear from Brechers’ letter on behalf of Mr Vik that he may wish to be joined as a respondent to the Receivers’ Application; and in my view he has a legitimate interest in being joined if that is what he wants. Contrary to a submission by Mr Penny QC, in my judgment the issue of the Receivers’ Application on 24 November for a hearing on 4 December did not allow enough time for Mr Vik to make a considered decision about that.

In the circumstances, it seemed to me that the appropriate course was to give directions setting a time limit for Mr Vik, if so advised (and for that matter any of the other parties to the TCI proceedings, if so advised), to apply to be joined to the Receivers’ Application, and otherwise to set directions for an exchange of further evidence and a hearing (all as may be required) following the Chief Justice’s judgment in due course.