SMA Investment Holdings Ltd v Harbour Fund II LP & Ors

This hearing was listed to determine the following applications:

The applications were listed for ½ a day. In the event:

I heard argument on the adjournment application, but reserved judgment. I also permitted the Harcus Parker Parties to make full submissions on the other applications (because these overlapped extensively with their submissions on the adjournment application), while acknowledging the very real difficulties which Minardi’s recently instructed counsel team had in offering any effective response to those submissions. I also made an order for the service of short supplemental submissions.

Finally, I made an order continuing the WFO and ordering that legal title to the Shares be transferred to the New Trustees on an interim basis (to be held subject to further order of the court) and reserved judgment on all other points, including the adjournment application made by BKV.

The context in which the issues considered in this judgment arise will be familiar to all those who will read it, save for Minardi’s new counsel team, but unfortunately a proper understanding of that context is essential to the fair resolution of the matters in issue. By way of a very brief background summary:

It might have been expected that those judgments would bring an effective end to this long-running set of claims. However, that has not proved to be the case. There have been a series of hearings and applications arising from various aspects of the litigation or offshoots of it, each generating a large volume of associated paper applications. These have included judgment on a substantial Part 8 Claim brought, inter alia, by Mr Thomas and Mr Taylor, but with funding from companies linked with Dr Smith and Mr McNally, in circumstances in which Mr Thomas had been adopting positions which favoured the interests of associates of Dr Smith and Messrs Cooper and McNally: Ticehurst, Taylor and Thomas v Harbour Fund II LLP [2022] EWHC 3053 (Comm).

There are a number of reasons why the extensive judicial resources already devoted to the resolution of these disputes has not led to any abatement in the demands they continue to make on the court’s time. To some extent it reflects the inherent complexity of the underlying facts, which themselves reflect the propensity of some of the leading players for dishonest and opaque dealings. However, I am satisfied it is to a very significant extent the result of the refusal of a number of the key protagonists to accept the court’s decisions. This has led to a number of strange alliances:

At the forefront of Minardi’s application for an adjournment was that “it was unfortunate that Minardi was not served with either the Main Proceedings SMA Application nor made a party to the Part 20 SMA Claim when it was brought, where it should have been clear to all parties that Minardi has an interest in the outcome of those applications/claims”.

In what might be thought a particularly bold submission, Minardi submitted that the Harcus Parker Parties had not “seen fit to notify Minardi or add Minardi to their application”. It was later said:

“As a matter of practicality, Minardi has only recently become aware of these applications and has newly instructed representatives. Minardi needs time in order to present its position properly”.

Although Mr Peto KC and Ms Gerasimenko would not have known this, this was very far from the case. Mr Crossley has been acting for MDL since at least 19 May 2022 (when he sent Mr Ruhan a “letter before action” on MDL’s behalf). By October 2022 (although probably much earlier), Mr Bryce, from whom Mr Crossley says he is taking instructions on behalf of MDL, was involved in the proposal to transfer Minardi from Mr Ruhan into MDL’s control. The only commercial purpose of doing so would have been to try and make something of Minardi’s rights under the LICSA, and the only basis on which those rights would have commercial value is in so far as Minardi’s claims could form the basis of some form of claim to the assets held by SMA on bare trust. From October 2022, Minardi was supporting the claims of both Mr Thomas and BKV to be the lawful directors of SMA.

BKV has communicated via a Mr Miah, someone linked to Mr McNally and who, on his own account, has “worked closely” with Mr McNally for many years and who is also a director of Devonhirst, another company linked with Messrs Cooper and McNally. SMA is, according to Mr Miah, owned by Messrs Thomas, Taylor and Orb (although the Directed Trial Judgment held that its shares were held for Dr Smith and the circumstances in which the shares of SMA purported to be transferred has given rise to a committal application by the Enforcement Receivers, appointed in respect of SMA's shares, against Mr Thomas). Each of Messrs Thomas, Taylor and Orb were parties to and bound by the outcome of the Directed Trial, and Messrs Cooper and McNally were notified of the Directed Trial and are bound by its outcome.

On 13 October 2022, St Paul’s Solicitors wrote to Harbour Fund II LLP on behalf of MDL referring to the Part 8 application issued by Messrs Thomas and Taylor and saying that they supported it. From October 2022, Minardi sent letters asserting, in effect, an interest in the assets held as nominee by SMA given its claims under the LICSA. Those communications were sent by Minardi using a ProtonMail email address, a form of email long used by Dr Smith. I have no doubt that Dr Smith was closely involved in the formulating of Minardi’s claims, together with or on behalf of those now behind MDL.

By 24 October 2022, St Paul’s Solicitors had already been identified as Minardi’s solicitors on certain documents. However, Richard Slade and Company were still on the record for Minardi on 9 November 2022, when they were served with a copy of the Harcus Parker Parties’ application for an order for the appointment of the New Trustees and a transfer of SMA’s legal title in the Shares to them. I have no doubt that this information was shared by Richard Slade and Company with those now behind Minardi. Richard Slade and Company sent a legal representative to the hearing of the Part 8 application on 14 and 15 November. The Harcus Parker Parties also provided notice of their application directly by email to Minardi on 10 November. In response on 11 November, Minardi adopted essentially the same argument as it now wishes to adjourn this hearing to advance.

I have no doubt that those behind Minardi (then and now) received a full report of events at the hearing of the Part 8 Claim on 14 and 15 November, and were aware of the Harcus Parker Parties’ application for an order transferring the legal estate in the Shares from SMA, and that this application had been supported by counsel for Messrs Thomas and Taylor. Minardi was notified of the WFO I made on 14 November. Minardi referred to the other orders I had made at that hearing in an email to the Enforcement Receivers (the ERs) on 22 November. On the same day, Richard Slade and Company came off the record for Minardi, and Mr Ruhan was identified as the relevant point of contact.

On 24 November 2022, the Harcus Parker Parties issued an application in the Directed Trial proceedings to the same effect as the Part 20 claim issued in the Part 8 claim (something which they had said that they would do at the hearing on 14 and 15 November 2022).

It is clear that those behind Minardi read the judgment on the Part 8 Claim which I handed down on 30 November 2022 (an email sent in Minardi’s name on 6 December 2022 confirmed that they had read the judgment). Draft orders circulated after the judgment included, in the version produced by the Harcus Parker Parties, an order requiring SMA to transfer legal title in the Shares to the New Trustees. I have no doubt that those behind Minardi were aware of the draft orders. On 7 December 2022, Minardi was given notice of a consequentials hearing fixed for 14 December. In response, on 12 December 2022, Minardi once again trailed the legal arguments which it now wishes to adjourn the hearing to advance. Minardi chose not to be formally represented at the consequentials hearing, although I have no doubt that those behind Minardi were kept fully up-to-speed as to what matters were raised, and how they were resolved. Minardi asked that a letter be placed before me, which it was. The effect of the letter was that Minardi did not have legal representation in England and Wales and would need time to deal with the points that the Harcus Parker Parties were raising. At the hearing, I gave directions for this hearing to determine the applications made by the Harcus Parker Parties in both the Part 20 Claim and the Directed Trial for the order requiring SMA to transfer legal title to the Shares to the New Trustees, and to deal with the jurisdiction challenge which BKV had issued in SMA’s name. The next step, so far as correspondence in Minardi’s name is concerned, was the letter of 8 February 2023 referred to at [2(ii)] above.

Against this background, it is clear that Minardi has been aware for months of the orders which the Harcus Parker Parties were seeking, aware of what its own position in relation to those orders would be, and aware that the court was being asked to make those orders, at the hearing on 14/15 November, at the consequentials hearing on 14 December, and then at this hearing. It has had ample time to be ready to advance those arguments (which it has outlined in correspondence, and advanced in proceedings brought against SMA, but as to the bona fides of which I make no findings, in the Republic of the Marshall Islands). The reality is that those behind Minardi, who have been in control of it from October 2022, have had ample opportunity to ready themselves for this hearing, but have failed to do so.

It would be possible to stop there. However, we are past the time in this litigation in which it is appropriate to pull punches. It is clear that co-ordinated activity has been undertaken as part of a rear-guard action by individuals who are dissatisfied with the outcome of the litigation in some or other respects, which at various stages has involved at least Dr Smith, associates of Mr McNally, and Mr Thomas. I am satisfied that this co-ordinated activity has extended to the steps taken or promoted by Mr Thomas in the run-up to the Part 8 claims (which entities connected with Dr Smith and Mr McNally funded), the recent claims by Minardi and the steps taken by BKV (whose activities were supported by Mr Thomas, and which is linked to a known associate of Mr McNally, Mr Miah). It is no coincidence that, having issued a jurisdictional challenge in SMA’s name, and instructed English solicitors (Kastle Solicitors Ltd) and leading and junior counsel to represent SMA, BKV sought through their solicitors to adjourn this hearing on 3 February 2023 (to allow the issue of who had authority to represent SMA to be determined in the Marshall Islands proceedings) and/or to vacate it on the basis that the time estimate was not enough. I ruled that such an application would have to be made at the hearing (on 3 February). It was only then, on 8 February, that Minardi appeared on the scene. About 30 minutes later, Kastle Solicitors Ltd wrote saying that they were not instructed in relation to the Harcus Parker Parties’ applications due to be heard on 10 February. The following day, BKV wrote to the court stating that it had been unable to secure representation, and asking the court to adjourn the hearing.

I have no doubt that the approach taken by those behind Minardi and those behind BKV (to the extent that they are different), was co-ordinated, and represented a calculated attempt to delay the hearing and the orders which the Harcus Parker Parties seek. Those individuals should be in no doubt as to the importance which the court attaches to ensuring that its processes are not misused and its orders are complied with, and the full range of the court’s powers to serve these ends.

Clearly these factors tell strongly against any adjournment. However, I accept that they are not the only factors. The fact remains that Minardi’s counsel team were not in a position to deal fully with the many considerations in play, because those behind Minardi had chosen not to instruct them in time. Whatever else might be said about the conduct of those behind Minardi, one cannot question their wisdom in their choice of advocates, Mr Peto KC dealing with what was clearly a very challenging hearing, before an interventionist and troubled tribunal, with authority and grace. Were the relevant consideration the predicament of the advocate, rather than the conduct of the client, the case for an adjournment would be much stronger. As it is, I do not feel it would be appropriate to decide the issue on the basis of Minardi’s conduct alone, without first considering at rather greater length how the issues which Minardi seeks to advance fit into the history of this litigation.

On 22 June 2017, a CMC took place before Mr Justice Popplewell, at which Phoenix, Minardi and LCL were all represented. The order made:

The SFO and ERs’ application was issued on 26 June 2017.

Further directions were given on 13 December 2017 for the relevant parties to serve responsive documents. In giving directions, the Judge held that the SFO had established a good arguable case that certain of the Relevant Property constituted the realisable property of Dr Smith ([2017] EWHC 3335 (Comm)).

A substantial CMC was heard in April 2018 at which Phoenix, Minardi and LCL were once again represented. At this hearing, the court joined a number of interested parties to the litigation relating to the Relevant Property, including Dr Smith and Phoenix and Minardi, and made provision for a notice to be published and served on various parties, including Mr Ruhan, Mr Cooper and Mr McNally, notifying them of the issues to be determined, their opportunity to participate and that they would be bound by the result.

The order required the parties to notify “any proprietary claim or claim under the Criminal Justice Act 1988 … in relation to the Relevant Property which they wish to asset or any argument they wish to make in relation to any such proprietary or 1988 Act claim” (emphasis added). It also provided:

“Save to the extent that any such application is granted, the said parties and non-parties shall be debarred from (i) contending that they have a proprietary claim or claim under the 1988 Act in relation to the Relevant Property which takes priority over the claims included within the Paragraph 11 issues”.

The Paragraph 11 issues included:

“a the extent to which the Relevant Property …. constituted realisable property of Dr Gerald Smith …

b the proprietary claims and/or claims made pursuant to the 1988 Act to the Relevant Property [pleaded by various parties including LCL]

…

d the Stewarts’ application”.

This last issue was a reference to a claim by Stewarts for a lien over the Relevant Property, which Popplewell J included within the Directed Trial because what was asserted was “parasitic on the form of proprietary interest of those against whom the charge of lien is being alleged”: [2018] EWHC 2862 (Comm). The Judge made clear that:

“The primary objective of the directed issue … is to deal as swiftly and efficiently as possible with the entitlement to specific assets”.

It is important to note the following aspects of the directions for the Directed Trial:

In an email to the court of 9 February 2023, BKV asserted that “it is unclear whether SMA was ever properly made a party to the SFO case; even if it was, it is absolutely clear that it wasn’t represented, and its position put to the court”. Given that submission, it is necessary to set out the history of SMA’s involvement in the Directed Trial.

Up to 6 May 2016, the shares in SMA were held by Dr Cochrane, Dr Smith’s ex-wife but someone who has remained a close business and personal associate of Dr Smith, and who has featured in many of the arrangements which Dr Smith has orchestrated. On 6 May 2016, Dr Cochrane purported to transfer the shares in SMA to LCL. At the Directed Trial, I found this transaction to be void, having been effected at an undervalue and been entered into for the purpose of putting the assets beyond the reach of persons who might make claims to them. I also found that the shares in LCL and SMA were held on behalf of Dr Smith.

SMA was a party to this litigation from the outset. It was made subject to a restraint order made by Mr Justice Popplewell on 23 May 2016. The Judge made an order for alternative service on SMA by way of service of Stewarts Law, the solicitors then acting for SMA. This was done.

In November 2016, LCL was also made subject to the restraint order. LCL delivered the share certificates in SMA to the ERs’ solicitors.

The SFO’s statement of case was served by courier on SMA’s usual place of business on 23 October 2017 (pursuant to CPR 6.20(1)(c)(i)). Harbour’s statement of case was served on SMA’s registered office in the Marshall Islands.

At this stage, SMA’s sole director (as it had been from March 2014) was Nominee Service Holdings Limited, whose director, at least from 2016, was Dr Gail Cochrane. LCL was the sole shareholder of Nominee Service Holdings. I found that Dr Smith was the beneficial owner of Nominee Service Holdings.

On 7 December 2017, the ERs were appointed by Mr Justice Popplewell as receivers of the shares, securities and membership rights of SMA, and they collected in its books and records from the London office from which SMA’s affairs were administered. In April 2018, the ERs changed the address of SMA to their address.

On 17 March 2021, the ERs appointed themselves directors of SMA.

However, on 6 May 2021, during the period after circulation of the draft judgment and before hand-down, LCL purported to appoint itself as a director of SMA, and then, on 9 August 2021, LCL purported to appoint BKV who in turn purported to appoint Mr Thomas on 30 September 2021.

In summary therefore:

So far as SMA is concerned, therefore, this is not a case of an entity’s interests not having been advanced in litigation. It is a case of those who were active participants in the litigation, and well-placed to advance any points they wished to advance, choosing not to do so, but now seeking to relitigate the case through SMA.

Minardi was represented by leading and junior counsel at the CMC before Popplewell J in December 2017 and at all hearings thereafter.

On 29 November 2017, Minardi served a statement of case.

In its position paper served on 31 January 2018, Minardi alleged that if, contrary to its submissions, Harbour was entitled to Berkeley Applegate relief, its claim should be subordinated to Minardi’s rights under the LICSA.

In its skeleton argument for the Directed Trial, served on 8 January 2021, Minardi alleged that clause 2.3 of the LICSA gave Minardi a right to 50% of distributions to creditors (save for certain named exceptions) and 50% of shareholder distributions, with Phoenix being entitled to the remaining 50% of shareholder distributions under clause 2.4. It was accepted that clause 2.3 of the LICSA “merely imposes a personal obligation on SMA to ensure that 50% of any distributions made to creditors of the Arena HoldCos under its control are paid to Minardi” (that word “merely” being important). However, it was contended that clauses 2.3, 2.4 and 2.6 of the LICSA effected an equitable assignment of shareholder distributions to Phoenix and Minardi, alternatively just to Phoenix. In relation to that second argument, it was said that “P&M’s rights do not rest merely in contract but are proprietary in nature”.

P&M also addressed the position where there was no equitable assignment, contending:

“However, even if there was no equitable assignment, this would not impact upon P&M’s rights to receive the distributions from SMA that they are entitled to pursuant to the LICSA unless (a) anyone else obtained a proprietary interest in the shares in the Arena Holdcos pursuant to the Isle of Man Settlement, and (b) that proprietary interest was unaffected by the terms of the Geneva Settlement. For the reasons explained in Part 4 below, neither of those conditions are satisfied. Accordingly, SMA (whose shares are held by the Enforcement Receivers to the order of the Court) is contractually bound, and can be compelled if necessary, to pay the distributions from the Arena Holdcos to P&M pursuant to the terms of the LICSA and any rights any of the Participating Parties obtained pursuant to the Geneva Settlement are subject to that contractual obligation.”

As developed in the skeleton, that alternative submission involved various arguments:

Minardi also advanced its case that even if the Relevant Property were Dr Smith’s, the SFO/ERs was obliged to apply those assets to satisfy Minardi’s claims under the LICSA, and that any Berkeley Applegate relief should be subordinated to its claim.

Relief sought, as identified in the conclusion of the skeleton, included:

The Settlement Parties’ skeleton submitted that Minardi’s rights under the LICSA were personal and/or that the Harbour Trust had priority over them, and that the SFO/ERs was not required to give effect to Minardi’s personal claims. In oral opening, Mr Saoul QC submitted:

“Then one more point that Phoenix and Minardi take is that they say that even if -- and this is a new point in their skeleton -- even if they say they are unable to establish their own equitable rights under the LICSA they say that the distributions that the LICSA says are payable to Phoenix on liquidation of the Arena companies cannot fall within the Harbour Trust. It is effectively a backdoor proprietary argument; it might not be ours but it is not yours either. That doesn't work, and I will develop this shortly when I come to Phoenix and Minardi's case, but simply put whose rights are they saying they were, is one question, but it doesn't work because the trust bites over the shares in the companies. You cannot exclude from that distributions or half of the distributions on liquidation. That is the whole point of a trust that bites over the shares, and you can't effectively try to place a personal claim to assets above a proprietary claim in that way, it would undermine the entire point of proprietary rights.”

Mr Lord QC, then appearing for Minardi and also for Phoenix, responded:

“My Lord, with the greatest respect to Mr Saoul, that is simply wrong. Rights to the distributions went to Phoenix. Whether or not they are equitable assignment or not there was a contractual obligation on the part of SMA to pay those distributions to Phoenix. The Orb claimants, through whom Harbour and Stewarts claim, gave up those rights and Harbour and Stewarts are bound by that agreement.”

I interjected at this point querying the legal mechanism by which Minardi’s argument was said to take effect:

“I don't know whether and, you know, whether there is room for any Tito v Waddell principle of benefit and burden type argument. But if the deal that got the beneficial interest from the Ruhan side was obtained on the basis that he or someone to whom he owed a debt, depending on what your particular case theory is, would get the, you know, up to 75 million of the proceeds of the distributions, then the law of Plum and Duff comes into play. I think these are all matters to be explored on closing, but I think on both sides there may be more unpacking on this point that than we have had in opening.”

Forewarned of these issues, and of the centrality of the question of how Phoenix and Minardi’s personal claims could be asserted in priority to any equitable proprietary interest of the Harbour Trust, in its initial written closing submissions Minardi advanced the following arguments:

In an important paragraph, P&M submitted:

“However, as P&M pointed out at para. 120 of their skeleton argument, it is important to keep the significance of this issue in perspective. Even if the Court holds that the LICSA did not effect an equitable assignment of all future distributions of surplus in the liquidations, SMA remains contractually bound to procure that such distributions are paid to Phoenix. It is now under the control of the Enforcement Receivers and they will doubtless ensure that SMA performs its contractual obligations as and when a distribution is made. The question whether the LICSA effected an equitable assignment of the right to receive such distributions only becomes relevant if the Court were to find that other parties have proprietary claims to the distributions. For the reasons set out below no party has any such claim following the Geneva Settlement, alternatively no claim which ranks ahead of P&M.”

(emphasis added).

This paragraph recognised that if other parties did have a proprietary interest in the distributions, the question of whether Phoenix itself had a proprietary interest would be a significant issue. That is because, whatever else the ERs might do, they would not be in a position to use someone else’s property to meet SMA’s personal obligations.

In the Settlement Parties’ written closing, they addressed what they described (correctly) as a “new and unpleaded point on the basis that if the LICSA did not effect an equitable assignment and gave rise only to a mere contractual right against SMA, this still somehow entitled them to prevail.” They submitted that the argument (and a hypothetical example floated by the Court in relation to it) “risks blurring the boundaries between the equitable proprietary rights of the beneficiary of the trust (Harbour) with the personal rights acquired by the third party against the trustee.” They submitted:

“Nothing in the bilateral personal relationship between the third party to the trust, and the trustee prevents the beneficiary from collapsing the trust and calling in the trust property. Depending on the facts, the effect may be that the third party’s rights against the trustee may be worthless because the trustee has no assets against which the third party can enforce his personal claim, but that is a risk the third party takes by failing to bargain for proprietary rights, and flows from the structure of rights and obligations that have been agreed.”

They cited an article by Professor Lionel Smith which gives the following example:

“Let us again assume that our trustee holds a fee simple estate in trust and, acting properly in pursuance of his duties, contracts for the installation of a new roof. The roofer is a trust creditor. What we see in the common law, however, is that this creditor, just like a personal creditor of the trustee, has no direct access to the trust assets. Let us assume everything goes well. Either the trustee pays the roofer out of the trust assets, perhaps writing a cheque on a bank account held in trust; or, the trustee pays out of his own assets, and then, as is his right, reimburses himself out of trust assets. This shows us that the trustee can direct trust assets towards the trust creditor. Now assume things do not go well: the roofer does not get paid. In the common law, he must sue the trustee. Moreover, he does not sue him ‘as trustee’. Trustees are not understood to have a ‘trust capacity’. He just sues him. If the roofer gets a judgment, it is not a judgment against the trustee ‘as trustee’; it is just against the trustee. And, most revealingly, if the roofer comes to execute upon his judgment, he has no more right than would a personal creditor of the trustee to execute the judgment against the trust assets.”

The Settlement Parties argued that:

“This structural point also makes inappropriate any read over of principles concerning benefit and burden, or as the Court referred to it in its more informal guise, the law of plum and duff … The upshot is that if the Court finds that Harbour / the Orb Claimants acquire equitable proprietary rights arising at either the point in time of the IOM Settlement, or the point in time of the Geneva Settlement, and on the other hand Phoenix’s rights against SMA are merely personal, then P&M’s contention at paragraph 120 of their skeleton argument is wrong.”

After the Settlement Parties had completed their opening submissions, P&M belatedly responded to that argument with a “supplementary note”, which picked up on Professor Smith’s example and pointed to the fact that he suggested that the trustee was entitled to an indemnity from the trust fund for the costs of paying the roofer. They also asserted that such a right of indemnity gave rise to a lien over the trust assets which had priority over the claims of the trust beneficiaries, to which the creditor was subrogated. It was said that Phoenix’s claim against SMA under the LICSA was susceptible to such an analysis. No argument was advanced by reference to Minardi’s rights under the LICSA.

In short, this was a very late surfacing of an argument which fell full-square within the scope of the Directed Trial – that the interests of the Harbour Trust were subordinate to SMA’s right to a lien over trust assets to meet its liabilities under the LICSA, and to P&M’s entitlement to be subrogated to those rights. This was an argument no different to those of parties claiming an entitlement to an allowance against the trust assets, which gave rise to a lien and had priority over the proprietary claims of other parties. In a rather bashful footnote, reference was also made to Phoenix (but, once again, not Minardi) being able to obtain an order for specific performance against SMA.

In the course of P&M’s oral closing submissions (Day 21), I had the following exchange with Mr Lord QC:

“Mr Lord Even if the LICSA doesn’t effect an equitable assignment it doesn’t matter. The shares are in the hands of the enforcement receivers [I interpolate at that point to note Minardi’s recognition that it was the ERs who were the owners and controllers of SMA] and if necessary, they can be compelled to pay the distributions to Phoenix … SMA are parties to the LICSA. They have agreed to its terms. They have agreed to direct the joint liquidators to pay the surplus to Phoenix and they must honour the contractual promise.

Foxton J What, even if someone else has a proprietary interest?

Mr Lord Well, if your Lordship finds that somebody has a prior interest that means that doesn't have to be honoured, then that would be a different position [emphasis added] and we will come on to that. But, just as things stand, SMA is obliged, first of all, to direct the joint liquidators so that the payment goes direct to Phoenix. But, if and insofar as that didn't happen, then they must account, if there is any amount outstanding under the loan note, for that amount to Phoenix.

Foxton J All you have against them is a personal right. You just get to sue them in debt or damages, don't you?

Mr Lord Or for specific performance.

Foxton J Specific performance of obligations to pay money is -- unless you are talking about, you know, some specific fund which, in effect, the promisee has proprietary ownership, you don't get specific performance of promises.

Mr Lord But the injunction, or the specific performance we would be seeking, was a direction. It is not going to be necessary on the facts of this case, but a direction, a further direction to the joint liquidators to pay us.

Foxton J If you didn't get an equitable assignment under the LICSA, on what basis does the court grant discretionary relief that treats you as though you had?

Mr Lord Because that is what the parties bargained for.

Foxton J Parties who bargain -- well, they bargain but if someone made a promise to you that may have conflicted with obligations they owed as a trustee to someone else on this hypothesis, proprietary claims will generally trump personal claims. You would get to enforce whatever rights you have against SMA but, if they are holding assets on trust, you won't be able to reach those trust assets in your enforcement efforts. Why would the court grant you an injunction to improve your position on this hypothesis against an insolvent SMA?

Mr Lord There is no evidence, I don't think, my Lord, that SMA is insolvent.

Foxton J If they owe you this huge claim and all the assets they have are held on trust for someone else, they are, aren't they?

Mr Lord Yes, but that would be subject -- we are coming onto -- which we will come to, which is our (inaudible) note.

Foxton J The point about Professor Smith's roofer.

Mr Lord Yes.

Foxton J The short answer is you are subrogated to the trustee's proprietary lien. But I am not sure that simply cutting straight to say, well, you can injunct the performance of these promises of itself is going to short circuit this.

Mr Lord I think part of the confusion may be any assumption that SMA is insolvent. SMA is a company that is in existence, whose shares are held by the enforcement receivers. [I would repeat my interpolation]. Now, if it were to receive the distributions when it shouldn't have done and they should have come to you, then, ignoring for these purposes -- and we will come on to it -- anybody else's proprietary rights, in my submission we would be perfectly entitled to go to the court and to say, ‘that money is ours, please can we have it’. Because that is what was agreed. One only gets into the further complication of proprietary rights either if SMA was insolvent and then there were other creditors and whatever. But we are not in that territory -- or if somebody else has a prior proprietary right [emphasis added]. In those circumstances, we are in the roofer example, and we will come to that, my Lord ….

Foxton J I am going to need more help on that argument we have just been through, I think, from all parties. It is my fault. It is not one I have absorbed and been able to think about at an earlier stage. At least at first blush, I am trying to work out how it fits into the general position as a matter of law. Perhaps we will come back to it. It is dealt with in your written closing, just give me the references Mr Lord.

Mr Lord My Lord, it is dealt with originally in paragraph 120 of our skeleton argument. I don't know if your Lordship has that. If your Lordship has that, we say:

‘If there was no equitable assignment, this would not impact upon P&M's rights to receive the distributions from SMA that they are entitled to, unless anyone else obtained a proprietary interest in the shares in the Arena holdcos pursuant to the Isle of Man settlement.’

Then you are fairly and squarely into the roofer example.

B: 2 "That proprietary interest was unaffected by the 3 terms of the Geneva settlement." Which is the roofer example. [emphasis added]

Foxton J That is everything else we are arguing about. Why shouldn't I be leaving you to pursue your – I have no idea what countervailing interests might pop up if you are seeking to enforce a personal claim by injunction against SMA, effectively requiring them to hand over the proceeds. I am afraid one paragraph tucked away in the many hundreds of pages of written submissions I have had in this case, I suspect that there is a rather large point lurking here, if we ever got to it.

Mr Lord Well, I will think about it further, my Lord. In my simple way of thinking of things, which may not be helpful, it was simply that the enforcement receivers are in control of SMA; they are holding the shares in SMA as enforcement receivers and as officers of the court and they will do the right thing.

Foxton J This will sound like a terrible cop out but how does that fall within the scope of the directed trial of determining a proprietary interest in assets?

Mr Lord You have a fair point there, my Lord.

Foxton J Right.

Mr Lord What is before your Lordship are the proprietary claims.

Foxton J If there were personal claims before me, the resolution of which would be capable of impacting on other parties, that would have had to have been covered by the advertising process, for example. For all I know, there may be a load of other people who say, well, on certain case hypotheses I have a personal claim against SMA. Messrs Thomas and Taylor, in effect, I think, say they have one but they are entitled to bring it into account in the adjustment of the interests under the Harbour trust against Orb. So the idea that I should make an injunction or specific performance now to let you scoop the pool, without having heard from any of them and without that forming a part of the directed trial, doesn't seem –

Mr Lord I am not making an application for an injunction. That may be the short answer to that point. Of course, it is different if the shares in SMA are held on trust either at Isle of Man -- sorry, the shares in the Arena 21 holdcos are held on trust either at Isle of Man or following Geneva, because then we are in the roofer example. [emphasis added]

Foxton J Good. Well, I think we may have run that hare to earth. What you are entitled to say is that is one of the weapons we say we have in our armoury, even if it isn't a weapon that, perhaps, isn't for this trial but is for another day”.

The exchanges with Mr Lord QC did not stop there, but the extensive passage set out above captures their flavour sufficiently. It is important to note that, throughout, P&M’s “roofer” argument was advanced by reference to Phoenix’s rights under the LICSA and not Minardi’s.

In reply, Mr Saoul QC stated that, “faced with these obvious problems, what Phoenix have sought to do in this trial is to transform their personal rights into proprietary or quasi proprietary rights,” identifying a number of ways in which they had gone about this. In relation to the roofer case, he submitted:

“What we then have is the new case based on subrogating into the trustee's right of indemnity; the roofer, as it has become known in this case. It is time now for the roofer to go and darken someone else’s doorstep, my Lord. It is raised for the first time in supplemental notes after written closings. We have now had a bit more time to think about it and I want to make some additional points. I want to make the point that we do take the pleading point, we do take the point that it is raised so late, and my Lord will see why. The arguments I advance are in my submission clearly meritorious. But if my Lord was to have any doubt about that the problem is that it is all taken at the last minute and there are actually Jersey law issues which we have investigated. So let me address them”.

Mr Saoul QC then advanced a series of arguments as to why this point was not open or was without merit:

It will be clear quite how extensively the issue of how far P&M could set up personal claims against Harbour’s proprietary interest, if it established one, was canvassed. As these passages make clear:

In the Directed Trial Judgment, [326] I noted that:

“In the event that the LICSA does not affect an equitable assignment, P&M have advanced various arguments as to why it is said that they can nevertheless recover the distributions referred to in clauses 2.3 and 2.4 of the LICSA. One of these contentions – that the Court could and should make orders for specific performance of Dr Cochrane's and SMA's obligations under the LICSA – was not pursued in oral closing submissions as a ground for asserting a proprietary interest in Relevant Property (without prejudice to such personal claims as might arise, which did not form part of the Directed Trial). However, two arguments were”.

The clear effect of that paragraph, reflecting the manner in which P&M had conducted its case, was that if, as I had held, the Harbour Trust had an equitable proprietary interest in the assets held by SMA as nominee, P&M had abandoned any argument that a claim for specific performance provides a basis for reaching through to that interest and asserting, in effect, priority over it. It cannot have been understood as permitting P&M to advance only one part of its case as to how their personal claims under the LICSA could trump the Harbour Trust’s equitable proprietary interest, while saving another, as originally put forward in the Directed Trial, for a rainy day. For this purpose, there was no difference between the specific performance argument and the roofer argument.

At [329], I acknowledged the force of the commercial point which lay at the heart of P&M’s submissions then, and lies at the heart of Minardi’s submissions now:

“At paragraph 8 of their closing, P&M submitted that the Settlement Parties should not be able to ‘take the benefit of the release of Mr Ruhan's claims free of the burden of the Loan Note and the LICSA’. I understand the commercial appeal of that argument, to which I have given careful consideration. However, for it to succeed, a legal principle must be identified which can give it effect, otherwise the argument ignores what in commercial as well as legal terms is the very real distinction between the position if P&M had obtained proprietary rights in assets held by Dr Cochrane or SMA in the settlement negotiations, and position if P&M obtained only personal rights. The former, so far as they had priority, would reduce the extent of the assets recovered by the Orb Claimants, and hence subject to the Harbour Trust. The latter would not. While in land law, there are contexts in which a principle of no benefit without burden’ may subject those who acquire an interest in property to the obligation to perform a negative personal covenant associated with it, I was not referred to any legal principle which would make the rights of Harbour and the Orb Claimants in the Harbour Trust conditional upon the discharge of any positive personal covenants assumed by Dr Cochrane and/or SMA.”

I first dealt with P&M’s argument that the Harbour Trust did not extend to the amounts payable under the LICSA and rejected it. The existence, and determination, of that argument is important, because one of the arguments which Minardi now seeks to advance before me is that the Harbour Trust does not extend to the property and amounts payable under the LICSA.

I then noted that:

“In a supplement to their written closing, P&M sought to bridge the divide between personal and proprietary claims through a further argument, contending that whilst they had only personal claims against Dr Cochrane (or SMA), they were subrogated to a proprietary right which Dr Cochrane or SMA had over the recovered assets in respect of their entitlement to an indemnity from trust assets against any personal liability. I now consider that argument, and whether it was fairly open to P&M at the time it was raised.”

I then addressed that argument at length:

The result was the argument failed. It is important to note how central the issue considered in the Directed Trial Judgment was. It was common ground then, as now, that SMA had no assets other than the Relevant Property from which to discharge its obligations under the LICSA (whatever they might be). If the court found that those assets were owned beneficially by the Harbour Trust, then anyone with a purely personal claim against SMA faced the difficulty of identifying how those claims could have priority over the Harbour Trust. Mr Peto KC made much of the fact that Minardi’s claims had only arisen after the Directed Trial Judgment. However, even if that is the case, it was the inevitable consequence of the Directed Trial Judgment that SMA would not be in a position to perform the obligations it had assumed. There has been no new event which would not have been expected during the Directed Trial, and which somehow justifies re-setting the litigation clock.

To give effect to the Directed Trial Judgment, I made a number of orders including the following declaration (emphasis added):

“The interests in the following assets are held by their legal owners on the terms of the Harbour Trust and are to be applied and apportioned between the beneficiaries, namely Harbour, Orb arl, and Messrs Thomas and Taylor, in accordance with those terms (save as set out below):

a.

The shares in the Arena Companies (as set out in Schedule 2 to this order);

b.

Such future distributions as may be paid or payable to the shareholders of the Arena Companies.”

I also declared:

“Save insofar as set out above or below, the claims pursued by the parties at the Directed Trial are dismissed and none of the said parties hold any equitable or proprietary interests in any of the Relevant Property or the IUAs.”

There was no provision making the distribution of the assets subject to claims of Phoenix or Minardi, because the only claims advanced in support of such a contention had failed.

Phoenix sought permission to appeal my rejection of its argument that the Harbour Trust did not extend to the amounts payable by SMA to Phoenix under the LICSA and that its personal claims could “reach through” to the assets held on the terms of the Harbour Trust.

Phoenix identified the arguments on which it was seeking permission to appeal as follows:

“In the alternative, Phoenix argued that, even if the LICSA, on its true construction, did not effect an equitable assignment of SMA’s right to receive the surplus, and it therefore did not have any proprietary interest in it, the fact remained that SMA had agreed (with the authority of the Orb Claimants, Harbour and Stewarts) as part of the Geneva Settlement that the surplus would be paid to Phoenix (up to the value of the Loan Note). The surplus therefore did not form part of the Harbour Trust and there was no reason why SMA should not honour its contractual obligation under the LICSA to take all necessary steps to ensure that the surplus was paid to Phoenix (and could, if necessary, be compelled to do so).

In the further alternative, Phoenix argued that it was entitled to be subrogated to SMA’s right as trustee to be indemnified out of the trust assets, and the equitable lien associated with it, in respect of its liability under the LICSA.”

The arguments raised included:

Permission to appeal on both grounds was refused:

“Ground 2 arises on the basis that the LICSA did not effect an equitable assignment in favour of the applicant. On that basis, any surplus formed part of the Harbour Trust and the applicant has no proprietary right thereto. This is not inconsistent with what the judge said at [178] where the judge was dealing with the equitable rights of others. Once the trust was fully constituted by the Geneva Settlement, there were no equitable rights of others which prevented the right to any surplus from forming part of the trust.

Ground 3 was raised for the first time in the appellant's closing submissions in the court below. This was far too late, notwithstanding that the judge dealt with it as best he could on the material available.”

The basis for refusing permission to appeal on ground 2 is important. It reflected my rejection of P&M’s argument that their entitlements under the LICSA fell outside the scope of the Harbour Trust, such that SMA could satisfy them without infringing upon the equitable proprietary interest of the Harbour Trust.

In its appeal on the equitable assignment issue, Phoenix argued that only acceptance of its equitable assignment argument would give effect to what it contended was the commercial purpose of the Geneva Settlement.

As permission to appeal was refused, it was not necessary for the Settlement Parties to raise any of their other objections to this argument by way of a respondent’s notice. However, Minardi now seeks to “bank” those findings which were favourable, for the purposes of its argument, even though the Settlement Parties have not had any opportunity to challenge them on appeal.

At this point it is necessary briefly to outline the arguments which Minardi seeks an adjournment to advance at some future hearing. It contends:

I now turn to the question of whether there should be a yet further hearing in this case, two years on from the Directed Trial, to determine whether or not Minardi should be permitted to advance the claims it now seeks to advance. Mr Peto KC suggested that the importance of the issue to Minardi, and the limited delay and time necessary to resolve it (his estimate reducing from two days to a day and a half) made a short adjournment the only fair course. But before acceding to this siren call, however attractively presented, it is essential I keep the following matters in mind:

It is immediately apparent, without scope for serious argument, that Minardi’s claims represent the clearest and most obvious attempt to relitigate the issues raised at the Directed Trial, and the clearest abuse of process for that reason.

The specific performance case seeks to resurrect the allegation of specific performance of obligations which:

However, the Harbour Trust did establish an equitable proprietary interest in those assets. If it was suggested that a claim for specific performance could be asserted which would have priority over that interest, that had to be asserted at the Directed Trial or not at all.

So far as the damages claim is concerned, all that is said is that Minardi’s claims were not explored at the Directed Trial. This was because Minardi did not seek to raise them in support of the indemnity argument. If the P&M legal team had wished to advance the same argument on behalf of Minardi as it did on behalf of Phoenix, the court would have dealt with it. The suggestion that the argument was not advanced because Minardi understood the ERs would “do the right thing”:

Minardi’s new legal team submit that the argument that:

“Minardi and/or SMA could and should have argued the indemnity point at the Directed Trial … is absurd:

i)

A necessary ingredient of establishing a trustee indemnity is establishing that there is a personal claim against the trustee. It was made clear to P&M that the Directed Trial was not the forum for arguing and establishing personal claims. It is therefore difficult to see how it could have pursued this argument fully at the Directed Trial therefore (rather than simply giving notice of it).

ii)

SMA was the only party which could (and should) have made arguments about a trustee indemnity arising as a result of potential future liabilities. However, this was made impossible by the fact that it was represented first by Stewarts and then controlled by the ERs. Both had a clear conflict of interest, it was not in their interests to argue that if SMA was a trustee of the shares in the Arena HoldCos, it should be entitled to a trustee indemnity in respect of any future claims against it under LICSA.”

As to this:

It is also helpful to consider the relief which Minardi seeks. While Minardi submits that its “primary position is that the relief it seeks by its claim for specific performance would not do any violence to the Judgment or Consequentials Order” (and the word “primary” is never without significance in this case), the relief sought by Minardi in its application notice is as follows:

“That the Court declare and/or clarify that the assets identified at paragraphs 4a. and b. and Schedule 2 of the Order of Mr Justice Foxton dated 11 June 2021 (the “Consequentials Order”) do not and were not intended to include any assets or distributions due to Minardi under the terms of the Liquidation Inter-Creditor Settlement Agreement dated April 2016 (respectively the “Minardi Assets” and “LICSA”) and were not intended to include directions regarding the Minardi Assets;

Further or in alternatively, that the Court declare that the rights obtained by the Harbour Trust beneficiaries, namely Harbour, Orb arl, and Messrs Thomas and Taylor, in the assets identified at paragraphs 4a. and b. of the Order of Mr Justice Foxton dated 11 June 2021 (the “Consequentials Order”) are subject to SMA’s contractual obligations to Minardi under the LICSA.

Further or alternatively, that the Court declare SMA is entitled to a trustee indemnity from the shares of the Relevant Companies in respect of any claims made against SMA pursuant to LICSA, including but not limited to Minardi’s civil claim against SMA in the Marshall Islands (case no. 2022- 02128 HCT/Civ/Maj).”

The extent to which Minardi is simply seeking to-argue the matters raised at the Directed Trial Judgment could not be clearer.

For these reasons, I am satisfied that Minardi should not be granted an adjournment, for the purpose of advancing arguments which would be an abuse of the process of the court.

My conclusion that it would be an abuse of process for Minardi to raise these arguments now is sufficient to dispose of them. However, I am in any event satisfied that the claim for specific performance against SMA is hopeless on the merits:

The inherent difficulties with Minardi’s argument (which are no doubt the reasons why it was not pursued at the Directed Trial) emerged with some clarity in Phoenix’s argument in the Court of Appeal:

Those difficulties themselves raise real and unanswered questions as to what was in the mind of the parties to the LICSA when it was signed – whether it was anticipated that Dr Smith and Dr Cochrane would procure compliance by SMA with its terms, regardless of the equitable proprietary interests of other parties (just as they had acted in contravention of such interests in the period between the IOM and Geneva Settlements), or whether it was thought that SMA could procure the liquidators to act in a particular way, whatever their legal duties might be. It was uncertainties of that kind which underlay my observation in the Directed Trial Judgment, [246]:

“I do not believe it would be appropriate for me to approach the LICSA with any form of pre-disposition as to the strength of one or other party's negotiation position, as to the type of deal towards which the parties were aiming or as to what would constitute a 'fair' outcome to a dispute which was so singular both in its content and in the means by which it was pursued.”

That leaves only Minardi’s claim for damages, which is dependent on breach, indemnity and subrogation arguments which were raised by Phoenix, but late, at the Directed Trial, and which failed, and were not raised by Minardi at all.

As I have stated, the Harcus Parker Parties have applied against SMA for an order requiring it to transfer the Relevant Property to the New Trustees (the Transfer Order). That application has been made both in the Directed Trial (to which SMA is a party for the reasons set out at [29]-[39] above) and in the Part 20 Claim brought in the Part 8 Claim.

BKV, purporting to act for SMA, has applied to set aside the order for service of the Part 20 Claim out of the jurisdiction on the basis that these issues should be resolved in proceedings commenced against SMA in the Marshall Islands. I will assume, without deciding, that BKV is indeed authorised to give instructions on SMA’s behalf, and I will treat BKV’s application as involving an application for a stay of the Harcus Parker Parties’ application for the Transfer Order in the Directed Trial as well as an application to set aside the order for service out.

Taking BKV’s application for an adjournment first, I am satisfied that there is no reason BKV could not have presented its case at this hearing had it wished to. The hearing date was agreed to by BKV on 20 December. I am satisfied that BKV’s failure to engage in the hearing is simply another move in the games which those behind Minardi and SMA are intent on playing: see [10]-[19] above. Accordingly, its application for an adjournment is refused.

I am satisfied that BKV’s application to set aside service out, and its deemed application for a stay, are hopeless and should be dismissed:

I am also satisfied that the Harcus Parker Parties are entitled to summary judgment in respect of the relief they seek against SMA. On the basis of the decisions taken at the Directed Trial and in the Part 8 Claim, SMA can have no defence to the application that it deliver the Shares which it has only ever held as a bare trustee to the New Trustees appointed by the court:

It follows that the injunction I granted on an interim basis on 7 February 2023 should be made final.

Finally, I am satisfied that BKV should be joined to the proceedings for costs purposes, and permission granted to serve an application for costs under s.51 of the Senior Courts Act 1981 on BKV. There is an arguable basis for a third-party costs order against BKV, which can only be tried in this jurisdiction. I am willing to make an order for alternative service of that application by email. There is clearly an urgent requirement for the court to address BKV’s activities in relation to this litigation, and to do so in the context of closely related issues which are before the court on 7 March.

As will be apparent from the foregoing, there is a real risk in this case that individuals who are bound by, but unhappy with, the outcome of the Directed Trial have been and are continuing to instigate proceedings and applications in these proceedings and elsewhere to challenge the outcome of the Directed Trial or by way of a collateral attack on its conclusions. The scale of these activities and the legal costs and court time they are consuming, mean that considerable vigilance will be required on the court’s part to ensure that its judgments are respected and its processes are not abused.

If activities of this kind continue, there will need to be careful consideration of a number of matters, including: