SMA Investment Holdings Ltd v Harbour Fund II LP & Ors

the application of the parties represented by Harcus Parker LLP (the Harcus Parker Parties) for an order transferring shares held by SMA Investment Holdings Ltd (SMA) on bare trust for the beneficiaries to the Harbour Trust (the Shares) to trustees I have previously appointed to that trust (the New Trustees);

the application issued on the instructions of BKV Limited (BKV), which claims to be a director of SMA and authorised to represent it, to challenge the jurisdiction of the court to hear a claim brought by the Harcus Parker Parties seeking relief against SMA (that claim having been brought by way of a Part 20 claim in proceedings commenced against the Harcus Parker Parties and in which the Harcus Parker Parties seek the same order for transfer of the Shares); and

the Harcus Parker Parties’ application to continue a worldwide freezing order (the WFO) which I granted on a “without notice” basis against SMA in relation to the assets it had been found to be holding as bare trustee for the Harbour Trust.

on 8 February 2023, solicitors acting for Minardi Investments Limited (Minardi) wrote to Harcus Parker LLP saying that they intended to intervene in the Part 20 Claim, and had made an application to be joined, for the purpose of resisting the order for transfer of the Shares, and seeking an adjournment of the hearing to allow time for new counsel to get up to speed;

no one was instructed to appear by BKV in support of its jurisdictional challenge;

the Harcus Parker Parties also issued an application for summary judgment on its claim for an order requiring SMA to transfer the Shares.

The disputes originate in dealings between two thoroughly dishonest individuals, Dr Gerald Martin Smith and Mr Andrew Ruhan, in 2003. Their dealings led to extremely hard-fought litigation, in which two other individuals who I have found to be thoroughly dishonest, Mr Simon Cooper and Mr Simon McNally, featured prominently, and in the course of which various assets moved from Mr Ruhan’s control to Dr Smith’s control in circumstances involving dishonest breaches of fiduciary duty by Messrs Cooper and McNally.

Dr Smith has twice been convicted of separate offences of dishonesty, and on the second occasion the Serious Fraud Office obtained a confiscation order over his realisable assets in the sum of £40m. However, Dr Smith’s propensity to dishonesty and obfuscation, and the legal chaos generated by his dealings with Mr Ruhan and the subsequent litigation, made identifying Dr Smith’s realisable property a challenging task.

In circumstances which I will have to consider in more detail, in 2017 Mr Justice Popplewell gave directions for a trial intended to resolve competing claims to assets which had changed control during the litigation against Mr Ruhan.

That litigation has resulted in two significant trials before me. The first – the so-called Directed Trial – took place between January and March 2021, and was subject to a judgment reported at [2021] EWHC 1272 (Comm) (the Directed Trial Judgment), a heavy interlocutory judgment reported at [2021] EWHC 1273 (Comm) and a lengthy consequential judgment reported at [2021] EWHC 2803 (Comm). The only party to obtain permission to appeal against findings made in the Directed Trial Judgment was Phoenix (who received permission only on a limited part of its case). That appeal was dismissed on 20 January 2023 (Phoenix Group Foundation v Harbour Fund II LLP [2023] EWCA Civ 36).

The second significant trial determined “upstream” issues relating to ownership of some of the assets in the Directed Trial, in proceedings brought by HPII against Mr Andrew Ruhan and Mr Anthony Stevens. Judgment was handed down on 23 February 2022, following a trial starting in late November 2021 and finishing in January 2022: Hotel Portfolio UK Ltd v Ruhan [2022] EWHC 383 (Comm), with another significant consequentials judgment, [2022] EWHC 1695 (Comm). There has been no appeal by Mr Ruhan against that decision, although there is an outstanding appeal on issues of quantum by Mr Anthony Stevens.

At the Directed Trial, Minardi was said to be owned by Mr Anthony Stevens (who I later found to be acting as a nominee for Mr Ruhan pursuant to a dishonest arrangement they had put in place and operated over many years). Minardi’s claims were opposed by Messrs Thomas and Taylor, who were represented by Mr Crossley of St Paul’s Solicitors. At the hearing, it was Minardi’s case that Messrs Cooper and McNally had acted in dishonest breach of trust in transferring assets to SMA. It was Mr Crossley’s submission that Dr Smith had been and was continuing to be thoroughly dishonest in his dealings.

After the Directed Trial, Mr Thomas began to adopt positions in his capacity as a trustee of the Harbour Trust which were opposed to the interests of the Harbour Trust, and favourable to those of persons linked with Dr Smith and Messrs Cooper and McNally. He received litigation funding from companies linked with those individuals.

In 2022, a company called Marlborough Developments Ltd (MDL) commenced proceedings in the Chancery Division against Mr Ruhan claiming some £800m. The statement of truth for MDL was signed by Mr Anthony Smith, Dr Smith’s brother and another individual whose evidence on oath I have been unable to accept (Milsom and Standish v Gerald Martin Smith and the Estate of Phyllis Smith [2023] EWHC 255 (Comm)). The basis on which Mr Anthony Smith could have personal knowledge of the matters asserted in the Particulars of Claim is not immediately apparent, although I was told that that was the reason why he has signed the statement of truth. However, it is not necessary to get into the issue of whether or not the statement of truth was appropriately made at this stage.

At the Directed Trial, Mr Crossley said “there are many strange bedfellows in this case. We all seem to be swapping alliances as we go”. That was certainly true of Mr Crossley, who now acts for MDL. Mr Crossley has confirmed that Dr Smith is providing “consultancy services” in respect of the MDL litigation. Somewhat surprisingly, for very many reasons, Mr Ruhan consented to judgment in the full amount of MDL’s claim. I have since granted a worldwide freezing order against MDL and Dr Smith, on the basis that there is a real risk that these proceedings and the resulting judgment are collusive in nature, reflecting co-ordinated activity between those behind MDL (including Dr Smith) and Mr Ruhan to frustrate the judgment obtained by HPII.

It has become apparent that MDL is being partially funded by companies linked with Mr Anthony Smith, including a vehicle which funded Mr Thomas’ pursuit of the Part 8 claim. MDL has a subsidiary known as Pro Vinci Recoveries Ltd, a name well-known to those who have had cause to follow Dr Smith’s affairs.

Mr Crossley also acts for MDL in relation to proposed proceedings against Mr Sodzawiczny, who obtained an arbitration award against Messrs Cooper and McNally and Dr Smith, on the basis of extensive findings as to their dishonesty. There are ongoing and hotly contested proceedings in which Mr Sodzawiczny seeks to enforce that award (although it is Mr Crossley’s evidence on affidavit that Messrs Cooper and McNally are not involved with the MDL action).

As I have stated, Mr Crossley is now Minardi’s solicitor, on the basis that MDL has acquired ownership of Minardi as a consequence of the undefended judgment obtained by MDL against Mr Ruhan. He told me that Dr Smith was assisting with Minardi’s application but that his instructions come from Mr Charles Bryce and Mr David Almond. Mr Bryce was receiving payments from funds under the control of Dr Smith and his ex-wife Dr Cochrane back in 2012 and 2014 (together with Mr Thomas and Mr Taylor). Mr Almond gave evidence for Dr Smith in Mr Sodzawiczny’s arbitration against Messrs Cooper and McNally and Dr Smith. In the affidavit which I asked him to swear, Mr Crossley said he had “receive[d] significant input from Dr Smith, who is a retained consultant by MDL”, such that “communications where I, as the retained solicitor, am involved are typically three or four-way conversations” with emails passing between him and his client “or their consultant Dr Smith”.

Mr Crossley had moved from arguing in 2021 that the effect of my judgment in the Directed Trial was that the assets should be transferred away from SMA and distributed, to arguing the exact opposite.

“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”.

required the SFO and the ERs to issue an application to determine their contention that the Relevant Property (including the Shares) were the realisable property of Dr Smith, to name LCL, SMA, Dr Cochrane and Mr Anthony Smith as respondents to that application, and to give notice of the application to other interested parties; and

provided that “any of the Interested Parties … that wish to be joined to the SFO Application to assert a proprietary claim to or interest in” the Relevant Property, to challenge the contention that they were the realisable property of Dr Smith “or to contend that they have a claim or claims or that there are issues in a claim or claims which they have which can conveniently be disposed of together with the SFO Application” to give notice, and thereafter to serve a document providing particulars of their claim.

“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”.

“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”.

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

Those asserting an entitlement which it was alleged would have priority over any claim of the SFO under the 1988 Act were required to assert that claim (which was not limited to claims of a direct proprietary interest).

The language of the order extended not simply to proprietary interests, but proprietary claims and any arguments which a party wish to make in relation to a proprietary or 1988 Act claim.”

Those challenging the priority of the proprietary claims of others over their claims, or asserting the priority of their own claims, were required to advance their arguments.

Reflecting that framework, the issues in the Directed Trial included not just competing claims to the beneficial ownership of assets, but also arguments for various forms of allowance alleged to be subject to liens over the Relevant Property which were said to have priority over the proprietary interests of others or the claim of the SFO.

SMA was party to the Directed Trial proceedings from the outset.

LCL, who claimed to be the shareholders in SMA, Dr Cochrane, who I have found was the shareholder and Dr Smith, for whom I have found Dr Cochrane was holding the shares, were all parties to the Directed Trial proceedings throughout and able to take any steps they sought fit to advance SMA’s interests as they saw them.

Mr Thomas, later appointed as a director of SMA (albeit the validity of that appointment is in dispute) was party to the Directed Trial proceedings throughout.

Mr Ruhan, Mr McNally and Mr Cooper, if they are the individuals now orchestrating the actions of the BKV faction in relation to Minardi, were all notified of the Directed Trial and of the final status of any rulings made at that trial. They chose not to participate (albeit Mr Ruhan did participate through his nominee, Mr Stevens).

Minardi asserted a proprietary right in the Shares on the basis that the LICSA effected an equitable assignment and that SMA undertook to give directions to the joint liquidators to facilitate the transfer of assets to Minardi under the LICSA.

It alleged that, if the Relevant Property were Dr Smith’s realisable property, nonetheless Minardi’s rights under the LICSA had to be respected. This is a significant claim, reflecting the fact that, to the extent that any party wished to assert that another party’s proprietary interest was subject to its personal claim, it had to make that case at the Directed Trial.

It asserted that Minardi had a significant interest in the issue of whether the Relevant Property were the Realisable Property of Dr Smith, because “if it is not, then the proceeds from its realisation would in due course be available …. to satisfy their claims under … the LICSA”. The implicit converse of that proposition is to be noted.

In what has been a leitmotif of Minardi’s submissions then and now, it also alleged that “the applicants should not be permitted to take any benefit conferred on Dr Smith (through SMA and Dr Cochrane) by the Geneva Settlement without honouring the obligations created by … the LICSA”.

“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.”

For various reasons, Harbour did not acquire a proprietary interest in the Relevant Property at the time of the IOM Settlement.

The Harbour Trust did not extend to the amounts payable to Minardi under the LICSA.

Harbour acquired any interest subject to the LICSA by virtue of clause 6.2 of the Harbour Funding Agreement.

a declaration that Minardi was entitled under the LICSA to 50% of all distributions from the Arena HoldCos to creditors controlled by SMA;

an order directing the ERs to cause SMA to pay such distributions to Minardi; and

similar relief in relation to distributions from the Arena HoldCos to shareholders.

“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.”

“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 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.”

The Harbour Trust only extended to the amounts left after payment of the amounts due to Phoenix and Minardi (P&M) under the LICSA and the Loan Note. That argument was advanced both as a matter of construction, and because SMA had entered into the LICSA as trustee with the beneficiaries’ consent, albeit at this stage this last point was distinctly underdeveloped.

Phoenix had a proprietary interest in the future distribution of any surplus from the Arena HoldCos which had priority over any other interests.

The SFO/ERs was obliged to take steps to permit P&M to recover the amounts due to them under the LICSA and the Loan Note.

SMA had a personal obligation to ensure Minardi received 50% of distributions to controlled creditors (but Minardi had no rights to distributions to shareholders).

“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).

“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.”

“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.”

“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.”

“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:

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”.

“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”.

No personal claim by Phoenix against SMA had ever been intimated and there was no viable claim (Minardi was not mentioned because Minardi had not tried to formulate such a claim as a basis for reaching through to the assets held by SMA on trust).

SMA did not enter into the LICSA qua trustee of the trust held on sub-trust for the beneficiaries of the Harbour Trust.

Harbour did not consent to SMA entering into the LICSA and SMA had no authority, qua the Harbour Trust, to do so, so this was not a properly incurred liability.

SMA would not be entitled to an indemnity anyway if and to the extent that it was in breach of trust, which it was by reason of the substantial diversion of assets held by it on trust at the behest of Dr Smith and Dr Cochrane.

Subrogation should be refused as a matter of discretion.

The issue of whether, if P&M had purely personal rights under the LICSA, there was nonetheless an entitlement on P&M’s part to look to the assets held by SMA on bare trust to meet those liabilities, which had priority over the claims of the Harbour Trust, was absolutely in play at the Directed Trial.

It was accepted that the answer to this question could differ depending on whether or not someone else had a proprietary interest in the assets held by SMA or not.

To the extent that they did not (which P&M submitted was the case because they submitted that the Harbour Trust only extended to any net proceeds after the liabilities of SMA under the LICSA had been satisfied), and there was a conflict of personal claims, it was accepted that this was not a matter for this trial. That included claims for specific performance of SMA’s obligations (on the hypothesis that the assets it held the legal title to were not assets of the Harbour Trust, but SMA’s assets).

However, if I upheld the proprietary claim of the Harbour Trust, P&M’s answer (and its only answer) was the combination of the trustee’s right to indemnity, a lien and subrogation (the “roofer” example).

“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”.

“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.”

“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 noted it had not been raised until a very late stage.

I noted that there had been little argument before me as to whether P&M had personal claims against SMA, of what kind and in what amount. That was not because, as Minardi now asserts, the time for articulating such claims had yet to arise. If, as Phoenix has sought to do in closing, it was alleged that such claims were capable of having proprietary effects on or priority over Harbour’s equitable proprietary interest, then the Directed Trial was the time when they had to be formulated.

I reviewed the LICSA and was not persuaded that there was any breach of an obligation by Phoenix capable of giving rise to a claim in damages, on the facts as I had found them (in that SMA giving a direction to liquidators would not change the legal duties of those liquidators, or permit them to override Harbour’s equitable proprietary interest). I concluded that “P&M have failed to persuade me that they have a claim against SMA under the LICSA capable of supporting the first stage in their indemnity/subrogation argument.”

I accepted that SMA had assumed such obligations as it owed under the LICSA as bare trustee, and held that I was “satisfied that Harbour was content to allow the 2012 Proceedings to be settled on the basis which had been discussed in Geneva, with whatever consequences that might have, albeit there was no evidence that it had specifically been asked to or had signed off on the relevant terms.”

I noted that because of “the late stage at which the indemnity argument was raised … the key questions of whether SMA was itself in breach of the Harbour Trust, and if so, what the amount of its liability was, were not addressed.” However, I noted that it was clear that SMA was party to the transfer of assets out of the trust assets, which formed part of the extensive "looting" of the Transferred Companies at the behest of Dr Smith in the period between the IOM Settlement and the Geneva Settlement. I found that those were matters on which the beneficiaries of the Harbour Trust “were entitled to rely upon as reasons why no indemnity should be available to SMA, or at least to limit the amount of such an indemnity.”

I noted that the late stage at which the argument had been run did not allow me to quantify the amount of the looting. I would add at this stage that, given the extensive volume of documentation placed before me at the Directed Trial, it would have been possible to resolve that issue within the Directed Trial if raised in time, and my strong view on the basis of the material I did see is that the degree of looting may well have exceeded the amount of SMA’s liability under the LICSA. Indeed Phoenix, in its skeleton argument for the Court of Appeal, asserted that “upon taking control of the Arena structure [sc. through SMA] Dr Smith and Dr Cochrane embarked upon a campaign to strip the companies of their assets, causing circa £83.5 million to be misappropriated”.

For these reasons, I was unable to conclude on the evidence before me that SMA would be entitled to an indemnity against the Arena HoldCos to which P&M might be subrogated, even if they were able to establish a personal claim against SMA.

“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):

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

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

“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.”

“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.”

That “even if the surplus does, as a matter of construction, fall within the Harbour Trust, there would still be nothing to prevent SMA from complying with its contractual obligations under the LICSA to take all necessary steps to ensure that the surplus is paid to Phoenix, and to direct the Joint Liquidators accordingly.” It did not take the position that no appeal was necessary on this issue, because the time to advance claims of that kind had yet to arise, or somehow, they would still be open at a further trial.

That “even if Phoenix [sc. the Harbour Trust] did not acquire a proprietary interest in the surplus as a result of the Geneva Settlement, the fact remains that SMA is contractually bound to do everything in its power to ensure that Phoenix is paid its entitlement under clause 2.4, and the beneficiaries of the Harbour Trust can have no valid complaint about it doing so (having authorised the settlement). That contractual obligation is a sufficient basis for Phoenix’s claim. There is no need to have recourse to any other legal principle.”

That “at para. 333 of the Judgment, and again in his reasons for refusing permission to appeal on this ground, the learned Judge observed that the subrogation argument was first raised by Phoenix in closing submissions at the Directed Trial. That is correct, and Phoenix acknowledges that this was regrettable. However, the learned Judge allowed Phoenix to run this argument at trial, despite opposition from the Settlement Parties (as recorded in para. 335), and dealt with it substantively”. I interpolate that Phoenix’s argument was not that the argument had been raised too soon, but too late.

That I erred in concluding that Phoenix did not have a claim against SMA under the LICSA in respect of which SMA was entitled to be indemnified out of the trust fund, and “that, if the learned Judge was right, there remains the possibility that such a claim could arise in the future” (implicitly recognising that the issue of entitlement in principle fell to be determined at the Directed Trial, even in respect of breaches of the LICSA obligations in the future).

That the lack of evidence as to the value of looted assets did not matter, because those losses were sustained before the constitution of the Harbour Trust (i.e., a legal argument).

“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.”

It is entitled to an order for specific performance of SMA’s obligations under the LICSA to make payments and effect transfers to Minardi.

Granting such an order would not infringe the findings made at the Directed Trial because the Harbour Trust does not extend to Minardi’s entitlements under the LICSA, albeit it is at the same time contended that, in order for SMA to be in a position to perform its obligations under the LICSA, the assets which I have determined were held by it on the terms of the Harbour Trust need to be applied to Minardi’s benefit.

That Minardi has a claim for damages against SMA for which SMA is entitled to an indemnity from trust assets.

the number of years for which this case has been ongoing;

the extensive steps Popplewell J and I took to ensure that the Directed Trial represented a final determination of the existence, extent and encumbered or unencumbered nature of the proprietary interests in the Relevant Property (e.g., by identifying whether Relevant Property were subject to liens);

the level of costs which have been and continue to be incurred in the litigation, fast eroding the value of any surviving assets, with many costs orders not being discharged by the parties against whom they are made;

the scale of the attempts to frustrate the court’s determination;

the extent to which huge amounts of court time continue to be consumed in this litigation and the attempt to open new fronts; and

the close association with Minardi of Dr Smith.

paragraph 120 of P&M’s opening, in a passage not quoted by Minardi, accepted was conditional upon Harbour not establishing an equitable proprietary interest in the assets held by P&M; and

was only maintained in P&M’s closing (a) in relation to Phoenix and (b) which was raised only in a footnote in P&M’s supplemental note in closing, and which Mr Lord QC accepted (rightly, if it matters) once again in oral closings could only assist if the Harbour Trust failed to establish an equitable proprietary interest in the assets for which SMA held the legal title.

is legally incoherent: it is not “the right thing” to hand over property subject to the Harbour Trust to satisfy SMA’s obligations, unless a sound legal basis for doing so is identified;

is impossible to reconcile with the fact that Phoenix (which was in the same beneficial ownership and had the same legal team) did advance these arguments;

is impossible to reconcile with the fact that the ERs were arguing that there was no right to an indemnity; and

was expressly challenged by the Settlement Parties in closing.

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

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).

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.”

To the extent that Minardi wanted to contend that it was entitled to assert rights in priority to the equitable interest of the Harbour Trust, and a personal claim was an element in that analysis, it was indeed required to assert it at the Directed Trial. Numerous contractual rights said to have proprietary consequences were raised at the Directed Trial, including promises in the Harbour IA. One of the reasons given for rejecting Phoenix’s indemnity claim was its failure properly to establish the personal claim which was its starting point. Phoenix recognised the final effect of its failure to do so by seeking permission to appeal against the Directed Trial Judgment, but permission was refused.

I have noted that the party who claims to be SMA’s sole shareholder, and to have been its sole shareholder throughout the Directed Trial (LCL), was party to the Directed Trial, as was Dr Cochrane, the director of its corporate director, and Dr Smith, the beneficial owner of SMA. Further, Phoenix was able to and did raise the indemnity argument at the Directed Trial without needing SMA to do so for it, and Minardi is seeking to raise the argument itself without relying on SMA to do so.

“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).”

SMA was never the beneficial owner of the shares in the Arena HoldCos but held them on the terms of the Harbour Trust.

Equity would not order SMA to perform obligations which would place SMA in breach of its obligations as trustee nor to make payments to persons other than the creditors to whom they are in fact due, notwithstanding the obvious duties of the Joint Liquidators (JLs) as officers of the court to ensure that the debts of creditors were paid.

SMA does not hold even legal title to the Reserved Assets (which are identified in the LICSA) which are owned by other subsidiaries or companies. Those companies are themselves under the control of the JLs as officers of the court, with clear obligations as to how to deal with those assets which would not extend to using them to fulfil SMA’s promises, and one of them, Atlantic Investments, is not part of the Arena structure at all.

Snowden LJ pointed out that “the distribution of cash from the Arena HoldCos is the statutory responsibility of the liquidators in fact”, to which Phoenix’s counsel replied “well indeed my Lord. That is right, of course”, going onto state “I accept entirely that there would have been a limit to what SMA, as the sole member of the company, would have been able to do, or would have been within its power given that the liquidations are under the control of the liquidator”.

Snowden LJ noted that clause 2.4 contemplated that “an asset of one Arena Holdco is going to be transferred not to a creditor of that company but to a creditor of a different company” (viz SMA) “which is unconventional, shall we say, for a liquidator to do.”

Snowden LJ observed that if a liquidator had been directed to pay 50% of amounts due to certain other creditors to Minardi, the response would have been “there is no way on earth I am going to do that”, to which Phoenix’s counsel responded “it is difficult to see how the liquidators could have complied with that … It is difficult to see how the liquidators could lawfully comply with that”. Snowden LJ agreed: “How could they have possibly thought that would be a direction that could be complied with”.

“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.”

SMA is clearly a necessary or proper party to the Part 8 Claim, in which relief is sought in relation to assets in which they held legal title with the result that the application falls with the gateway in PD6B paragraph 3.1(4). The claim also falls within the gateway in PD6B paragraph 3.1(12), as the Harbour Trust is governed by the law of England and Wales.

The application for an order that SMA transfer the legal title is not only highly arguable but unanswerable, as Mr Crossley recognised back in July 2021.

The centre of gravity of the dispute is England and Wales, there have already been extensive proceedings here, and SMA’s own place of business was here. There is clearly a proper case for service out and for the same reason it would not be appropriate to stay the application in the Directed Trial proceedings:

The only matters raised by Mr Miah for BKV effectively seek to assert possible claims by Minardi, or Messrs Cooper and McNally, against SMA which could be discharged from the Shares or their proceeds. However, in circumstances in which I have held that any such claims had to be advanced at the Directed Trial, this can provide no answer to an order requiring SMA to hand over assets in which it has no beneficial interest. That is true for SMA (which was a party to the Directed Trial, as were those who claim to be its beneficial owners) as it is for Minardi, Mr Cooper and Mr McNally.

The court has already ordered that the assets held by SMA as bare trustee are to be applied and apportioned in accordance with the terms of the Harbour Trust, subject to the specific adjustments in the Consequentials Order.

I am satisfied that SMA, acting on BKV's instruction, seeks to resist the transfer at the behest of those bound by the Directed Trial Judgment, simply to facilitate a collateral attack on its outcome. SMA’s attempt to resist the Transfer Order is itself an abuse of process.

So far as Messrs Cooper and McNally are concerned, no arguable claim against SMA arising under an obligation assumed by SMA qua trustee of the Harbour Trust assets has been identified.

whether there are any individuals who may have breached court orders and undertakings and, if so, whether the court’s committal jurisdiction should be engaged;

whether officers of the court should be given control of any companies which have changed hands in questionable circumstances, and which are being used in this process;

whether further injunctions could or should be granted against individuals where there is a sufficiently arguable case that they are engaged in activities intended to challenge a judgment which is binding upon them;

the consequences of undischarged costs orders in the litigation to date; and

who has been funding these various applications and whether any orders against the funding parties or those controlling them would be appropriate.