Cosimo Borrelli & Ors v Mutaz Otaibi & Ors

Introduction

There are two applications before the Court:

The Set Aside Application, as issued, was based on three grounds: (1) that there is no serious issue to be tried on the merits of the claim against FFISA; (2) that the claims against FFISA fall within the scope of jurisdiction clauses in the agreements between FFISA and the fourth claimant, Global Fixed Income Fund 1 Limited (“GFIF”) which confer exclusive jurisdiction for the purposes of the Hague Convention 2005 Article 6 in relation to the claims of GFIF, the only claimant alleged to have suffered loss caused by FFISA, on the courts of Luxembourg; and (3) that the claimants failed to disclose the existence of those jurisdiction clauses (and certain other matters) to Knowles J on the without notice application which led to his Order.

The first of these grounds was not, however, pressed by Mr Rushworth, who appeared with Mr Foxton, for FFISA at the hearing before me. Mr Chapman KC and Ms Sagan appeared at that hearing for the claimants. The Set Aside Application was supported by the first, second and third witness statements of FFISA’s solicitor, Mr Mahmood Lone. These were responded to by the fourth and fifth witness statements of the claimants’ solicitor, Mr Peter Burrell, whose first witness statement dated 8 February 2023 had supported the without notice application to Knowles J. Expert evidence of Luxembourg law for the purposes of the hearing before me was provided in the form of the Expert Reports of Professor Gilles Cuniberti dated 9 February and 10 April 2024 on behalf of FFISA and the Expert Report of Ms Clara Mara-Marhuenda dated 15 March 2024 on behalf of the Claimants.

The claims in outline

The principal claimants in this action are four investment funds (“the Funds”) and their Joint Liquidators. The draft Amended Particulars of Claim are 67 pages long. For the purposes of these applications, however, it is only necessary for me to give a simplified outline of the claimants’ case. In very broad and bare outline, what the claimants say (or wish, by amendment, to say) is that:

The claimants make (or propose to make) claims in the tort of conspiracy and for the equitable wrongs of dishonest assistance in breaches of trust and/or of fiduciary duty and (against some defendants) for knowing receipt of property belonging to certain of the Funds. The Amended Claim Form presently includes claims in the tort of deceit and for restitution on the grounds of unjust enrichment, but the claimants intend to delete those claims as part of their proposed re-amendments.

The claimants’ complaints concerning the defendants’ conduct fall broadly into six groups, of which the first five are the following:

In order to give context to the Set-aside Application, it is necessary for me to give a little more detail about the sixth group of complaints. These involve claims made by GFIF relating to what are described in the draft Amended Particulars of Claim as “The Aviation Notes”. The claimants’ account of these transactions, as set out in the draft Amended Particulars of Claim and as described in greater detail in Mr Burrell’s first and fourth witness statements, is broadly as follows:

It is the claimants’ case that the Series B Aviation Notes were a highly risky, unattractive and unsuitable investment for GFIF, that investing in the Series B Aviation Notes was therefore not in GFIF’s best interests, and that, by causing or influencing GFIF to make the Bridge Loan and thereafter to invest in the Series B Aviation Notes, the relevant defendants acted in breach of duty and were dishonestly motivated by the interests of the Floreat Principals and the Floreat Group.

The draft Amended Particulars of Claim also assert that, although between 21 December 2016 and 13 January 2020 GFIF reduced its holding of the Series B Aviation Notes from USD 81m to on USD 12,775,860, GFIF was thereafter wrongfully caused or influenced by various of the defendants to re-acquire approximately USD 53m of the Series B Aviation Notes (“the 2020 Acquisitions”). On behalf of the claimants, however, Mr Chapman KC made clear that GFIF does not assert that FFISA itself played any part in the 2020 Acquisitions.

The Set-Aside Application

Against that background, I now turn to the Set-Aside Application itself. This falls into two distinct parts, the first part based upon the jurisdiction agreements in the Subscription Agreements and the Conditions, the second part based on what is said to have been the claimants’ failure to comply with their duty to make full and frank disclosure to Knowles J. It is convenient to deal with these two parts separately, although there is inevitably some degree of overlap between them.

I begin by considering FFISA’s reliance on the jurisdiction agreements. Mr Rushworth’s argument on behalf of FFISA in relation to this first part of the Set Aside Application was straightforward. In his submission:

On behalf of the claimants, Mr Chapman KC submitted as his primary case that neither of the jurisdiction clauses relied upon by FFISA has any application to the claims made by the claimants in the present action, because those clauses are contained in only one of the many sets of agreements forming part of the overarching conspiracy relied upon by the claimants, which was directed by Mutaz Otaibi and the other Floreat Principals and which involves the Floreat Group as a whole. To view those wider claims as encompassed by these specific jurisdiction clauses would be to ignore the bigger picture.

Mr Chapman KC accepted that the jurisdiction clause in the Subscription Agreements engages the provisions of the Hague Convention 2005 and accordingly that, if it applies to the disputes in the present action, the court must suspend or dismiss the claim against FFISA. In Mr Chapman’s submission, however, the clause does not apply to those claims.

In outline, Mr Chapman’s argument was as follows:

With regard to the jurisdiction clause in the Conditions, Mr Chapman made similar submissions as to its proper interpretation under Luxembourg Law. He also alternatively submitted that the Hague Convention 2005 could have no application because that clause is, by its clear terms, asymmetric, constraining GFIF’s rights but permitting FFISA to take proceedings in any court. In support of that submission, Mr Chapman relied upon:

To the extent, therefore, that it is only the jurisdiction provisions contained in the Conditions which apply, Mr Chapman submitted that the court is not obliged to suspend or dismiss the proceedings against FFISA. Instead, the common law rules apply and the court retains a discretion to disapply the terms of the jurisdiction agreement.

In Mr Chapman’s submission, there is a particularly strong case for doing so in relation to the present action, not only because FFISA is merely one small cog in the larger machinery of the overarching conspiracy alleged by the claimants, but also because all the other relevant defendants have either been sued as of right in England or have submitted to the jurisdiction and so will be tried here. The risks of duplication of costs and inconsistent judgements point very strongly to England being clearly the most appropriate forum. Coupled with the strong connections that the overall conspiracy has to this jurisdiction, the case for allowing these proceedings to continue against FFISA is, in Mr Chapman’s submission, compelling.

The application to Knowles J in relation to FFISA was made on the basis that FFISA was a necessary or proper party within paragraph 3.1(3) of Practice Direction 6B to the claims against FCML, FMBL and the Floreat Principals. Although Mr Rushworth took issue with some important aspects of the adequacy of the pleading of the claims against FFISA, he accepted (at least for the purposes of the Set Aside Application) that GFIF would have a “good arguable case” for jurisdiction under that gateway (Footnote: ¹²), but for the jurisdiction clauses on which FFISA now relies.

I must therefore decide whether either of the jurisdiction clauses relied upon by FFISA covers the claims made against FFISA in the present action. If those claims fall within the jurisdiction clause in the Subscription Agreements, Article 6 of the Hague Convention 2005 will oblige me to suspend or dismiss the proceedings against FFISA. If some or all of the claims do not, but nevertheless fall within the jurisdiction clause in the Conditions, I must decide whether that jurisdiction clause is a “choice of court agreement” within the meaning of Article 3 of the Hague Convention 2005. If it is then, again, I must suspend or dismiss the proceedings. If it is not, I must decide whether sufficiently strong reasons exist in the present case for refusing to give effect to that clause by granting a stay: see Donohue v Armco Inc (Footnote: ¹³) and Zephyrus Capital Aviation Partners 1D Ltd v Fidelis Underwriting Ltd (Footnote: ¹⁴).

As Henshaw J has observed (Footnote: ¹⁵), “the authorities, whilst not entirely explicit, tend to suggest that the party seeking to rely on [a jurisdiction] clause has the burden of showing a good arguable case on that point”. Nevertheless even where, as in the present case, the interpretation of the clause involves the application of principles of foreign law (Footnote: ¹⁶), it is seldom if ever that the determination of such a question will turn on the burden of proof.

I am reluctant to accept Mr Chapman’s broad submission that, in deciding whether claims fall within the scope of an exclusive jurisdiction clause for the purposes of the Hague Convention 2005, the court is always required to undertake the sort of two-stage process which is required when considering the applicability of Article 25(1) of the Brussels Regulation Recast.

The general desirability of interpreting the Hague Convention 2005 and the Brussels Regulation Recast in conformity with each other where it is reasonably possible to do so cannot be doubted (Footnote: ¹⁷). However, as the Court of Appeal pointed out in the Etihad Airways case (Footnote: ¹⁸), the Hague Convention 2005 and the Brussels Regulation Recast each has a different scope. The Brussels Regulation Recast provides a comprehensive code of jurisdiction and enforcement, whereas the Hague Convention 2005 applies only “in international cases to exclusive choice of court agreements” (Footnote: ¹⁹). Rulings of the CJEU regarding the interpretation of the Brussels Regulation Recast are authoritative. It is clear from Powell Duffryn (Footnote: ²⁰) and the cases which have followed it that the relevant concepts under the Brussels Regulation Recast are to be construed autonomously as rules of (what is now) EU law and not by reference to the laws of any particular Member State. There is no similar transnational court with jurisdiction to rule on the interpretation of the Hague Convention 2005.

Mr Chapman relied upon paragraph 144 of the Explanatory Report by Trevor Hartley and Masato Dogauchi, which states:

.. To determine whether the proceedings are subject to such an agreement [within the Convention], the court must interpret it. Under Article 3(a) of the Convention, the agreement applies to disputes “which have arisen or may arise in connection with a particular legal relationship”. In interpreting the agreement, the court must decide what that relationship is, and which dispute the agreement applies to ..

Fortunately, I do not need finally to decide this point because, on the facts of the present case, it does not in practice matter. The Grand Duchy of Luxembourg is a Member State of the EU. As Professor Cuniberti explains in paragraphs 32 to 37 of his Expert Report, no cases have come before the Luxembourg courts involving the Hague Convention 2005. Those courts are, however, familiar with the Brussels Regulation Recast and would be likely to interpret the provisions of the Hague Convention 2005 by analogy with that Regulation. Given that I must interpret the jurisdiction clause in the Subscription Agreements in accordance with the principles of Luxembourg law – in other words, to make “a finding as to what the [Luxembourg] court's ruling would be if the issue was to arise for decision there” (Footnote: ²²) – it seems to me that I should also adopt that approach, even though English law might take a different view.

Even on that basis, however, I am unable to conclude that the claims made against FFISA in this action fall outside the scope of the jurisdiction provisions of the Subscription Agreements and are not “matters arising from or connected with” the Subscription Agreements.

As for the “particular legal relationship” constituted by the Subscription Agreements. Mr Chapman urges me to confine that to the Subscription Agreements alone. But the only substantial acts of participation in the wrongs done to the Funds which are alleged against FFISA in the draft Amended Particulars of Claim are the issuing of the Series B Aviation Notes and the receipt of the consideration for those notes. Under the Subscription Agreement, FFISA expressly agreed to issue the Notes and GFIF expressly agreed to subscribe to them and to pay the consideration. The specific activities of which complaint is made are therefore precisely those which fall within the scope of the Subscription Agreements.

I accept that GFIF’s claims against FFISA are brought on the basis that it was simply a small “cog” in the machinery of the overall conspiracy against the Funds. If, however, one concentrates on the part that that “cog” is alleged actually to have played in that overall conspiracy, rather than the part played by others, it is one that is centred on the activities provided for in the Subscription Agreements.

The fact that the claims brought are in tort or for equitable remedies, rather than for breach of contract, does not, in my judgment, take those claims outside that relationship. On the contrary, as Professor Cuniberti explains in paragraph 43 of his report, there is a clear trend in the decisions since 2010 of the French Cour de Cassation (which are treated as persuasive by the courts of Luxembourg) to interpret the material scope of widely drafted jurisdiction clauses such as this broadly, particularly in the context of tortious claims.

As for the “litmus test” of surprise, FFISA is a Luxembourg Securitisation Vehicle, which has issued notes governed by Luxembourg Law and which are listed on the Luxembourg Stock Exchange. There is, in my judgment, no reason to believe that the directing minds of FFISA (including Mutaz Otaibi and David Whitworth) would be surprised by the idea that claims concerning FFISA’s activities as the Issuer of the Aviation Notes would have to the litigated in Luxembourg.

Against that background, it seems to me to be impossible to say that the claims made against FFISA are not claims “originating from the legal relationship in connection with which the agreement was concluded”.

As to the scope of the clause, there is no indication, either in any extrinsic evidence, or in the intrinsic evidence in the terms of the contractual relations between GFIF and FFISA, that it was the subjective intention of the parties to exclude these sorts of claims from the scope of the Jurisdiction provisions in the Subscription Agreements.

As for extrinsic evidence, none has been suggested other than the acts relied on as participation in the conspiracy. But those acts provide no evidence of such a shared subjective contrary intention. As for the intrinsic evidence provided by the terms of the Subscription Agreement (and the incorporated Conditions), the wording chosen – “all matters arising from or connected with” (Footnote: ²³) - seems to me strongly to support a broad, rather than a narrow, interpretation as giving effect to the subjective intention of the parties.

It was suggested by one of the experts in the Public Institution for Social Security case at first instance (Footnote: ²⁴) that, as a matter of Luxembourg law, even a broadly worded jurisdiction clause needs to be read down to refer to disputes that were reasonably foreseeable to the parties at the moment of contracting. That suggestion was rejected by Henshaw J on the basis of the evidence given in that case by Professor Cuniberti, and I similarly reject it on the basis of the Professor’s evidence.

I do not accept the evidence of Ms Clara Mara-Marhuenda that, in Luxembourg law, there is a theory of indivisibility, which means that, where a dispute that is prima facie subject to a jurisdiction clause forms an indivisible part of a larger dispute, the clause can be construed narrowly by reference to the parties’ common will (Footnote: ²⁵). The materials relied upon by Ms Mara-Marhuenda are not directly in point, and provide little support for her argument. In the circumstances, it seems to me that the evidence of Professor Cuniberti that there is no such rule in Luxembourg law and that, if such a rule did exist, it would in any event be a rule of private international law and not a rule of interpretation, is (at least for present purposes) to be preferred.

On the issue of whether the claims made in the present action fall within the jurisdiction clause in the Subscription Agreements, it therefore seems to me that FFISA, rather than the claimants, has much the better of the argument. One has only to pose the question the other way round, and to ask whether it could sensibly be said that the Aviation Notes claims are unconnected with the very Subscription Agreements under which GFIF subscribed for those Notes, to see why.

That conclusion means that it is unnecessary for me to deal with the parties’ arguments in relation to the jurisdiction provisions in the Conditions. However, in case the Set Aside Application should go further, I will state my conclusions briefly.

The Series B Aviation Notes are intermediated securities, GFIF at no point became a “holder” and therefore, under English law would not have been a party to the contract on the Notes. The position under Luxembourg law, which was the governing law of the Notes, may well have been different (Footnote: ²⁶), but neither party led any evidence of the relevant Luxembourg law because the express incorporation of the Conditions into the Subscription Agreements makes the point irrelevant.

It seems to me that, on the true interpretation of the Subscription Agreements in accordance with the principles of Luxembourg law, the specific provision dealing with jurisdiction in the Subscription Agreements themselves was intended to take precedence over the jurisdiction provisions incorporated only by reference from the Conditions. To the extent that the scope of the two sets of provisions overlap, the provisions in the Subscription Agreements therefore take precedence.

Had I come to the view, on the basis of Mr Chapman’s arguments concerning the overarching conspiracy, that the claims made against FFISA in this action fell outside the scope of the jurisdiction provisions of the Subscription Agreements, I would similarly have held that they fell outside the jurisdiction provisions in the Conditions. I would have held that the claimants had the better of the argument that the parties did not have the subjective intention to subject such wider claims to the jurisdiction provisions of the Conditions, to the extent that those claims were not within the scope of the specific jurisdiction provisions of the Subscription Agreements.

Had I come to a different conclusion, and held that the claims brought in the present action did fall within the jurisdiction provisions in the Conditions, I would have held that that clause did not fall within the scope of the Hague Convention 2005. It is an asymmetric jurisdiction clause to which, for the reasons set out in paragraph 15 above, the Convention does not apply. In that event, I would also have held that there were strong reasons for me not to enforce the clause by granting a stay. From the point of view of GFIF, the present claims were not foreseeable at the point at which it entered into the contract. The overarching conspiracy claim has, for the reasons given by Mr Chapman, a very strong connection with England: and, given that the claims against all other defendants are to be tried here, it is plain that England would (on this hypothesis) be overwhelmingly the appropriate jurisdiction for the trial of this action as a whole, including the claims against FFISA.

Nevertheless, my conclusion that the claims in the present action fall within the jurisdiction provisions of the Subscription Agreements means that I have no alternative but to suspend or to dismiss the proceedings in England against FFISA.

FFISA’s application notice asks the court either to stay or to dismiss the action against FFISA. Neither party addressed any sustained argument to me about which of these courses would be the more appropriate. Having regard to the fact that the claims against all other defendants will continue here, and that there are potential limitation issues, it seems to me on balance that the appropriate course is for me at this point simply to stay the proceedings against FFISA, with permission to apply for dismissal if and when it becomes clear that those proceedings will serve no further useful purpose.

My conclusions as to jurisdiction also mean that I can deal comparatively shortly with FFISA’s application to set aside the order of Knowles J on the basis of non-disclosure.

The law in this area was helpfully summarised by Carr J (as she then was) in Tugushev v Orlov (Footnote: ²⁷). Neither party took issue with any aspect of that familiar summary, and I need not lengthen this judgment by repeating it.

As to the facts, it is common ground that:

Mr Burrell’s fourth witness statement, in seeking to explain these matters, took a robust line, asserting that he did “not consider that any of these allegations [of failures in the duty of full and frank disclosure] have merit”. His explanation in paragraphs 237 to 240 of that witness statement took the stance that the failure even to mention the relevant jurisdiction provisions was not “material since the Claimant’s position is that the claims against [FFISA] do not fall within the alleged exclusive jurisdiction clauses in the Subscription Agreement”.

In my judgment, that entirely misunderstands the nature of the duty of full and frank disclosure. It should be known to all practitioners that what is material to place before the judge on a without notice application is not be judged solely from the point of view of the applicant. Material facts are those which it is material for the judge to know in dealing with the application as made. That duty requires an applicant to make the court aware of the issues likely to arise, which includes making the court aware of the possible difficulties which the applicant may face, either in the claim or in the particular application. What is required is a fair presentation. Although that need not extend to a detailed analysis of every possible point which may arise, it necessarily involves making the court aware of the main difficulties which the application, if contested, could face and of the principal arguments which the other side would be likely to raise.

Fortunately, Mr Burrell’s fifth witness statement adopts a more sensible approach, accepting that these matters ought to have been drawn to the attention of Knowles J, and seeking to explain the failure by reference to the protracted winding up proceedings in the Cayman Islands and the difficulties which the Joint Liquidators have faced in getting information, given that the Funds were (on the claimants’ case) under the control of the Floreat Principals until the appointment of the Joint Liquidators.

I have considerable sympathy for the position in which the Joint Liquidators found themselves on taking control of the Funds and seeking to find out from a mass of documents what had happened over a protracted period to the assets of the Funds. It is nevertheless well established that an applicant must make proper enquiries before making a without notice application, and that the duty to disclose extends to matters of which the applicant would have been aware had reasonable enquiries been made.

The Funds and their Liquidators were aware of the existence of the Subscription Agreements and had access to copies of them. It should have been obvious to them (and to those advising and/or acting for them) that the Subscription Agreements might contain jurisdiction clauses, and that it would be of great importance on an application for permission to serve outside the jurisdiction for the court to be informed about the existence and terms of any such jurisdiction provisions. It is no excuse for the claimants to say, as Mr Burrell very frankly does in his fifth witness statement, that “due to the focus on the breaches of fiduciary duties by the Floreat Principals, my firm did not review the Subscription Agreements because that was not the nature of the claim we were bringing”. In colloquial terms, that is simply a confession that those representing the claimants took their eye off the ball.

I accept that those representing FFISA had time following the letter before action sent on 18 January 2023 to draw the claimants’ solicitors’ attention to these jurisdiction provisions, but did not do so. I also accept that the failure to draw these matters to the attention of Knowles J was not deliberate, and was intentional only in the sense that these matters were wrongly thought not to require further investigation. It was, however, a serious failure to comply with the duty placed on an applicant.

In all the circumstances, it seems to me that the claimant’s failure to comply with the duty of full disclosure was sufficiently serious to warrant the immediate discharge of the Order of Knowles J insofar as it affects FFISA.

Given that this is an action involving serious allegations of dishonesty and misfeasance, it is nevertheless necessary to keep a sense of proportion and to bear in mind the overriding objective of dealing with cases justly and at proportionate cost. I am therefore prepared to re-grant permission to the claimants to serve FFISA out of the jurisdiction and to dispense with re-service, but only on terms which will ensure that the claimants would derive no limitation benefits from their failure to draw the attention of Knowles J to the disparity between the case set out in the Amended Claim Form and that in the Particulars of Claim. That seems to me, in the particular circumstances of this case, to be the most sensible and practical way forward. In my judgment, that order (with its attendant costs consequences for the claimants) is a sufficient sanction to mark the gravity of the claimants’ failure to comply with their duty.

Permission to amend

After the hearing, I received a letter from the claimants’ solicitors, confirming that all affected parties other than FFISA have consented to the claimants’ application to re-amend the Claim Form and to amend their Particulars of Claim.

That letter also enclosed a revised form of the proposed Amended Particulars of Claim. The originally proposed amendments had included, in paragraph 12A, a lengthy quotation from the written reasons for decision given by the Honourable Justice Kawaley in the Grand Court of the Cayman Islands when granting winding-up orders in respect of PIF and Long View. This section has been removed from the revised form of draft at my suggestion, as being (for several distinct reasons) inappropriate for inclusion in a statement of case in an action in the Commercial Court.

As Leggatt J (as he then was) observed in Tchenguiz v Grant Thornton UK LLP (Footnote: ²⁸)

.. Statements of case must be concise. They must plead only material facts, meaning those necessary for the purpose of formulating a cause of action or defence, and not background facts or evidence. Still less should they contain arguments, reasons or rhetoric ..

Subject to the deletion of this inadmissible passage, I will give permission for the proposed amendments as against the defendants other than FFISA.

Disposition

For these reasons, I will set aside the Order of Knowles J insofar as it affects FFISA. I will re-grant permission to serve FFISA out of the jurisdiction, and will dispense with re-service, on the terms which I have indicated. Otherwise, I will stay the proceedings against FFISA and give FFISA permission to apply in the event that it becomes clear that the continuance of proceedings in this jurisdiction against FFISA serves no further useful purpose. As against the defendants other than FFISA, I will give permission to the claimants (on the usual terms as to consequential amendments and to costs) to re-amend the Claim Form and to amend the Particulars of Claim substantially in the form of the drafts which have been produced to me.

I invite the parties to attempt to agree the terms of a Minute of Order giving effect to this judgment and dealing with all consequential matters. In the event that agreement cannot be reached by 4pm on Friday 24 May 2024, the parties should make arrangements through the usual channels for a short further hearing. Pursuant to CPR PD 52A 4.1(a), I adjourn any application for permission to appeal together with all other consequential applications to be determined in that way and extend time under CPR Pt 52.12(2)(a) until 21 days after that determination.

I am very grateful to counsel and to the teams behind them for their assistance.

This judgment will be handed down remotely by circulation to the parties’ representatives by email and release to the National Archives. No attendance by the parties is necessary.