Charles Fussell & Co LLP succeeds in setting aside transactions designed to defraud creditors

We acted for the successful claimants in an unusual case concerning transactions designed to defeat the claims of judgment creditors.  The judgment is available via BAILLI  and has attracted comment from a number of sources.

We acted for clients who had a strong contractual claim against a solicitor (“Mr Shone”) running a litigation funding vehicle incorporated as a limited partnership in Bermuda but run from an office in Singapore as an investment fund.

The clients had noticed serious irregularities in the accounts of the fund vehicle and, through sheer persistence, had forced Mr Shone to agree to buy them out personally.  Mr Shone’s liability to the clients under their contracts with him was around USD 2,400,000.  Unknown to the clients (at the time), they were not alone in their concerns and, under pressure on all sides, Mr Shone effectively abandoned his post as general partner of the fund. 

In the course of investigations, it became clear that Mr Shone had exploited delays in consular service in Singapore (which is required by the laws of that state and which he had obliged the clients to undertake by conspicuously failing to provide an address for service in England and Wales) to dissipate nearly all his assets to his supposedly-estranged wife (“Mrs Shone”) and to disappear to Bali in Indonesia with his girlfriend, a self-described “glamour model” and “male menopause therapist”.

Leaving aside the exotic facts, the importance of the case lies in the fact that a team led by Simon Winter, with support from Oliver Cox (who has now left the firm), obtained on 12 February 2015 one of the most draconian remedies available from the English Court, namely a worldwide asset freezing injunction not only against Mr Shone but also against Mrs Shone on the basis of the jurisdiction established in an authority known as Chabra.  Further (and very unusually) we persuaded the Court to allow service by alternative methods on both husband and wife and to allow delay in service to allow ancillary proceedings to be brought in Malaysia to preserve a valuable piece of real estate for potential enforcement there, both of which involved a significant exercise in logistics.   

This case is an important example of how this firm can deliver results for clients of the kind much larger practices could deliver but at a level of cost which made the case economically viable for the clients.  A larger practice could easily have spent more than the claim was worth.

Mrs Shone opposed the claim at every turn, instructing first Stewarts Law LLP then Benchmark Solicitors LLP, and tried and failed to discharge the freezing injunction on 18 June 2015.  Judgment was entered against Mr Shone on 24 July 2015 and against Mrs Shone on 20 May 2016.

That judgment is of general public importance and is a relatively rare High Court claim dealing with the application of Section 423 of the Insolvency Act 1986.  That section gives the Court the power to set aside transactions designed to defeat the claims of creditors.  The case is out of the ordinary in that it concerned unusually high-value transfers brought not by an insolvency practitioner but by some of the creditors affected themselves.

Daniel Saoul of 4 New Square acted as Counsel throughout.

Charles Fussell & Co LLP instructed to act in banking dispute

Charles Fussell & Co LLP is acting for VTB Capital plc (“VTB”) and the Bulgarian Telecommunications Company (“BTC”) in a dispute with Royal Bank of Scotland plc (“RBS”) over the ownership of €15 million held by an escrow agent.

Following a capital restructuring of the group of which the Bulgarian Telecommunications Company was a part in 2012, €15 million was placed in escrow against certain liabilities, including tax liabilities and claims under competition law in Bulgaria.  Both VTB and BTC now maintain such liabilities have arisen and have asserted claims to the sums held in escrow.  RBS has disputed the claims and the escrow agent has applied to Court to resolve the dispute.

Dr Christopher Harris of 3 Verulam Buildings has been appointed as Counsel.

Hogan Lovells International LLP act for RBS and Sidley Austin LLP act for the escrow agent.

The case is ongoing.

Success in the Court of Appeal

Porter Capital Corporation v. Zulfikar Masters [2016] EWCA Civ 5

Following a lengthy trial (so long ago as 2013), Charles Fussell & Co LLP is pleased to announce that our client has enjoyed significant success on appeal.

We acted for our client in the defence of a claim by a US factoring company, Porter Capital Corporation (“Porter”), under a guarantee made under Connecticut law by the client of the debts of a pharmaceutical business in the USA in which he had made a substantial investment. That business had gone into insolvency in the USA and Porter made a claim under its guarantee. The underlying factoring agreement was difficult to understand and Porter’s actual factoring practice over a number of years had differed from what that agreement appeared to provide.

It had been necessary to make wide-ranging disclosure requests of Porter and to involve a forensic accountant simply to understand how the claim had been calculated. To complicate matters further, the factoring agreement was made under the law of the state of Connecticut. Although that law is broadly similar to English law, there is a crucial difference in that the courts of that state will, unlike English courts, admit (in certain circumstances) evidence of performance of contracts as an aid to interpretation, which became a major source of contention at the trial. The case had gone to trial in 2013 and one aspect of the first instance decision has been widely-reported: the trial judge refused to impose pre-emptive sanctions for any failure to make a payment on account pursuant to his judgment.

We successfully persuaded the Court of Appeal to stay execution of that payment until the conclusion of the appeal.

The matter finally reached the Court of Appeal in December 2015 after an earlier hearing was cancelled because of lack of judicial personnel to hear the appeal. Lord Justice Davis expressed concern that the matter had taken so long to be heard – a concern which will no doubt be familiar to other practitioners.

The Court of Appeal overturned a number of aspects of the first instance judge’s decisions in our client’s favour, in particular relying on expert evidence of the law of Connecticut to defeat Porter’s claim for compound interest. All of these factors are likely to have a very significant impact on the final outcome. The payment on account remains stayed.

Iain Pester (formerly of 11 Stone Buildings, but now of Wilberforce Chambers) represented the client at first instance and on appeal.

Success in the Mercantile Court and Court of Appeal

Walsham Chalet Park Limited, trading as The Dream Lodge Group v. Tallington Lakes Limited [2015] EWHC 2083 (QB)

Following last year’s appeal (which we have previously reported) on a significant point of procedural law in this case, Charles Fussell & Co LLP is pleased to announce that it has taken the case to trial and won. The case concerned what should have been a short-lived dispute between two companies who used to operate a joint venture but fell out acrimoniously in February 2012. Most of the issues between the parties were matters of simple accounting under a simple contract which could and should have been resolved by agreement without the need for legal proceedings.

Unfortunately, however, the Defendant was represented throughout by a director who (as the trial judge found) was “apt … to lose perspective completely when an issue is raised and then descend into quite unnecessary vitriol with those who do not agree with him”. Not content with taking every conceivable point, he made wild allegations against everybody involved in the case.

He wrote insulting emails to us, which ranged in tone from the mischievous (comparing us to characters in well-known sketch shows and ostriches, in each case helpfully including photographs) to the seriously unpleasant and unprintable. When presented with the Claimant’s disclosure, he accused us of criminal conspiracy to fabricate evidence.

He also accused our client of orchestrating a curiously half-hearted campaign of intimidation against him personally. He said this included acts of criminal damage to the gates outside his home and the sending of a cryptic email containing the word “Capet”, which he construed as “kaput” and therefore a veiled threat to him and his family – on the basis that our client’s managing director was born in 1961 and was therefore familiar with terminology from the Second World War. The trial judge found this allegation to be “bizarre and baseless”.

Notwithstanding this barrage, a team led by Simon Winter of Charles Fussell & Co LLP patiently martialled the facts and rebutted all the Defendant’s allegations. We instructed first Daniel Saoul of 4 New Square and then Michael Buckpitt of Tanfield Chambers to represent the Claimant in Court.

Ultimately, and after no fewer than seven lengthy pre-trial hearings (including one in the Court of Appeal), the Claimant succeeded on every significant issue at trial and the Defendant has been ordered to pay substantial damages, additional damages under Part 36 of the Civil Procedure Rules – for having failed to beat a pre-trial offer of settlement – and costs on the indemnity basis.

The Defendant applied for permission to appeal and a stay of execution – twice, once on paper and once orally. Both such applications were dismissed.

Charles Fussell & Co LLP wins in the London Mercantile Court

Charles Fussell & Co LLP was instructed by QuikClot International Limited ("QCI") in late 2009 to bring a claim against Darwish bin Ahmed ("DBA") for breach of contract.  In November 2011, the case was heard in the London Mercantile Court, at which QCI was awarded the full sum of the claim, together with part-indemnity costs. 

QCI was part of the Explora Group, a group of companies which specialise in producing and marketing non-lethal military defence products.  QCI was set up for the international provision of QuikClot, an adsorbent haemostatic blood-clotting agent which is used in emergency situations to staunch blood flow until medical assistance can be obtained. 

DBA expressed an interest in purchasing packets of QuikClot for onward provision to the UAE Military Forces in about 2003.  The parties entered into negotiations and in October 2003, a draft purchase order was sent by DBA to QCI's predecessor (who later assigned the claim to QCI).  The terms of the purchase order order requested 100,000 packets of QuikClot, 20,000 of which were to be delivered immediately and the remaining 80,000 of which were to be delivered over the forthcoming four years.  The purchase order was negotiated between the parties and finalized in February 2004, containing the same term. 

Whilst the initial 20,000 was ordered and dispatched successfully, DBA failed to draw down the order for the remaining 80,000 packets within the four year period in the sum of $US 360,000.  Accordingly, QCI brought proceedings for the loss of profit it would have made on the sale. 

DBA defended the claim on two heads:

  • as a matter of law, it claimed that the purchase order should be constructed to mean that it was only obliged to order 20,000 packets of QuikClot, with an option to purchase a further 80,000 packets at a set price over the following four years; and
  • as a matter of fact, it claimed that QCI would have been unable to fulfill the contract in any event. 

The matter was listed for a three-day hearing in the Mercantile Court in November 2011 and was heard before His Honor Judge Mackie QC, head of the Mercantile Court, with Dr Christopher Harris of 3 Verulam Buildings appearing for QCI and Mr Simon Hale of Hardwicke Chambers, instructed by Child & Child, appearing for DBA. 

After only one and a half days of evidence, the trial came to an end.  Giving an extempore judgment, Judge Mackie upheld the claim, ruling that:

  • as a matter of law, the purchase order could only be constructed to mean that DBA was under an obligation to purchase 100,000 packets of QuikClot over four years; and
  • as a matter of fact, QCI would have been able to fulfill the contract in any event. 

Judge Mackie also awarded QCI its costs, partly on the standard basis and partly on the indemnity basis. 

 

Charles Fussell & Co LLP acting in an application to debar a defaulting party from participating in a detailed costs assessment procedure

Charles Fussell & Co LLP has an ongoing instruction in relation to a matter which was heard at trial in March to April 2015, with judgment having been handed down in July 2015. Charles Fussell & Co LLP acted for the First to Fourth and Sixth Respondents.

After a two-day hearing in respect of costs, the judge ordered the unsuccessful Petitioner to pay the First to Fourth and Sixth Respondents' costs to be assessed if not agreed. The Petitioner was ordered to make a substantial interim payment to each of the parties three weeks after judgment. On the day before payment was due, the Petitioner issued an application for permission to appeal and for a stay of execution, rehearsing similar arguments to those heard by the trial judge. The Petitioner has made no further efforts to meet his obligations under the interim payment or otherwise seek to negotiate his obligations.

Accordingly, an application has now been issued in the Chancery Division, seeking an order that unless the Petitioner meet his obligations under the interim payment order, he be debarred from participating in the detailed assessment procedure pursuant to the precedent in Days Healthcare UK Limited v Pihsiang Machinery Manufacturing Company Limited and Others [2006] All ER (D) 205 (Jun) with questions arising as to the enforceability of interim costs orders and clarity as to whether there is any acceptable reason for failure to meet such orders.

It is anticipated that the application will be heard in the early part of 2016.

Court of Appeal clarify the law on when an incidental benefit can found a claim in unjust enrichment.

Dr Christopher Harris of 3 Verulam Buildings, instructed by Charles Fussell & Co LLP appeared for TFL, the successful appellant.

Professor Gerard McMeel and Mr Neil Levy of Guildhall Chambers, instructed by CMS Cameron McKenna LLP appeared for Lloyds Bank.

The facts giving rise to the appeal are relatively complex. In 2002, a previously-successful company, The Trading Force Limited ("TTFL"), went into receivership, although it had a number of current contracts. The main debtor was Lloyds TSB Bank PLC ("Lloyds Bank"), which engaged receivers (the "Receivers") to deal with the assets and recover the debt owed to it. Accordingly, the Receivers entered into a Chargee Sale of Assets Agreement (the "CSA Agreement") which provided that certain assets were transferred to the Receivers, and the remainder of TTFL's assets were retained by Explora Group Plc ("Explora"), a company associated with TTFL.

Explora mistakenly believed that one of the assets transferred to it was the fruits of a particular contract with a third party, Hesco Bastion, and pursued payment of the contract by means of a successful action in the High Court. On appeal from Hesco Bastion however, the Court of Appeal found that, although Hesco Bastion owed the debt under the contract, the fruits of the contract had not, in fact, been transferred to Explora by way of the CSA Agreement, but had instead been retained by the Receivers for the ultimate benefit of Lloyds Bank.

TFL Management Services Limited ("TFL"), which has conduct of Explora's claim through a series of assignments, now seeks restitution from Lloyds Bank on the basis that the bank has been unjustly enriched by Explora's pursuit of the debt owed by Hesco Bastion. The main factual allegations, as summarized by Floyd LJ, are as follows:

  1. Throughout its proceedings against Hesco Bastion, Explora mistakenly believed that the benefit of the future commissions due under the CSA Agreement had been assigned to Explora;
  2. At all material times Lloyds (through TTFL's receivers) laboured under the same mistake as Explora; namely, the benefit had passed to Explora;
  3. Because of the mistake, Explora incurred the costs of bringing proceedings against Hesco Bastion to recover the debt owed by Hesco Bastion, but Lloyds Bank benefitted by the proceedings; and

iv. Accordingly Explora conferred a valuable benefit on Lloyds Bank, and Lloyds Bank was unjustly enriched at the expense of Explora.

Summary judgment was sought by Lloyds Bank in February 2013, inter alia, on the basis that TFL was precluded from recovering because any benefit received by Lloyds Bank was incidental to the main benefit sought (though not received) by Explora. TFL defended its position on the basis that its mistake was an unjust factor which had caused Lloyds to be unjustly enriched, and asserted that the benefit received by Lloyds Bank was not, in fact, an incidental benefit but a direct benefit, being the same benefit that Explora had sought for itself. In particular, TFL relied on Greenwood v Bennett [1973] 1 QB 195, in which Denning LJ held that a direct benefit, whether pursued for the benefit of oneself or for another, was recoverable in unjust enrichment. Lloyds Bank was granted summary judgment, with the judge distinguishing Greenwood v Bennett, because he concluded that there was a rule that incidental benefit (which, he found, Lloyds Bank had benefitted by), could not found a cause of action in unjust enrichment.

TFL successfully appealed. The Court of Appeal (Beatson and Floyd LJJ allowing the appeal with Sir Stanley Burnton dissenting) held that the law in the area was in a state of flux and was not, in any event, suitable to be determined at summary judgment. The main issue on the appeal was how to define an incidental benefit, and the issues which surrounded the doctrine. TFL argued that in order to create an incidental benefit, there must be a primary benefit incurred by one party, which is separate and distinct from any additional, incidental benefit incurred by another. Lloyds Bank argued that it did not matter whether there was one benefit or more than one, as the basis of the defence of incidental benefit should be that the claimant had embarked on a course of action with some principal intended consequence in mind, which was pursued for the claimant's self-interest, but in the course of the same a benefit accrued to the defendant which was not identical to the claimant's principal intended consequence.

This was the first time that the court had been invited to formulate the exception to the type of benefit which, if conferred on a defendant by a claimant, can be relied on for the purposes of an unjust enrichment claim, though the issue had been considered by a number of academic commentators. Floyd LJ, giving the leading judgment, referred to the case of Banque Financiere de la Cite v Parc (Battersea) Limited [1999] 1 AC 221 in which Lord Steyn found that there were four main questions to consider in any claim for unjust enrichment; namely (1) had the defendant benefitted or been enriched; (2) was the enrichment at the expense of the claimant; (3) was the enrichment unjust; and (4) was there any specific defence available to the defendant.

Floyd LJ held that, in the context of the existing conceptual structure set out in Banque Financiere de la Cite v Parc (Battersea) Limited, there was no reason to formulate a general exception in the law of restitution on the basis of incidental benefit. He further held that where a claimant conferred a benefit on a defendant in circumstances where he was labouring under a mistake, so that the benefit he sought for himself actually benefitted someone else, there was no reason why the court should deny the claimant a remedy just because the benefit conferred was not identical to the one pursued by the claimant. Instead, the matter should rest on whether the other elements necessary to found a claim in restitution were present.

Beatson LJ agreed, noting that there was no confirmed authority, and that the test advocated by Lloyds Bank would preclude restitution in a number of cases where it had been ordered. Sir Stanley Burnton dissented, principally on the basis that he was unable to contemplate how Explora's loss could be quantified, though also on the basis that he believed that Explora's remedy should lie in rectification rather than in restitution.

Charles Fussell & Co instructed to advise in respect of an injunction against publication of defamatory material

Charles Fussell & Co has been asked by a multi-national group of companies to advise upon threats made by a former disgruntled associate to the effect that unless the group of companies meets a number of unwarranted demands, the former associate would publish untrue and highly defamatory material on the internet. Charles Fussell & Co is instructed to take steps to prevent publication of any such materials, including obtaining an urgent injunction against publication if necessary.

Charles Fussell and Elizabeth Stoppelmoor will act on this matter.