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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> The Serious Fraud Office & Anor v Litigation Capital Ltd  EWHC 1280 (Comm) (20 May 2020)
Cite as:  EWHC 1280 (Comm)
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
AND IN THE MATTER OF GERALD MARTIN SMITH
AND IN THE MATTER OF THE CRIMINAL JUSTICE ACT 1988
B e f o r e :
| THE SERIOUS FRAUD OFFICE
MR JOHN MILSOM AND MR DAVID STANDISH
(as joint Enforcement Receivers in respect of the realisable property of Gerald Martin Smith)
|- and –
LITIGATION CAPITAL LIMITED
(a company incorporated in the Marshall Islands) and the (2) to (25) Defendants
Kennedy Talbot QC and James Mather (instructed by the SFO) for the First Claimant
Stephenson Harwood LLP for the Second Claimant
Blair Leahy QC (instructed by HFW LLP) for the Joint Liquidators of Twenty-First to the Twenty-Third Defendants and for the Twenty-Fourth to Twenty-Fifth Defendants
Felicity Toube QC (instructed by Addleshaw Goddard LLP) for the Fifth and Tenth Defendants
Sean Upson for the Sixth Defendant
James Pickering QC and Samuel Hodge (instructed by Spring Law) for the Twelfth to Fourteen Defendants
Sebastian Kokelaar (instructed by Richard Slade & Co) for the Eighth and Ninth Defendants
The Twentieth Defendant in person
Written submissions from: the First, Fourth and Fifteenth Defendants, and from Dr Imogen Smith and Ms Iona Smith
Hearing date: 18th May 2020
Draft Judgment Circulated: 19th May 2020
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down is deemed to be 20 May 2020 at 10.00am.
The Honourable Mr Justice Foxton:
i) Dr Smith was convicted of fraud, sentenced to eight years' imprisonment and made subject to a confiscation order on the application of the Serious Fraud Office ("the SFO"). The High Court appointed receivers on the application of the SFO ("the Joint Enforcement Receivers") in respect of Dr Smith's realisable property under the Criminal Justice Act 1988 ("the CJA 1988"), for the purposes of realising property to discharge the confiscation order and accumulating interest.
ii) A Jersey company called Orb arl ("Orb") was used as a vehicle to hold the Smith family's financial interests. It became involved in litigation with a Mr Andrew Ruhan, concerning (amongst other things) the group of companies through which Mr Ruhan owned or controlled various assets, including companies known as the Arena Companies. The background to those proceedings is set out in Mr Justice Popplewell's judgment in Orb arl v Ruhan  EWHC 850 (Comm), -. That litigation was settled on terms which provided of various transfers of assets, the validity and effect of which is hotly disputed.
iii) Following the settlement of the Ruhan litigation, numerous further claims have arisen in relation to both the settlement, and as to the assets held or once held by companies on the Orb and Ruhan sides. Popplewell J explained in Sodzawiczny v Ruhan  Bus LR 2419, :"Following the settlement of the main litigation there have emerged numerous further claims, both in relation to the settlement and in relation to assets of those in the Dr Smith camp including the Arena and non-Arena assets. Amongst the claimants are the SFO; the Viscount of Jersey who has succeeded to the title of Dr Cochrane who is in 'en désastre' (a form of bankruptcy in Jersey); liquidators of various BVI companies which sat at the head of structures within the Arena Settlement…; beneficiaries of the settlement of the main action; various litigation funders; Stewarts Law, Orb's former solicitors in the main litigation; and a number of others. I have been managing those various actions together, which were described before me as 'the Popplewell proceedings', and have ordered a trial of a number of issues in relation to proprietary claims to certain of the assets, which is not due to be heard until 2020."
i) Following a hearing on 22 June 2017, he directed the SFO to file an Application Notice asserting its claims in relation to Dr Smith's realisable property. This was done on 26 June 2017.
ii) Thereafter the SFO filed its statement of case, to which 12 further parties filed responsive statements of case.
iii) In April 2018, Popplewell J held a case management conference in which he gave directions for the litigation to proceed in phases, with the first phase (known as "the Directed Trial") to determine claims by parties to a series of corporate assets and certain properties in Jersey. Those properties are referred to as "the Jersey Properties" and the assets in issue in the Directed Trial are referred to as "the Relevant Assets".
iv) Popplewell J made an order granting permission to those claiming interests in the Relevant Assets to participate in the Directed Trial, providing for the advertisement of the Directed Trial and the order giving permission to participate in it, and providing that any party who claimed an interest in the Relevant Assets but who did not come forward to advance their claim by a set date would need the permission of the court to advance such a claim thereafter.
The Settlement Parties' Application
i) 15 flats and the head lease of a property at 75-81 Southampton Row, which are in the legal ownership of predominantly Marshall Island companies under the control of the Enforcement Receivers, who are among the Settlement Parties, save for one flat in the legal ownership of Dr Smith's daughter Dr Imogen Smith.
ii) A collection of assets over which the SFO has applied for freezing order relief: a property in Spain, three properties in England and the sum of £500,000 paid over to an English solicitor. The Spanish property is called Casa Stickler, and is owed by a Spanish company called Casa Futura Mallorca srl. The Nineteenth Defendant ("Ms Stickler") is the legal owner of the shares in that company. The Settlement Parties' Application as against Casa Futura Mallorca srl was adjourned due to difficulties effecting service abroad during the Covid-19 pandemic. The English properties are two properties at Montagu Square and a 50% share of the freehold of a property in Rickmansworth ("Moor Lane"). The £500,000 is held by a company called By Corporate LLP. On the morning of the hearing, the Settlement Parties' Application was adjourned so far as the £500,000 is concerned, on terms agreed between the Settlement Parties and two individuals. The Application against By Corporate LLP was also adjourned.
iii) Certain loan rights secured on a property jointly owned by the former solicitor of Dr Smith and his wife known as Walham Court, and the proceeds of sale of a property known as Goodwood Court.
iv) Jewellery owned by the Fourth Defendant ("Dr Cochrane", who was formerly married to Dr Smith) and her daughters, Dr Imogen Smith and Ms Iona Smith: a Graff diamond bracelet and earrings.
i) First, an order expanding the issues in these proceedings to include a determination of the ownership of the Identified Underlying Assets, or whether the Identified Underlying Assets constitute realisable assets under the CJA 1988 for the purposes of the SFO's confiscation claim against Dr Smith.
ii) Second, joinder of certain new parties to the proceedings ("the Additional Parties") who are believed to be the legal owners of the Identified Underlying Assets.
iii) Third, a direction requiring those existing or Additional Parties who assert proprietary claims to the Identified Underlying Assets to serve statements of case setting out their claims.
iv) Fourth, an order requiring advertisement of the fact that the Court will be determining claims in relation to the ownership of the Identified Underlying Assets, allowing an opportunity for non-parties who assert such a claim to bring it in these proceedings, and debarring any non-party who does not bring such a claim forward from asserting it hereafter without the permission of the court.
v) Finally, the Settlement Parties seek certain orders intended to regularise the position so far as service of applications and documents to date is concerned, and to simplify and streamline such service going forward.
The Settlement Parties claims to the Identified Underlying Assets
"The court may order any person holding an interest in realisable property to make such payment to the receiver in respect of any beneficial interest held by the defendant or, as the case may be, the recipient of a gift caught by this Part of this Act as the court may direct and the court may, on the payment being made, by order transfer, grant or extinguish any interest in the property".
Service of the Settlement Parties' Application
"It is for you and your client to achieve proper service of your 'application'. It is not our role to help you achieve that".
Should the application be adjourned?
i) Dr Smith;
iii) Dr Cochrane;
iv) Ms Stickler;
v) Dr Imogen Smith; and
vi) Ms Iona Smith.
"We have considerable concerns about our ability to attend any scheduled hearing effectively. This company's staff are small in number and in disparate locations throughout Europe which are locked down. Our records are also not immediately available to us where we all are, and thus we cannot give solicitors and counsel full and effective instructions for the hearing".
The Popplewell J hearing of April 2018
"I am not attracted by Harbour's suggestion that we include an additional category of claim to the underlying assets. It undermines the logic of the structure which has been put in place, and if one is to go down that road, there is no reason to include those clams to underlying assets. It would involve starting again with re-pleading those sorts of claims".
"without prejudice to any party's rights to make further claims or seek further determinations with regard to the Excluded Issues or the Underlying Assets Claims or any other issues not determined in the Directed Trial, whether in these proceedings or in any other proceedings".
i) Popplewell J refused an application that some Underlying Assets should form part of the Directed Application. However, as I have stated, there is currently no application before me to include issues relating to the Identified Underlying Assets within the scope of the Directed Trial. That is an issue for the July 2020 CMC.
ii) Popplewell J clearly did not decide that claims to the Underlying Assets could not form part of the proceedings, because he gave liberty to the parties to apply to bring such claims as part of the proceedings.
iii) In any event, there was no developed proposal for the inclusion of specific Underlying Assets within the Directed Trial at the April 2018 CMC. Instead, a rather general proposal was put forward in the course of argument. By contrast, the Settlement Parties' Application identifies specific Underlying Assets and the rationale for selecting them.
iv) It is clear the Popplewell J's reasons for refusing that application were essentially pragmatic (as can be seen from the fact that the Jersey Properties were included within the Directed Trial, even though they are Underlying Assets). It will be for the judge at the July CMC to determine whether those pragmatic considerations still hold good, or whether circumstances have changed sufficiently to make another order appropriate.
The merits of the Settlement Parties' claims to the Identified Underlying Assets
Should the Settlement Parties be permitted to issue their application concerning the Identified Underlying Assets in these proceedings?
"An application by the prosecutor under section 29 shall, where there have been proceedings against the defendant in the High Court, be made by an application in accordance with Part 23 and shall otherwise be made by the issue of a claim form".
The Settlement Parties' Application to Join the Additional Parties
The direction for service of pleadings
The barring order
i) In the Court of Appeal decision in Finers v Miro  1 WLR 35 at 45C-D, Balcombe LJ held that "what gives the court jurisdiction is the fact that the plaintiffs undoubtedly hold assets on trust for the defendant and are also potentially liable as constructive trustees at the suit of the insurance company".
ii) Lewin on Trusts (20th) para. 39-012 suggests that the jurisdiction under CPR 64 "extends to bare trustees, and may also extend to persons who are alleged to be trustees or who may incur liability as constructive trustees". In this context it cites Baden v Societe General pour Favoriser le Developpement du Commerce et de l'Industrie en France SA  1 WLR 509, 585, in which Peter Gibson J suggested that a bank which held moneys which might be trust moneys could bring an administration claim under RSC Order 85 for "the execution under the direction of the Court of a trust".
iii) Mr Pillow QC referred me to CPR PD 64A, which gives examples of claims falling within CPR 64.2(a) as claims "for the court to determine any question arising in … the execution of a trust". These include "any claim for the determination of … any question as to who is included in any class of person having …. a beneficial interest in any property subject to a trust" and "any question as to the rights of any person claiming to be beneficially entitled under a trust". This language recognises that those asserting claims as beneficiaries under a trust can bring proceedings under CPR 64.2(a), and this must equally be true of the wider language used in CPR 19.8A.
iv) Finally, the court's powers under ss.57 and 58 of the Trustee Act 1925 apply to constructive as well as expressly constituted trusts as a result of the definition in s.68(17). In these circumstances, the references to trusts in CPR 19.8A is similarly likely to extend to constructive trusts.
"The chief master also directed that the claimants should place advertisements in the London Gazette and the Times, in a form which he approved, giving details of the claim and inviting participation in the proceedings. This was on the basis that such advertisements should constitute notice in accordance with CPR 19.8A with the result that any person claiming an interest in Durrants who failed to file an acknowledgement of service should be bound by the judgment made as if that person had been made a party to the claim. Since the advertisements were placed but no acknowledgements of service were filed the effect has been that the subscribers to the fund, and the Crown, are bound by the court's decision on whether they have any interest".
"There can be no doubt that a court which is endowed with a particular jurisdiction has powers which are necessary to enable it to act effectively within such jurisdiction. I would regard them as powers inherent within such jurisdiction. A court must enjoy such powers in order to enforce its rules of practice and to suppress any abuse of its process and to defeat any attempted thwarting of its processes".
" At a case management conference on 29 October 1999 Cresswell J, who was of course in charge of the Lloyd's litigation, decided that any names who wished to reserve the right to advance a case that they had been induced to become or remain members of Lloyd's by reason of Lloyd's failure to disclose the nature and extent of the market's liability for asbestos-related claims must give notice that they intended to become parties to the litigation. He made an order to that effect. Such an order was plainly appropriate since it would be unthinkable for either names or indeed Lloyd's to be able to use valuable court resources twice (or many times) in order to have the same issues determined.
 That is, in our judgment, so even though some of the litigants in person, especially Mr Harrison, have expressed some unhappiness that they could not pursue their own actions on their own. Mr Harrison also submits that the judge should have advised him to take independent legal advice. However, it was not for the court to give Mr Harrison or anyone else advice. It must have been obvious to every name that it was desirable to take legal advice.
 It was no doubt because there was no realistic alternative to a single determination of the threshold fraud issue which would be binding on everyone that both Lloyd's and the represented names consented to such a course and no-one has since challenged the order to that effect. In our view, such an order and the subsequent control of the litigation was not only sensible but entirely consistent with the principles relating to group litigation which have been developed in recent years and with the provisions of CPR 19 Part III, which subsequently came into force on 2 May 2000. The order directed that a statement recording the terms of the order and the background to it be publicised on the Court Service website and Lloyd's sent a copy of the statement to every name who had not accepted the R&R settlement offer".