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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Madison Pacific Trust Ltd v Shakoor Capital Ltd & Anor [2020] EWHC 610 (Ch) (16 March 2020) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2020/610.html Cite as: [2020] EWHC 610 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
Fetter Lane London, EC4A 1NL |
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B e f o r e :
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MADISON PACIFIC TRUST LIMITED |
Claimant |
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- and - |
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(1) SHAKOOR CAPITAL LIMITED (2) JOINT-STOCK COMPANY COMMERCIAL BANK PRIVATBANK |
Defendants |
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Adrian Beltrami QC and Louise Hutton (instructed by Dechert LLP) for the First Defendant
David Wolfson QC, Simon Atrill and Nick Daly (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Second Defendant
Hearing dates: 27 and 28 February 2020
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Crown Copyright ©
Mr Justice Zacaroli:
Introduction
i) The Loan Agreements were indeed tainted by illegality. That illegality also infected the Notes to the extent that interests in the Notes had been acquired by the Former Owners or entities under their control.
ii) Many of those who had acquired interests in the Notes (including the Instructing Group), on the other hand, were innocent. Not only were they not parties to the illegality, they were victims of it.
iii) The public policy considerations that underlay the defence of illegality under English law required "…a court or tribunal to act to prevent recovery where to allow the claim would be in effect to endorse the fraud and assist in the achievement of the fraudulent purpose. Equally, it can readily be seen that a court or tribunal should aim to protect innocent investors from fraud who would be damaged despite being victims of the fraud if the claims brought for their benefit were to be refused."
iv) The difficulty the Tribunal faced, in these circumstances, was that the entities actually suing to recover under the Loan Agreements were the Issuer and, as holder of a security interest, the Trustee. As between the Issuer and Trustee (on the one hand) and PrivatBank (on the other) illegality would appear to operate as a binary defence: each Loan Agreement was either enforceable as a whole, or not at all.
v) The Tribunal considered whether there were other ways of ensuring that innocent holders of interests in the Notes could recover, while preventing the Former Owners and their associated entities from recovering (including applications by the Trustee to court in relation to the proceeds of any repayment of the Loans), but decided that "stopping the funds at source is in the view of the Tribunal a much more attractive and economic solution if it can be achieved."
i) PrivatBank had no liability and should not be required to make any payment to the claimants (the Issuer and the Trustee) "in a sum equal to" the principal value of the Notes which as at 14 June 2019 (the "Relevant Date") were held for the benefit of the Former Owners or entities owned or controlled by them;
ii) PrivatBank was required to pay to the Trustee "an amount equal to the aggregate principal value of the Notes" held as at the Relevant Date for the benefit of the Instructing Group;
iii) The Trustee was required (by paragraph 5.2(3) of the operative part of the Awards) to pay to each member of the Instructing Group pro rata the amount of its respective interest in the Notes; and
iv) A mechanism was put in place for those persons who held an interest in the Notes but fell within neither (i) nor (ii) above, which entailed notices being published requesting such persons to make themselves known to the Trustee and provide information and evidence within 60 days. PrivatBank was given the opportunity to object to any payment being made to such persons, on the grounds that their claims are (on the findings of the Tribunal) infected with illegality. Any dispute was to be resolved by the Tribunal, and PrivatBank was required to pay to the Trustee only where PrivatBank's objection was not upheld;
v) The Trustee was required (by paragraph 6.3(3) of the operative part of the Awards) to pay to each entity referred to in (iv) above where either PrivatBank raised no objection, or the objection was not upheld;
vi) The Tribunal stated, however, that nothing in the Awards required the claimants to make any payment under paragraph 5.2(3) or paragraph 6.3(3) until the Trustee had had an opportunity to make an application to a judge of the High Court, seeking directions "in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by [the Awards]". In the event that the Court declines to give such confirmation, then the operative parts of the Awards will cease to have effect and the Tribunal retains jurisdiction to deal with the matters raised by the claim and the illegality defence as it may consider appropriate.
The holding structure of the Notes
i) By clause 2.3 of the Trust Deed, the Issuer covenanted to pay to or to the order of the Trustee amounts corresponding to principal and interest in respect of the Notes, and the Trustee agreed to hold the benefit of that covenant on trust for the benefit of itself and the Noteholders.
ii) By clause 4 of the Trust Deed, the Issuer charged and assigned to the Trustee, for the benefit of itself and the Noteholders all of the Issuer's rights, interests and benefits in and to the Loan Agreement. This was as security for all sums due under the Trust Deed (in particular the covenant of the Issuer to the Trustee in clause 2) and the Notes.
iii) The immediate beneficiaries of the trust of the security are the Noteholders, in this case consisting only of the common depository as holder of the global note. It holds that interest on a sub-trust for the Clearing Systems, who hold on a sub-trust for the participants and so on down the chain to the UAH.
"8.1.1 first, in payment or satisfaction of the costs, charges, expenses and liabilities incurred by the Trustee in or about the preparation, execution and performance of the trusts of this Trust Deed (including remuneration of the Trustee and of any Appointee appointed hereunder) and incurred by the Trustee or a Receiver (and any Appointee) in the realisation or enforcement of the Security Interests;
8.1.2 secondly, in or towards payment pari passu and rateably of all arrears of amounts corresponding to principal and interest remaining unpaid in respect of the Notes; and
8.1.3 thirdly, the balance (if any) in payment to the Issuer …"
The issues raised by this application
"The Trustee is at liberty to make payments to or at the direction of the Noteholders (as that term is used in the Trust Deeds) or Ultimate Account Holders (as that term is used in the Awards) in accordance with the payment scheme set out at operative paragraphs 5 to 9 of the Awards."
"The Trustee shall not be liable to any Noteholder, Ultimate Account Holder or other direct or indirect beneficiary under the Trust Deeds by reason of the making or withholding of payments in accordance with the payment scheme [set out at paragraphs 5 to 9 of the Awards]"
Clause 8.1.1
"Nothing in this Partial Award shall require the Claimants [which includes the Trustee] to make any payment pursuant to paragraph 5 or 6.3(3) until the Trustee has had an opportunity to make an application seeking directions to make those payments from a Judge of the High Court in England and Wales, in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by this Partial Award. For the avoidance of doubt, such application shall not be a challenge to the terms of this Partial Award or to the Trustee's entitlement or obligation to make the payments anticipated hereunder."
"If, on the final determination of such an Application, the Court declines to direct the Trustees to make the payments specified in this Partial Award, paragraphs 1 to 9 hereof shall cease to have effect in their entirety."
Clause 8.1.2
Trustee's powers and duties in connection with enforcement of the Security
The late-responding UAHs
Conclusion