Isis Investments Ltd v Oscatello Investments Ltd & Ors [2012] EWHC 745 (Ch)

Case No HC09C00599[2012] EWHC 745 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23/03/2012
Before
THE HON MR JUSTICE FLOYD
Between
ISIS INVESTMENTS LIMITEDClaimant(5) OSCATELLO INVESTMENTS LIMITEDDefendants(6) KAUPTHING BANK hfDefendant(7) ELFAR ADALSTEINSSON (as a representative party)Defendant(1) OSCATELLO INVESTMENTS LIMITEDPart 20 Claimants(2) KAUPTHING BANK hfClaimant(1) ISIS INVESTMENTS LIMITEDPart 20 Defendants(6) ELFAR ADALSTEINSSON (as a representative party)Defendant
Tom Lowe QC and Clare Stanley (instructed by Boodle Hatfield) for Isis Investments LimitedWilliam Trower QC and David Allison (instructed by Weil, Gotschal Manges) for Oscatello Investments LimitedAlan Steinfeld QC (instructed by Weil, Gotshal & Manges) for Kaupthing Bank hfCharles Samek QC and David Lascelles (instructed by Logos Legal Services) for Elfar AdalsteinssonHearing Hearing date: 21 st and 22 nd March 2012
JudgmentMr Justice Floyd :
[1]By this application Isis Investments Limited, the claimant, acting by its liquidator Mr Paul Shimmin, seeks to amend the particulars of claim in this action. The application is opposed by the 5th and 6th Defendants, Oscatello Investments Limited and Kaupthing Bank hf. It is supported by the 7th Defendant Mr Elfar Adalsteinsson.[2]Oscatello is a BVI company, also now in liquidation, which was part of an offshore trust structure, TDT, set up by or for the property entrepreneur Robert Tchenguiz.[3]Kaupthing is an Icelandic Bank, which collapsed in well publicised circumstances in October 2008. Prior to its collapse, Kaupthing had advanced very large sums of money to Oscatello and to other companies in the TDT group.[4]Mr Adalsteinsson represents the interests of the so-called sub-participants – in essence creditors of Isis. His continued presence in the action, if it continues, is challenged by Kaupthing and Oscatello.[5]Isis is an Isle of Man investment holding company, now in liquidation, and is an indirect subsidiary of Kaupthing. One of the investments which it at one stage owned included equity and debt interests in the Somerfield supermarket chain. Isis realised its interests in Somerfield in February 2009 when Somerfield was sold to the Co-Operative. Isis paid its share of the completion monies into Court, pending a determination of how much and to whom the monies should be paid.[6]At the heart of these proceedings is an agreement called the Framework Agreement. The parties to the Framework Agreement included Kaupthing, Oscatello and Isis. By clause 6 of the Framework Agreement Isis was apparently obliged to hold some of the completion monies, referred to as the Violet Economic Return or VER, from the sale of Somerfield on trust for Oscatello.[7]In these proceedings, as originally commenced, and as adopted by the liquidator, Isis sought certain declarations as to the interpretation of clause 6 and consequential directions as to the proper persons to whom the VER should be paid out of the money in court. Kaupthing and Oscatello counterclaimed for payment out of the VER to them on the basis of their construction of the agreement. On the pleaded cases no party was alleging in these proceedings (although see the 600 claim below) that the agreement was unenforceable. Oscatello then made an application for summary judgment on its counterclaim. They argued that if they were right as to the construction of the Framework Agreement there was no other defence and the money should be paid out.[8]It is clear that at some stage, the liquidator of Isis formed the view on the information then available to him, that the Framework Agreement was in principle enforceable at the suit of Oscatello, subject to the issue of construction. Indeed Mr Shimmin went as far as to apply to the IOM court for sanction of payments to Oscatello. However the sub-participants made strong representations to the IOM court that he should not do so. This led to a second witness statement on behalf of Isis, in which Mr Shimmin expresses grave doubts about the circumstances in which the Framework Agreement came to be made.[9]In his second witness statement Mr Shimmin described his findings in relation to clause 6 as follows:
“(i) On any view this was an improvident transaction by which Isis sold an interest of which it had already disposed. There was also no justification for prioritising Oscatello over other creditors. (ii) Oscatello does not appear to have actually ever paid £44.05 million under Clause 6. This seems to have a purely circular payment by and to Kaupthing which could never have benefited Isis. (iii) The Framework Agreement appears to have been concluded by the directors under pressure from Kaupthing without any real thought being given to the discharge of their fiduciary responsibilities. Kaupthing itself acted as if it was a director of Isis. (iv) There is a serious indication that by agreeing to pay the VER under Clause 6, Isis was making an unlawful distribution of capital to or for the benefit of its shareholder, Kaupthing and/or one of its ultimate shareholders, Mr Tchenguiz.”
[10]It was on the basis of these provisional conclusions that Isis resisted Oscatello’s summary judgment application when it came before Lewison J (as he then was) on 30th March 2011. By that stage Isis had also made a cross application for a stay under the Cross Border Insolvency Regulations to enable Mr Shimmin to conduct further investigations as to whether to mount a challenge to the validity of the Framework Agreement.[11]The hearing before Lewison J on 30th March was accordingly not a protracted one. It emerged that there was no longer a dispute as to how the Framework Agreement was to be construed. Lewison J was, however, disinclined to grant a declaration adequate to require Isis to hand over the VER when doubts remained over the validity of the Framework Agreement. He granted a limited declaration as to the true interpretation of clause 6 on the hypothesis that it was valid and enforceable. He also stayed the proceedings for 3 months, until 30th June 2011, to enable the liquidator of Isis to conduct further investigations as to the validity of clause 6.[12]The matter came before Peter Smith J on Isis’ application to continue the stay. Oscatello renewed its summary judgment application. Both applications now come back before me, some 12 months after the hearing before Lewison J. Oscatello had indicated in advance that they would not ask at this hearing for a final order on its summary judgment application. However it emerged during the course of the hearing that it did contend that the proposed amended pleadings were unarguably barred by a compromise agreement, to which I shall come in due course.[13]The liquidator of Isis has now decided to challenge the framework agreement and has served draft amended particulars of claim (DAPOC). The DAPOC were provided to Oscatello and Kaupthing on 2nd March 2012. Whilst formulated in that way, the case of invalidity which Isis’ liquidator wishes to raise could equally have been pleaded as a defence to Oscatello’s counterclaim for payment out of the VER to them.[14]Of necessity, the DAPOC have to traverse a great deal of factual background in what was a complex set of inter-related transactions. Paragraph 7D sets out a summary of at least some of the allegations. In section VIII there is a fuller list of reasons why Oscatello cannot enforce Clause 6 of the Framework Agreement. In summary these are: i) There was no genuine consideration moving to Isis. The expressed payment of £44.05 million was never made, and Kaupthing simply made circular book entries. The promise of payment was a sham. ii) Clause 6 was an agreement procured by Kaupthing for Isis to make an unlawful return of capital to Kaupthing/TDT. iii) The sale of the VER was made in breach of fiduciary duty and with no true authority. iv) The effect of clause 6 when coupled with the obligation of Oscatello to pre-pay the Kaupthing overdraft was such that the purported sale of the VER was a sale by Isis to Kaupthing. Such a sale is unenforceable unless Oscatello or Kaupthing gave full and frank disclosure of all material facts. v) Clause 6 was tainted by illegality as it formed part of an unlawful conspiracy on the part of Kaupthing, Mr Tchenguiz and others to defraud the markets by giving a false picture of the true indebtedness of Kaupthing’s largest borrower. vi) Clause 6 is unenforceable as it amounts to an equitable charge which is unregistered and therefore unenforceable under IOM company law.[15]I should not grant permission to amend unless the amended pleading discloses a case which has a realistic prospect of success.[16]The well known statement of Peter Gibson LJ in Cobbold v London Borough of Greenwich [1999] EWCA Civ 2074 indicates that the overriding objective is normally in favour of allowing a party to amend so as to put forward his actual case and so that the real dispute can be adjudicated upon. Mr Trower drew my attention to the decision of Lewison J in Fattal and others v Walbrook Trustees and other s [2010] EWHC 2767 (Ch). At paragraph 56-59 he said this: “It is common ground that an amendment should not be allowed unless the claim, as amended, has a real prospect of success. It would obviously be pointless to allow an amendment only to have the amended claim dismissed summarily on the ground that it has no real prospect of success. The notes to the White Book state at paragraph 17.3.6: "Given the purpose of the statement of truth verifying an amendment, a party will not be permitted to raise by amendment an allegation which is not supported by any evidence and is therefore pure speculation or invention." The authority cited in support of that note is Clarke v Marlborough Fine Art (London) Ltd [2002] EWHC 11. In fact, that particular decision did not concern amendments to pleadings at all. It concerned the admissibility of so-called expert evidence. However, an earlier decision in the same case reported at [2002] 1 WLR 1731 did concern amendments to pleadings, but it does not say precisely what is said in the notes to the White Book. Much of the discussion was taken up with the consideration of pleading inconsistent or alternative cases. Patten J. held that it would be wrong to permit an amendment to allow inconsistent cases to be pleaded unless they were clearly pleaded as alternatives. What Patten J. said about the evidential basis for an amendment was: "It is therefore necessary for me to consider the defendant's second main ground of opposition to this application which is that the amendment has no proper or sufficient evidential basis and should be refused on that ground. For these purposes Mr. Briggs and Mr. Lyndon-Stanford submit that I should apply the same test as if this were an application for summary judgment under CPR Part 24 or an application to strike out under CPR r.3.4. That seems to be right, but it requires me to be satisfied on the basis of the material before the court that the claim has no real prospect of success." Likewise in Walker v Stones [2001] QB 902, 946 Sir Christopher Slade approved the following statement by Stuart-Smith LJ in Taylor v Midland Bank Trust Co Ltd (unreported) 21 July 1999: "it is not sufficient to look and see whether the pleading technically discloses a cause of action. Particularly in the light of the new Civil Procedure Rules 1998, the court should look to see what will happen at trial. If the case is so weak that it has no reasonable prospect of success, it should be stopped before great expense is incurred." Accordingly, in considering whether to permit an amendment I am entitled and bound to consider whether the amendment is supported by any evidence, and that the relevant test is whether the amendment has a real prospect of success. However, the test of real prospect of success is a threshold test. Rix LJ said in Fincken: "Ms Gloster submits that it is enough that these amendments have some prospect of success. That may be a suitable test where an amendment comes at a reasonably early stage of proceedings. After all, if any pleading whether by amendment or not, cannot meet the test of some real prospect of success, it is in danger of being struck out. In my judgment, however, the proper rule or guideline calls for a sliding scale: the later the amendment, the more it may require to commend it." "Given the purpose of the statement of truth verifying an amendment, a party will not be permitted to raise by amendment an allegation which is not supported by any evidence and is therefore pure speculation or invention." "It is therefore necessary for me to consider the defendant's second main ground of opposition to this application which is that the amendment has no proper or sufficient evidential basis and should be refused on that ground. For these purposes Mr. Briggs and Mr. Lyndon-Stanford submit that I should apply the same test as if this were an application for summary judgment under CPR Part 24 or an application to strike out under CPR r.3.4. That seems to be right, but it requires me to be satisfied on the basis of the material before the court that the claim has no real prospect of success." "it is not sufficient to look and see whether the pleading technically discloses a cause of action. Particularly in the light of the new Civil Procedure Rules 1998, the court should look to see what will happen at trial. If the case is so weak that it has no reasonable prospect of success, it should be stopped before great expense is incurred."[17]Mr Lowe does not dispute that it is appropriate to look at the evidence to see whether the case has support. However, he submits that it is also pertinent to take into account the fact that Oscatello no longer maintain their summary judgment application. This is not a case where there is a date fixed for trial, so issues of disruption to fixed timetables do not arise.[18]Oscatello and Kaupthing draw attention to the length of time which it has taken the liquidator of Isis to arrive at the point where he has formulated a case for invalidity of the Framework Agreement. They also draw attention to the fact that much if not all of the material which is used to formulate that case was before the court at the summary judgment hearing one year ago. Finally they draw attention to the practical importance of precise pleading in a case where the defendants are in liquidation and therefore hampered in their ability to investigate allegations, particularly if made in a broad and unparticularised manner.[19]I bear those points in mind. On the other hand it is fair to point out that Isis’ liquidator has met with a degree of resistance in obtaining documents and in receiving answers to his requests for information. Moreover there is really no attempt at a coherent explanation of the events which have happened and which were the subject of Mr Shimmin’s evidence, and which Mr Trower QC for Oscatello at least accepts raise questions which it is legitimate to ask. Oscatello and Kaupthing have had Mr Shimmin’s second witness statement since March 2011, but have chosen not to deal with the substance of it. Neither Mr Trower nor Mr Steinfeld QC for Kaupthing attempted anything approaching an explanation of the events.[20]Although various explanations were put forward for the fact that the summary judgment application is no longer advanced, I believe that this posture is simply a recognition of the fact that the court would not be able to hold in the face of the existing evidence that these claims have no realistic prospect of success. It would be open to Kaupthing and Oscatello to argue, if they felt able to do so, that the evidence relied upon by the liquidator of Isis gave rise to only a fanciful as opposed to a realistic prospect of successfully defending the counterclaim for payment out of the VER. However, despite the fact that this is the adjourned hearing of the summary judgment application, set down for two days, they have chosen not to do so. I consider that I am entitled to infer that the evidence discloses a triable defence on one or more of the grounds of invalidity advanced.[21]Recognising with commendable realism that the court would be unlikely to say that there is not, amongst the evidence filed on this and previous applications, a sufficient basis for asserting that clause 6 of the Framework Agreement is invalid, Mr Trower for Oscatello focussed his arguments on the clarity of the DAPOC itself. He submitted first that the pleading, even read in the light of the exposition by Mr Lowe for Isis, did not tie in the evidence to the particular allegations made. He also submitted that there were essential or necessary averments which were missing in respect of some of the grounds of invalidity of the Framework Agreement which were made.[22]As to the first of those submissions, I consider that it sets too high a standard given the nature of the present application, and the stage which the action has reached. Indeed, the function of a pleading is to make allegations of the material facts necessary to support the case being made, not to identify all the evidence. That is not to say that, in order to know more precisely the case which it has to meet, Oscatello and Kaupthing may not be entitled to further information as to how the case is to be put. Mr Lowe accepted that there was substance in many of the points made by Mr Trower about the clarity of the pleading and the adequacy of the particulars. Mr Lowe submitted that his client was able to answer all the questions raised by Mr Trower in the course of his submissions, and indeed would do so. As to those matters, the right course, subject to Mr Trower’s second point, is for Kaupthing and Oscatello to serve a request for further information and for it to be answered by Isis.[23]The second of Mr Trower’s submissions is, if established in relation to any particular ground of invalidity, obviously correct. The court should not give permission to amend a pleading which has a missing, material averment. Such a pleading is strikable, and the court will not give permission to amend simply in order to provoke an application to strike out. I therefore propose to examine the pleaded grounds and to see whether it can be said that there is any missing material averment.[24]I take first the plea of lack of consideration/sham. Relying on the passage in the speech of Diplock LJ in Snook v London and West Riding Investments Limited [1967] 2 QB 786 at 802 Mr Trower submitted that it is necessary for the plea of sham to identify(a) the act done or documents executed which are alleged to constitute the sham,(b) the parties to the sham,(c) the common intention of the parties not to create the legal rights which(d) they give the impression of creating. He drew attention to the fact that the DAPOC refer to a number of different acts or documents as being a sham. Thus, in paragraph 7D(1) it is alleged that “the promise of payment of GBP 44.05m by Oscatello was a sham”; in 11C.3 that “the purported transfers of money under Clause 6 and the Isis and NOIIE PPLs were sham transactions”; in 11D.6 that “The Isis and NOIEE PPLs and the Framework Agreement (in whole or in part) were sham transactions”; in 11E.1 that “the promise of payment in Clause 6 was sham”; and in 18C3 that “the consideration moving from Oscatello and Eliza to Isis was, in reality, a sham”.[25]The PPLs (Profit Participation Loans) were unsecured loans by Isis to Oscatello’s holding company Eliza.[26]Given that various transactions involving different companies are sought to be impugned as shams, Mr Trower submitted that it was important to identify the parties to the transaction, and for the pleading to identify that that party had the relevant intention as well as the basis for that allegation.[27]I agree, as did Mr Lowe, that the pleading could be made clearer. However the burden of Isis’ case is tolerably clear, and supported by the evidence of Mr Shimmin. The principal allegation is that, although Clause 6 would appear to suggest that there was consideration moving from Oscatello to Isis for the promise to hold the VER on trust for them, this was in fact a sham orchestrated by Kaupthing through its control of Isis and by Oscatello/TDT. Thus paragraph 7D.1 alleges that the consideration never was intended to be paid by Oscatello. That paragraph read with 18A.1 alleges that Kaupthing made circular book entries pretending they were part of larger receipts from Eliza and that this was part of a false picture by which Kaupthing and Robert Tchenguiz hoped to conceal the true extent of their financial difficulties from regulators and the markets.[28]I agree that the pleading is in need of clarification, but it does not seem to me that the central allegation is missing any material averment. It would be wrong in my judgment to refuse permission to amend on the basis of these objections.[29]Mr Trower raised a separate point in relation to the PPLs. Before Isis’ liquidator decided to raise, or had basis for raising, the pleas in the DAPOC, he had applied for and obtained summary judgment on the PPLs against Eliza, and was seeking to prove the judgment debt in the liquidation of Eliza. He submitted that Isis should not be allowed to pursue the amended pleas in the present case without withdrawing the proof, or at least amending it to make clear it was a contingent debt, dependent on Isis’ liquidator’s failure to have the relevant PPL set aside. Mr Lowe did not dissent from this being imposed as a condition, at least not with any enthusiasm. It seems to me that it is right to impose such a condition in the exercise of my discretion. The court ought not to allow or encourage the liquidator simultaneously to advance claims based on the PPL and seek to invalidate it, unless it is clear that the former is contingent on the failure of the latter.[30]Mr Trower also sought to challenge the allegation that the payment under clause 6 was never made in fact. My attention was drawn to a number of bank statements supposedly evidencing the payment of money. He submitted that there was no evidence that these were not genuine entries, and that there was therefore no evidence to support the allegation of non-payment. Isis’ liquidator’s case on this point is that the accounts of Isis have been reconstructed after the event, and Mr Lowe told me that the liquidator is not satisfied that the payments were in fact made. Moreover Isis’ alternative case is that any payments were entirely circular. I am unable to, and ought not to, resolve what is essentially a question of fact on an application of this nature.[31]I take next the allegation that the obligation to hold money on trust for Oscatello was an unlawful return of capital. The common law rule is that, absent specific statutory procedures such as a scheme or a winding up, a distribution of the company’s assets to a shareholder is a reduction of capital and is unlawful: Progress Property v Moore [2011] 1 WLR 1. For this purpose it is necessary to look at the substance of what occurred: the fact that a distribution of what is in substance capital is described as something else does not matter. Accordingly, Mr Trower submits that it is necessary to identify the Isis asset which Isis distributed, who effected the distribution, that the nature of what occurred was a distribution of capital and that the person who received the asset was a shareholder of Isis.[32]Here there is no doubt that the Isis asset said to have been distributed is the VER. The person alleged initially to have been entitled to receive the VER in the DAPOC is Oscatello. Oscatello is not and never was a shareholder of Isis. It is only if the distribution got as far as Kaupthing that there is an unlawful distribution to a shareholder. Mr Trower submits that the only way the distribution can get as far as Kaupthing is via Oscatello’s overdraft with Kaupthing. This he submits undermines and renders unarguable the claim that what occurred was a distribution to Kaupthing.[33]I am not persuaded by these submissions. The particulars given at paragraph 18B.1 seem to me to plead an adequate case that any moneys paid to Oscatello would, as Kaupthing must have known, immediately be forfeited to Kaupthing at their option because of the extent of Oscatello’s indebtedness to Kaupthing and their position as prioritised creditors. In this state of affairs, handing over an asset to Oscatello can realistically be argued to be a distribution to Kaupthing. Beyond that it is not necessary or proper for me to go.[34]I turn next to the allegations of breach of fiduciary duty and want of authority. These allegations are founded in large part on the pleaded allegation that the transaction represented by clause 6 was to the manifest disadvantage of Isis. This of course is not enough to get the allegation off the ground. It is necessary to identify the directors, to make specific allegations as to what the directors did or did not do, and why that amounted to breach. Moreover so far as Oscatello is concerned, it was necessary to allege that they had notice or knowledge of the breaches of duty.[35]Mr Trower made detailed submissions as to the particulars given in the DAPOC on these questions. He submitted that his clients were entitled to know all the facts, matters and circumstances said to render the transaction disadvantageous to Isis. He also drew attention to a number of inconsistencies in the pleading. I agree that the pleading of this aspect of the case requires further particularisation. However I am unable to accept that as it currently stands it does not enjoy a real prospect of success. The facts and matters pleaded did not readily admit of an innocent explanation.[36]Next I turn to the allegation that the clause 6 transaction was tainted by illegality. Mr Trower submitted that the pleading did not assert clearly that Oscatello was a party to the conspiracy, did not identify Oscatello’s acts of participation in the conspiracy and made no plea that Oscatello was a party to the conspiracy.[37]Taking these points in turn, paragraph 18F.1 alleges that Oscatello was party to a joint venture or enterprise between Kaupthing and TDT/Robert Tchenguiz, whereas 18F.4 alleges that the unlawful conspiracy, “in the premises”, was on the part of Kaupthing, Robert Tchenguiz and others. I agree that it should be made clear whether Oscatello are alleged to be a party to the conspiracy, but I do not think that this goes to the root of the case sought to be made out on pleading. If it is so alleged the pleading should also identify Oscatello’s acts in furtherance of the conspiracy, and whether it is alleged that Oscatello knew the purpose of the conspiracy. My provisional view is that the allegations in paragraph 18F.3 go a long way to suggesting that is so, but the matter should be made clear.[38]Lastly, in connection with the void equitable charge, Mr Trower submitted that it was not arguable that clause 6 created any more than a trust. I heard little by way of argument on this point which was not clearly foreshadowed in Mr Trower’s skeleton. The point seems to me to be a short and purely legal one, but I was not persuaded that I should refuse leave to amend on the basis of the submissions made, particularly given that I am going to grant permission to amend on the remainder of the grounds of invalidity alleged.

The Compromise Agreement

[39]Following the collapse of Kaupthing, TDT sought to remove assets from companies in the TDT group whose shares were charged to Kaupthing as security for loans. Kaupthing commenced proceedings in the BVI in November 2008 against the TDT trustees, as well as taking steps to enforce its security. In January 2009 TDT counterclaimed in the BVI proceedings bringing in ISIS as a second defendant. As a result, Isis sought anti-suit injunctions in England to prevent TDT’s counterclaims continuing against ISIS in BVI because of the existence of an exclusive jurisdiction clause in the Framework agreement in favour of the courts of England. This resulted in the commencement of proceedings in London referred to as the 600 claim, after its Chancery Division case number. In those proceedings Isis was also the claimant and Oscatello and Kaupthing were also the fifth and sixth defendants.[40]In the 600 claim Isis pleaded that:
“By these proceedings (and in further proceedings referred to below [the current action]) the claimant seeks a declaration that it is beneficially entitled to the Money in Court, and that no part of it is payable to Oscatello, whether under Clause 6 or at all.”
[41]Isis went on to say that the “principal ground” on which it contended that no part of the money in court was payable to Oscatello under clause 6 was that:
“the TDT Defendants (including Oscatello) are in material breach of numerous central provisions of the Framework Agreement, the proper performance of which was an essential condition of the operation of Clause 6.”
[42]In paragraph 89 of the pleading, under the heading “Declaratory Relief”, Isis says that it seeks a declaration that it is under no obligation to pay the VER to Oscatello. However, in the prayer, the declaration is stated in narrower terms: “A declaration … that by reason of the breaches of the Framework Agreement by the First to Fifth Defendants (or any of them) the Claimant is under no obligation (whether in contract or otherwise) to pay any sums by way of the "Violet Economic Return” under Clause 6 of the Framework Agreement to the Fifth Defendant and that the Money in Court should accordingly be paid to the Claimant as sole the beneficial owner thereof”. (emphasis supplied)[43]The 600 claim was compromised by an agreement dated 14th June 2010. At that stage the liquidator of Isis had of course not taken up the stance which he now takes in relation to the validity of the Framework Agreement. It is not seriously suggested that I can hold on this application that he was at that stage aware of the claims which could be made in that respect.[44]Clause 6 of the compromise agreement states that it is made “in full and final settlement of, and each Party hereby releases each and every other Party and forever discharges the Released Claims.”[45]Released Claims are defined in the following way:
“all those causes of action, claims, counterclaims, rights of set off, contribution or indemnity which arise out of or in connection with the facts and matters pleaded by and against the Parties in the BVI Proceedings, the First English proceedings and the Somerfield claim in the Icelandic Proceedings. For the avoidance of doubt, the parties may subsequently refer to the same facts and matters pleaded in [the above proceedings] in any other suit, but the causes of action contained in those proceedings are hereby released and no Party may seek relief on the same or any similar basis or seek to reopen those claims in any other way.”
[46]The “First English Proceedings” are defined as the 600 claim. The agreement does not purport to settle the 599 claim which at that stage was limited to the issue of construction.[47]Oscatello and Kaupthing contend that this release applies to the claim which Isis now seek to bring by amendment in the present action.[48]To be a “released claim”, the claim pleaded in the present case must be a cause of action or claim which “arises out of or in connection with the facts and matters pleaded by and against the parties in the previous proceedings”. But, as the “avoidance of doubt” sentence makes clear, it is open to a party to rely on pleaded facts from the cited proceedings, by inference, in other proceedings: it is the causes of action which are released, and relief cannot be sought on the same or any similar basis, or the claims reopened in any other way.[49]The construction of this definition divided the parties. There is also a dispute as to the relevance and admissibility of certain email communications said to have a bearing on the issue of construction. Moreover Mr Steinfeld QC for Kaupthing wished to draw my attention to a number of matters external to the compromise agreement which he contended were consistent with his construction. I have to remind myself that this is an application to amend the pleadings, not the trial of a preliminary issue.[50]Mr Lowe submits that the clause does not operate as a general release of all causes of actions and claims whether or not known to Isis. He submitted that the context made it clear that it was only the specifically pleaded claims which were being released. These did not include the proposed amended claims which were wholly or largely based on facts occurring before the conclusion of the Framework Agreement, and not based on facts pleaded in any of the cited proceedings. Both Mr Lowe and Mr Samek reminded me of the speech of Lord Bingham of Cornhill in BCCI v Ali [2002] 1 AC 251 at [17] where he said, after reviewing the authorities:
“I share their reluctance to infer that a party intended to give up something which neither he, nor the other party, knew or could know that he had.”
[51]Mr Trower and Mr Steinfeld submitted that what was specifically released by the compromise agreement was wider than the specific claim to invalidity of clause 6 by reason of material breach. The proposed amended claim arose out of or in connection with the facts and matters pleaded in the 600 claim, because it related to clause 6 of the Framework Agreement and Isis’ obligation to pay out the VER.[52]My conclusions are these. Whilst it is true that in the 600 claims ISIS were seeking a determination that Clause 6 of the Framework Agreement was not binding on them, the facts and matters relied upon to support that claim were wholly different from those now relied upon by Isis to support the current claim. In those circumstances it seems to me to be properly arguable that the proposed cause of action or claim does not arise out of or in connection with the facts and matters pleaded in the 600 claim. Those words seems to me to be capable of encompassing an insubstantial addition to the facts and matters relied on, but not the wholesale revision of the basis of the case which is propounded here.[53]Secondly, looking at the terms of the relief which was actually sought in the 600 claim, the declaration was specifically limited to a declaration that clause 6 had been discharged by breach. It is in my judgment properly arguable that the relief sought in the DAPOC is not sought, “on the same or any similar basis”. Likewise it is also properly arguable that Isis is not seeking to “reopen” the claim of discharge by breach “in any other way”.[54]I could of course, were the matter not dependent on any extrinsic evidence, come to a conclusion about construction on an application such as this. It does not seem to me, particularly in view of the attempt by both sides to refer to matters outside the four corners of the compromise agreement, that this is an appropriate case for me to do so.

Position of the seventh defendant

[55]Mr Steinfeld QC raised the question of whether, in the light of the proposed amended pleading, the representative defendant Mr Adalsteinsson should remain a party. He submitted that the sub-participants were merely unsecured creditors of Isis. There was no issue between the seventh defendant and Kaupthing which called for the Court’s determination. His continued presence in the action was simply calculated to increase costs and waste time. Oscatello adopted the same stance as Kaupthing.[56]There was no formal application before the court seeking to remove the seventh defendant as a party, but Mr Samek did not suggest that his clients were not able to deal with the point. CPR 19.2(3) provides that the court may order any person to cease to be a party if it is not “desirable” for that person to continue to be a party. Mr Samek submitted that it was not undesirable for his client to continue to be a party.[57]The sub-participants plainly have an interest, in a broad sense, in the outcome of the proceedings. Indeed they have played a role in persuading the liquidator of Isis to review his stance on the validity of the Framework Agreement. I agree with Mr Steinfeld that the court should be wary of allowing parties to be joined, and if joined allowing them to remain as parties, simply on the basis that the outcome of the litigation may have an unfavourable effect on unrelated claims which that party may have against one of the parties to the litigation. But the sub-participants are, it seems to me, much more closely involved in the subject matter of this litigation than that. I do not consider that their continued presence in the litigation is undesirable.

Conclusion

[58]I propose to allow the amendments, subject to the condition I have mentioned, and allow the seventh defendant to remain a party. At the conclusion of the hearing I indicated that I would simply hand down a judgment, subject to editorial correction, at 2 pm today. The parties should within 7 days exchange drafts of the consequential orders and further directions for trial which they seek, and then exchange written submissions on any disputed points, within 7 days thereafter. I will then decide any outstanding points on paper unless any party persuades me that an oral hearing is necessary. I should say that I have already had the benefit of a certain amount of advocacy indirectly aimed at the issue of costs.

Cited in 1 later judgment