“1. There shall be a hearing listed on 5, 6 and 7 October, with one day’s pre-reading on4 October 2022 , to hear the Claimant’s Continuation Application and the Defendants’ Discharge Application (“the October Hearing”). Subject to the final delineation to be made by the Judge hearing the October Hearing, that Hearing shall not include the Defendants’ jurisdiction challenges or related challenges to the WFO on the grounds of non-disclosure or lack of fair presentation regarding jurisdiction, which shall be deferred to a further hearing (see paragraph 3 below).”
“14.24 Parties must be realistic about the length of time required to determine applications. The court’s experience is that parties under-estimate the time required for pre-reading, for the hearing, or both, far more often than they over-estimate time. Where pre-reading or hearing time is under-estimated, the hearing may be adjourned and/or there may be costs sanctions. 14.25 If at any time either party considers that there is a material risk that the hearing of the application will exceed the time allowed, it must inform the court immediately.”
“47. Whilst fully aware of the dangers of turning the return date for a freezing order into a “mini trial” where matters which will be in contention in the main action are summarily considered and adjudicated upon without hearing important oral evidence and on a somewhat superficial basis, it seems to me that this cannot provide a claimant who has obtained a freezing order ex parte with a “full stop” argument where a defendant seeks to defend himself and put a wholly different complexion on a case from that as it was presented to the judge when the freezing order was obtained. In some cases, the material which the defendant can put before the court presents such a different picture and presents the case in such a different light that the judge on the return date, in order to do justice to the defendant, must take a view about the alternative pictures presented and whether, had the original judge been presented with the material now presented, he or she would have made the original order.”
“36. As long ago as 1990 Sir Nicolas Browne-Wilkinson V-C asked this court for guidance about the right approach to be taken to the inevitably lengthy hearings which were then growing in relation to non-disclosure in respect of freezing and search and seizure orders, see Tate Access Floors Inc v Boswell[1991] Ch 512 , 533H–534D. I am not aware that this court has ever answered that cri de coeur and we did not receive any argument which would enable us to do so authoritatively in the present case. The judge adopted the approach of Toulson J (as he then was) in Crown Resources AG v Vinogradsky (15 June 2001 ) for cases of any magnitude and complexity and I am content to do the same: ‘… issues of non-disclosure or abuse of process in relation to the operation of a freezing order ought to be capable of being dealt with quite concisely. Speaking in general terms, it is inappropriate to seek to set aside a freezing order for non-disclosure where proof of non-disclosure depends on proof of facts which are themselves in issue in the action, unless the facts are truly so plain that they can be readily and summarily established, otherwise the application to set aside the freezing order is liable to become a form of preliminary trial in which the judge is asked to make findings (albeit provisionally) on issues which should be more properly reserved for the trial itself (pages 4–5 of the transcript). Secondly, where facts are material in the broad sense in which that expression is used, there are degrees of relevance and it is important to preserve a due sense of proportion. The overriding objectives apply here as in any matter in which the Court is required to exercise its discretion (page 6). I would add that the more complex the case, the more fertile is the ground for raising arguments about non-disclosure and the more important it is, in my view, that the judge should not lose sight of the wood for the trees (page 7). In applying the broad test of materiality, sensible limits have to be drawn. Otherwise there would be no limit to the points of prejudice which could be advanced under the guise of discretion (page 22).” ‘… issues of non-disclosure or abuse of process in relation to the operation of a freezing order ought to be capable of being dealt with quite concisely. Speaking in general terms, it is inappropriate to seek to set aside a freezing order for non-disclosure where proof of non-disclosure depends on proof of facts which are themselves in issue in the action, unless the facts are truly so plain that they can be readily and summarily established, otherwise the application to set aside the freezing order is liable to become a form of preliminary trial in which the judge is asked to make findings (albeit provisionally) on issues which should be more properly reserved for the trial itself (pages 4–5 of the transcript). Secondly, where facts are material in the broad sense in which that expression is used, there are degrees of relevance and it is important to preserve a due sense of proportion. The overriding objectives apply here as in any matter in which the Court is required to exercise its discretion (page 6). I would add that the more complex the case, the more fertile is the ground for raising arguments about non-disclosure and the more important it is, in my view, that the judge should not lose sight of the wood for the trees (page 7). In applying the broad test of materiality, sensible limits have to be drawn. Otherwise there would be no limit to the points of prejudice which could be advanced under the guise of discretion (page 22).”
“• As with most jobs it starts with GT's director of development (Nick Clarke Note to DT: I am having coffee with Nick Clarke tomorrow but obviously do not plan on mentioning this case in any way) having a beer with a lawyer who mentioned the case. At the time GT was setting up its asset-recovery fund (GT now self-fund some of these cases) and GT thought this case would be ideal for their fund as the international bank (as opposed to the Indian ones) was very keen to progress the recovery and enforcement efforts. After that, Nick Wood (Partner at GT) had a couple of beers with the head of one of the consortium banks and they were able to secure the matter. • Even though the international bank is massively keen to press-ahead there was still a number of hurdles before things could get started (internal approvals/ T&Cs to be agreed etc.. which takes 3 or 4 months). Then the international banks said they wanted to add the Indian banks (approx. 14) to the claim — so GT had to carry out a number of trips to Mumbai and Delhi to meet with the Indian banks. Unfortunately — it's near impossible to meet with decision makers in Indian banks so GT felt a lot of time was wasted with indirect meetings and referrals up the chain. This took many weeks and every time GT thought they'd agreed something they would realize the agreement then needed to be vetted by countless individuals and go through a whole new approval process. • All the above, created a c. 12 month delay and the Claimants became concerned about limitation issues. • So there was a need to re-think the strategy to be able to proceed fast. The Indian banks did want to do this, they agreed with the strategy but they didn't want any active involvement or to sign a collaboration agreement. So, GT needed a new plan to lead the consortium without the Indian banks signing a collaboration agreement. GT was sure the Indian banks also didn't want to spend any money themselves — so they were pretty confident the Indian banks would not be taking any competing enforcement action. • GT finally understood that the route was via the UK derivative companies — these UK companies had gone through a solvent liquidation process in the UK and had been dissolved for a couple of years. • Accordingly, the new strategy was to restore the UK derivative companies then put GT in as liquidators of these companies. This was a better workable solution as all the Indian banks had to do was not object to the proposal to put GT in as liquidators (so no longer a need for the Indian banks to sign any type of collaboration agreement). • From the brief factual background presented — "any idiot could see this was an outright fraud" [direct quote]. So GT thought it would be pretty simple to establish + there was just a need to put the evidence in front of a judge and the latter would doubtlessly make the necessary orders. However, GT had not taken into account the full & frank disclosure obligation (+ recent caselaw about the granular level of disclosure that is required). This turned a relatively simple application for restoration and liquidation into a 150 page WS with$150k in legal spend.”
“87. The Respondents are all currently in the jurisdiction. Assuming they are present here when the Claim Form is served on them, the Court will (subject to any future application for a stay on grounds of forum non conveniens) assume jurisdiction over the claims.”
“MR JUSTICE EDWIN JOHNSON: Right, you were going to tell me about possible defences. Again, I don’t want to cut you short but I have read what you have to say about matters such as limitation, jurisdiction. Mr Diss quite fairly discusses some of the questions that are going through my mind in relation to sort of circuity of actions and the questions that I have just asked you. But I mean, as at presently advised, I can see that these might give rise to good defences to the claims or some of them, but they are not matters that are particularly troubling me at this stage. MR WILSON: I won’t −− MR JUSTICE EDWIN JOHNSON: I have read what you have to say. MR WILSON: The important thing is to record that your Lordship has −− because all of these have to be put to your Lordship as a matter of fair presentation.”
“The joint liquidators' investigations suggest that gold and jewellery produced by Winsome and Forever Precious using drawdowns under the Precious Metals Facilities from the Bullion Banks were sold, including to two Indian bullion firms named Raksha Bullion and Safari Bullion. The proceeds of those sales were, by means currently unknown, transferred to USD accounts at Banco Nacional Ultramarino in Macau held in the names of four of the Layer 1 Companies, namely Italian Gold, Al Alam, Al Mufied and Al Abia.”
“40.3. Save for Al Alam, Mr Obidah is (or was) a director and majority shareholder of all the Layer 1 Companies. 40.4. As regards Al Alam, its sole shareholder is (or was) a company registered in the Bahamas named Herald International Limited. Between5 July 2004 and18 December 2008 , one of Herald International Limited's directors was SM.”
“Investigation revealed that all the exports were made to related parties based in UAE. Statement of witnesses recorded in group cases reveal that the control of all the UAE buyers was in the hand of Shri Jatin R. Mehta and Smt. Sonia J. Mehta. The entire functioning of 13 defaulting companies was handled by the employees of Smt. Sonia J. Mehta who was owner of M/s Oriental Expression DMCC, Noble Jewellery LLC and Oriental Jewellery LLC. Important employees were Shri Amit Jitendra Shah, Shri Vastupal Shah, Shri Hitesh Shah, Shri Kamaludeen. These employees gave instructions to factory heads at Chennai and Cochin as to in which company's name the exports were to be made. Shri Amit Jitendra Shah, Shri Vastupal Shah, Shri Hitesh Shah who were the key employees of Shri Jatin Mehta have not been examined as they have not returned to India. Their LOC's have been opened and renewed from time to time.”
“• Investigation has revealed that the manufacturing heads of the company at MEPZ Chennai Shri Natrajan and Shri Ratheesh NC at CSEZ Cochin used to inform through Skype to the employees of Shri Jatin Mehta in Dubai or to Shri Hasmukh Shah/ Shri Kinjal Shah about the consignments ready for exports. The manufacturing heads of both the units used to receive instructions through Skype as to in whose name the exports were to the made. The purchase orders also used to be received through Skype after the gold was processed into coins or pendants. • In the normal course, business start with obtaining a purchase order from a buyer, placing of order containing details such as design, weight, specification of the product etc. • However, investigation has revealed that in this case it was the other way round. After processing the gold the manufacturing heads of units at Chennai and Cochin used to inform the employees of Shri Jatin Mehta in Dubai or to Mumbai office regarding the ready consignment. Therefore, it give rise to suspicion that there was some hanky-panky going on in these two companies.”
“The joint liquidators infer that the above de jure, de facto and shadow directors operated the Claimant Companies pursuant to instructions that ultimately emanated from the Defendants, such that each of the Defendants were also shadow directors of the Claimant Companies.”
“It might be said by the Respondents that there is no direct evidence of their involvement, or of the involvement of certain of them, in the Alleged Winsome Fraud. In particular, I acknowledge that the instructions given to the Amicorp Group to launder the proceeds of the fraud were given by and/or on behalf of Mr Obidah, and that there is limited direct evidence of Mr Obidah's own instructions emanating from JRM, SM, VJM or SJM in (or, as regards the latter three, of their involvement in the Winsome Default itself).”
“123.For the purposes of assessing this part of the case, the Court does not need to make a determination as to whether or not Ds 1, 2 and 4 are correct to say that the legal flaws below are such that either (i) there is no good arguable case on the claims, or (ii) that Ds would succeed at a trial in defeating the claims. The primary question, rather, is whether or not Cs ought to have disclosed the legal issues. Ds 1, 2 and 4’s position is that each of the issues identified below are individually material; and cumulatively they are highly material. Had they been fairly presented, the Court would have appreciated that, as a result of the Grant Thornton Scheme, the claims advanced are legally misconceived and represent an attempt to force a square peg into a round hole. 124. Although that is the primary question, it is submitted that the Court is also entitled to go further. The issues identified below are, as well as being difficulties which should have been identified to the Court, of such a fundamental and unanswerable nature that they undermine Cs’ purported good arguable case altogether.”
“MR WILSON: Thank you very much. So I am not proposing to go through each of the causes of action and explain their legal basis and so on again, because that is dealt with very fully in the skeleton. What I was going to focus on is some of the potential defences that might arise and how they may be overcome, and also any questions that your Lordship has about individual causes of action. MR JUSTICE EDWIN JOHNSON: The principal question I have was this: as I understand it, it is said that the respondents, that is the −− treating the respondents as the four members of the Mehta family who, as I understand it −− Mr Obidah, as I understand it, is not a respondent to this application −− MR WILSON: Yes, correct. MR JUSTICE EDWIN JOHNSON: −− although he is an intended defendant. MR WILSON: Correct. MR JUSTICE EDWIN JOHNSON: It is said that the respondents were shadow directors −− MR WILSON: Yes. MR JUSTICE EDWIN JOHNSON: −− of these companies, using company” to include the LLP. So I follow how causes of action could be said to arise on the basis of the alleged conduct of the respondents as shadow directors. What I didn’t really follow was why −− how proprietary claims would arise, because as I understand your case the claimant companies, that is the first six intended claimants, were effectively used as the Layer 2 conduits – MR WILSON: Correct.”
“MR JUSTICE EDWIN JOHNSON: −− for money. So one wouldn’t expect, would one, those claimant companies to have proprietary claims? MR WILSON: Well, that certainly might be said against us. But the way −− MR JUSTICE EDWIN JOHNSON: I am not sure −− I am sorry to cut across you, that doesn’t knock out all your causes of action. I appreciate that. But when I read the judgment of His Honour Judge Hodge and His Honour Judge Pearce I found what I expected to see there, which was consideration of the claims of Standard Chartered Bank −− MR WILSON: Yes, of course. MR JUSTICE EDWIN JOHNSON: −− which is the entity which has effectively lost the money here. MR WILSON: Yes. MR JUSTICE EDWIN JOHNSON: But if the claimant companies have just acted as conduits I was struggling to see how they would have proprietary claims or claims in knowing receipt, or anything like that.”
“MR WILSON: Yes, we have thought about that. It may be a somewhat technical point. The short answer is there is no conceptual difficulty with having different layers of trusts. In other words, A could be a trustee for B, who is a trustee for C, and in short, that is how we would say this works. We would absolutely accept that anything we recover on a proprietary claim would have to be passed further up the chain on a proprietary basis to the true owners, legal owners. MR JUSTICE EDWIN JOHNSON: Yes. MR WILSON: But that doesn’t mean that someone in the chain can make that claim. It is not a defence to say to the recipient, for example, of stolen monies to say, well, you, layer B, can’t claim against me because you yourself would owe the money by way of a proprietary obligation to persons above you. So from the perspective as between ourselves and the recipients down the chain, we would seek to say that they have no beneficial entitlement to the monies that they held, but in respect of those above us we would accept that we don’t have a beneficial entitlement over −− that we would merely be obtaining as essentially nominees, as bare trustees, and to pay those above, to those who really owned the money above us. And that is the intention.”
“In May 2021, the IED disclosed to SCB/SCB India certain documents pertaining to the criminal proceedings in India, which are exhibited at [CD1/1327-1679] (the IED File). My statements in this section Cl derive from my review of the IED File.”
“MR JUSTICE EDWIN JOHNSON: Right, you were going to tell me about possible defences. Again, I don’t want to cut you short but I have read what you have to say about matters such as limitation, jurisdiction. Mr Diss quite fairly discusses some of the questions that are going through my mind in relation to sort of circuity of actions and the questions that I have just asked you. But I mean, as at presently advised, I can see that these might give rise to good defences to the claims or some of them, but they are not matters that are particularly troubling me at this stage. MR WILSON: I won’t −− MR JUSTICE EDWIN JOHNSON: I have read what you have to say. MR WILSON: The important thing is to record that your Lordship has −− because all of these have to be put to your Lordship as a matter of fair presentation.”
“For personal and family reasons, I had, after the resignation/s, taken steps for acquiring citizenship of St. Kitts & Nevis and surrendered my Indian citizenship as required in law.”
“Quoting more or less directly from the skeleton argument filed in support of the Application, the Application and the underlying proceedings which are to be issued are said to be part of a global asset tracing and recovery exercise, arising out of what is described as a very substantial and sophisticated suspected international fraud perpetrated by the Mehta family. The alleged fraud is said to have involved the misappropriation of approximately US$1 billion obtained by way of precious metal/bullion loan facilities, which are said to have been laundered through layers of entities or companies in various jurisdictions, including the Claimant Companies, for the ultimate benefit of the Mehta family and their businesses.”
“It might be said by the Respondents that there is no direct evidence of their involvement, or of the involvement of certain of them, in the Alleged Winsome Fraud. In particular, I acknowledge that the instructions given to the Amicorp Group to launder the proceeds of the fraud were given by and/or on behalf of Mr Obidah, and that there is limited direct evidence of Mr Obidah's own instructions emanating from JRM, SM, VJM or SJM in (or, as regards the latter three, of their involvement in the Winsome Default itself).”
“102. Mr Boyle drew my attention, with appropriate diffidence, to a decision of his own, sitting as a deputy judge of the Chancery Division, as to the approach to be taken by the court in the event that there is culpable non-disclosure. In The Arena Corp Ltd v Schroeder[2003] EWHC 1089 (Ch) at [213], he summarised the main principles which should guide the court in the exercise of its discretion as follows: “(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial. (2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order. (3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure. (4) The Court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction. (5) The Court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance. (6) The Court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle. (7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice. (8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence. (9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.” 103. I regard that as a helpful review of the applicable principles, subject to the overriding principle, reflected in proposition (9), that the question of whether, in the absence of full and fair disclosure, an order should be set aside and, if so, whether it should be renewed either in the same or in an altered form, is pre-eminently a matter for the court’s discretion, to which (as Mr Boyle observes at [180]) the facts (if they be such) that the non-disclosure was innocent and that an injunction or other order could properly have been granted if the relevant facts had been disclosed, are relevant. In exercising that discretion the court, like Janus, looks both backwards and forwards.” “(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial. (2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order. (3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure. (4) The Court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction. (5) The Court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance. (6) The Court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle. (7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice. (8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence. (9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.”
“104. The court will look back at what has happened and examine whether, and if so, to what extent, it was not fully informed, and why, in order to decide what sanction to impose in consequence. The obligation of full disclosure, an obligation owed to the court itself, exists in order to secure the integrity of the court’s process and to protect the interests of those potentially affected by whatever order the court is invited to make. The court’s ability to set its order aside, and to refuse to renew it, is the sanction by which that obligation is enforced and others are deterred from breaking it. Such is the importance of the duty that, in the event of any substantial breach, the court strongly inclines towards setting its order aside and not renewing it, so as to deprive the defaulting party of any advantage that the order may have given him. This is particularly so in the case of freezing and seizure orders. 105. As to the future, the court may well be faced with a situation in which, in the light of all the material to hand after the non-disclosure has become apparent, there remains a case, possibly a strong case, for continuing or re-granting the relief sought. Whilst a strong case can never justify non disclosure, the court will not be blind to the fact that a refusal to continue or renew an order may work a real injustice, which it may wish to avoid. 106. As with all discretionary considerations, much depends on the facts. The more serious or culpable the non-disclosure, the more likely the court is to set its order aside and not renew it, however prejudicial the consequences. The stronger the case for the order sought and the less serious or culpable the non-disclosure, the more likely it is that the court may be persuaded to continue or re-grant the order originally obtained. In complicated cases it may be just to allow some margin of error. It is often easier to spot what should have been disclosed in retrospect, and after argument from those alleging non-disclosure, than it was at the time when the question of disclosure first arose.”
“In these circumstances, I consider that the right course is to adopt the test of a good arguable case, in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the Judge believes to have a better than 50 per cent. chance of success.”
“25. The second comment relates to the judge’s decision that KK had ‘a much better argument’ than Mr Arip. I would, with respect, say that this sets the hurdle a little too high. It was established in Pertamina[1978] QB 644 that the appropriate test to be met by a claimant seeking a freezing injunction was that of ‘good arguable case’. We were not referred to any authority which has changed that test. ‘Much the better of the argument’ has recently emerged as a test on applications for service out of the jurisdiction. But I see no reason why that test should apply to freezing injunctions where ex hypothesi (or subject to any jurisdictional challenge) the defendant is properly before the court. But the fact that the judge may have applied a slightly higher hurdle than he need have done does not in any way affect his conclusions.”
“The limitations inherent in the interlocutory process may vary from case to case according to the subject matter. Where the subject matter involves questions of fact on which the evidence is incomplete and contradictory, it may be very difficult for a court to form even a preliminary view as to the parties’ rival strengths. Reading Waller LJ’s judgment as a whole, I do not understand him to be suggesting that in such a case the court has to be satisfied that the evidence on the claimant’s side is stronger than the evidence on the defendant’s side in order for the claimant to make out a good arguable case, for that would be in effect to apply the civil standard of proof, which he emphasised is not applicable at the interlocutory stage. However, where the claim depends on the construction of a contractual document on which there is detailed argument at the inter partes stage, a court may well reach a conclusion that one side has a much better argument than the other, although it must remember that the ultimate decision would belong to the court of trial or arbitral tribunal.”
“15 In these circumstances I hold that I am free to follow Toulson J in the Petroleum Investment Co Ltd case [2002] 1 All ER (Comm) 124 and the indications in the Court of Appeal in the Kazakhstan Kagazy plc case [2014] 1 CLC 451 and that I am not obliged to follow Roth J and Mr Sutcliffe in applying the “much the better of the argument” test to the question whether a good arguable case has been shown on the merits. In the case of purely factual questions, I consider that it is sufficient for the claimant to meet the traditional test laid down by Mustill J in the Ninemia Maritime Corpn case that the claimant needs to show a good arguable case in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success. Indeed I would regard it as wholly invidious in a case of this type, which is likely to turn largely on the credibility of the principals on each side and their recollections of oral conversations, for a judge faced with nothing other than the pleaded cases and assertions that each side’s pleaded case represents the truth, to have to form a view as to where the better of the argument on such issues might lie, let alone where much the better of the argument might lie. I find myself completely incapable, and indeed I would regard it as wholly inappropriate, to judge such matters on the basis of what are at this stage hotly disputed allegations on each side.”
“57 The judge applied a two-part test. First, he asked whether the claimant had demonstrated a good arguable case. In this he seemed to equate the test with that for summary judgment. Second, he went on to ask whether the claimant had “the better and more plausible” argument. In the light of case law as it has evolved it was common ground between the parties before us that this two-part approach was incorrect and that in this respect the judge erred. 58 Over many years the courts have expressed the view that the determination of disputes about jurisdiction should be determined with despatch. They are a (frequently costly and time consuming) distraction from the main event, which is the determination of the substance of the dispute and not where its adjudication takes place. The courts have however struggled to find a formulation which encapsulates in readily workable language what the test is and how it should be applied. 59 A test intended to be straightforward has become befuddled by “glosses”, glosses upon glosses, “explications” and “reformulations”
“62 I turn now to Brownlie[2018] 1 WLR 192 . There Lord Sumption JSC (with whom Lord Hughes JSC agreed) explained that the starting point was the judgment of Waller LJ in Canada Trust Co v Stolzenberg (No 2)[1998] 1 WLR 547 (“Canada Trust”) who had construed the “good arguable case” test as including within it the relative concept of who had “much” the “better argument”
“An attempt to clarify the practical implications of these principles was made by the Court of Appeal in Canada Trust Co v Stolzenberg (No 2)[1998] 1 WLR 547 . Waller LJ, delivering the leading judgment observed at p 555: “ “Good arguable case” reflects... that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i e of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”
“ “Good arguable case” reflects... that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i e of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”
“70 An opportunity to clarify the test arose in Goldman Sachs[2018] 1 WLR 3683 . Lord Sumption JSC (giving a judgment with which Lord Hodge, Lady Black, Lord Lloyd-Jones JJSC and Lord Mance agreed), essentially repeated his formulation in the Brownlie case. To the extent that there was disagreement in Brownlie about the reformulation of the Canada Trust test the Supreme Court has now spoken with a single voice and the route forward lies with that reformulation. In para 9 Lord Sumption JSC stated: “This is, accordingly, a case in which the fact on which jurisdiction depends is also likely to be decisive of the action itself if it proceeds. For the purpose of determining an issue about jurisdiction, the traditional test has been whether the claimant had “the better of the argument” on the facts going to jurisdiction. In Brownlie v Four Seasons Holdings Inc[2018] 1 WLR 192 , para 7, this court reformulated the effect of that test as follows: “(i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”
“(i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”
“37. There has been much discussion of the meaning of the ‘good arguable case’ test since Mustill J’s well-known observation in Ninemia Maritime Corp v Trave Schiffahrts GmbH (The Niedersachsen) [1983] 2 Ll Rep 600 at 605, namely that a good arguable case is a case ‘which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success’. 38. The ‘good arguable case’ test was the subject of a comprehensive review by the Court of Appeal recently in Kaefer v AMS[2019] EWCA Civ 10 ; [2019] 1 CLC 143 in the context of jurisdictional gateways. Green LJ (who gave the leading judgment, Davis and Asplin LJJ concurring) conducted a magisterial analysis of the recent authorities, including Brownlie v Four Seasons Holdings[2017] UKSC 80 ; [2018] 2 CLC 121 and Goldman Sachs International v Novo Banco SA[2018] UKSC 34 ; [2018] 2 CLC 174. He observed at [59] that a test intended to be straightforward ‘had become befuddled by “glosses”, glosses upon glosses, “explications” and reformulations”.’ The central concept at the heart of the test was ‘a plausible evidential basis’ (see paras [73]‒[80]).”
“119 I am in something of a fog as to the difference between an “explication” and a “gloss”
“31. I respectfully agree with, and endorse, what was stated in the interlocutory written observations (cited in para 5 above) of Rix LJ, who has unrivalled experience in this field. In the light of the increasing sophistication of fraudsters, and their extensive use of companies and other entities to mask their activities and assets, the courts should adopt a robust and realistic approach to technical points of substantive law or evidence raised against the grant of a freezing order, in cases where there is good reason to believe that fraud has occurred. Having said that, a freezing order can have very serious adverse effect often over a long period, sometimes even financial ruin, for the individual or company against whom it is made. The court should be satisfied not only that there is a properly arguable case against the defendant and a risk of dissipation or hiding of assets, but also as to the proportionality of the order, and it should be especially concerned about making the order when there seems to be little real value in the cross-undertaking.”
“5. On considering Finurba’s application for permission to appeal on the papers, Rix LJ ordered that the application be heard by a full court, with the appeal to follow immediately if permission was given. He was concerned that the Judge may have taken too strict or technical a view of the legal position “where a fraudster has used companies which he controls to hide or moneylaunder the proceeds of fraud”, particularly given that “the various companies are all parties to the action”.”
“42. Before considering the adequacy of the pleading it is necessary to note what the law requires in this regard. In Portland Stone Firms Limited and others v Barclays Bank and others[2018] EWHC 2341 (QB) Stuart-Smith J. referred, at paragraph 26, to “many other decisions of high authority which establish that pleadings of fraud should be subjected to close scrutiny and that it is not possible to infer dishonesty from facts that are equally consistent with honesty”
“The Claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence.” “The Claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence.”
“The Promoter & Guarantor (and former Chairman and Managing Director), Mr Jatin Mehta, has contended, in e-mails to one of the whole-time directors of the company as also in communications to Punjab National Bank that he was not involved in day-to-day management of the company since April 2011. The Board respectfully disagrees with his contentions. Though Mr Jatin Mehta is not formally on the Board of the Company, he had been and is involved in its affairs and all key decisions are subject to his informal concurrence.” “We have been given to understand by the banks that the Promoter & Guarantor, Mr Jatin Mehta, has claimed that he was not involved in day-to-day management of the Company since April 2011, the said contention, however, is untrue. Though Mr Jatin Mehta is not formally on the Board of the Company, he had been and is at the helm of the affairs.”
“Investigation revealed that all the exports were made to related parties based in UAE. Statement of witnesses recorded in group cases reveal that the control of all the UAE buyers was in the hand of Shri Jatin R. Mehta and Smt. Sonia J. Mehta. The entire functioning of 13 defaulting companies was handled by the employees of Smt. Sonia J. Mehta who was owner of M/s Oriental Expression DMCC, Noble Jewellery LLC and Oriental Jewellery LLC. Important employees were Shri Amit Jitendra Shah, Shri Vastupal Shah, Shri Hitesh Shah, ShriKamaludeen. These employees gave instructions to factory heads at Chennai and Cochin as to in which company's name the exports were to be made. Shri Amit Jitendra Shah, Shri Vastupal Shah, Shri Hitesh Shah who were the key employees of Shri Jatin Mehta have not been examined as they have not returned to India. Their LOC's have been opened and renewed from time to time.”
“5. Al Noora FZE is not and has never been legally or beneficially owned by me and I have not otherwise had any control over or been involved in the management of that entity at any time. I confirm that I do not know the current whereabouts (or current holders) of the USD 650.85m allegedly received by Al Noora FZE between October 2012 and May 2013, referred to in paragraph 5(a) of the Disclosure Order.”
“215. As for the monies paid to the UAE Companies, the great majority went to Al Noora which is nothing to do with the JD Respondents. To the extent that any monies derived from the UAE Companies was later paid to entities in which the JD Defendants had an interest, such monies were paid pursuant to legitimate transactions, and principally derivatives trading conducted by Mr Amit Shah who at the time operated a proprietary derivatives and hedging business for some members of the Mehta family.”
“1. This is an appeal by Ms Sariah Smalley, the wife of Mr Graham Gutteridge. Both of them were defendants in a derivative action brought by the claimant, Bracken Partners Ltd (Bracken), suing on its own behalf and on behalf of all the other shareholders in a company called Eye Group Ltd (EGL), except Mr Gutteridge, to ascertain the beneficial ownership of a house acquired in the name of Ms Smalley, but with the use of money not belonging to her. 2. EGL is only one of three relevant companies of which Mr Gutteridge is a director. All three companies were indirectly implicated in the acquisition of the house in the name of Ms Smalley. EGL, an insolvent private company under the control of Mr Gutteridge, was compulsorily wound up on27 November 2002 . It was joined as a defendant in the action brought on its behalf. The second company, which was owned and controlled by Mr Gutteridge, was GMG Management Ltd (GMG). It was also joined as a defendant. The third company was Non-League Media plc (NLM), a public listed company, of which Mr Gutteridge was Chairman. It has been in administration since25 June 2002 . It is not a party to the proceedings. Although it was aware of them, it has never sought to be joined as a party. Its position, as explained by the administrators in correspondence, was that it would be bound by the judgment of the court in the proceedings, but reserved its rights against EGL in respect of any claim which NLM might have to the sums recovered from the defendants by Bracken EGL. More recently the solicitors for the administrators of NLM have made it clear that the net proceeds of sale of the house, which have been paid into court (£212,000 ), are the property of NLM and that they intend to recover that sum as against Ms Smalley, who has admitted NLM’s claim.” “7. The Property was transferred into the name of Ms Smalley. The sources of the purchase price of£499,500 were as follows: (1) On25 August 2000 the sum of£272,000 was transferred from the bank account of NLM (a) to the bank account of EGL, then (b) to the bank account of GMG and then (c) to the solicitors acting for Ms Smalley. The transfers were arranged by Mr Gutteridge, who controlled EGL and GMG. Ms Smalley accepts and asserts that the sum was misappropriated by Mr Gutteridge from the bank account of NLM and was used to purchase the Property. The proper claimant was, she contends, NLM: only it, and not EGL, was entitled to an equitable interest in the Property. EGL only ever had a bare title to the money for an instant, holding it on a resulting or constructive trust for NLM. GMG held it on a constructive trust for NLM, as did Ms Smalley. EGL had no beneficial interest in the money. NLM remained the beneficial owner throughout. EGL was not therefore entitled to any beneficial interest in the Property. The deputy judge ought to have dismissed the action and this court should allow the appeal. (2) The sum of£220,000 was provided by way of a loan by Woolwich plc secured by a mortgage on the Property. (3) The balance of£7,500 was provided by Ms Smalley from her own funds.”
“28. Ms Smalley's primary case can be stated very simply. She accepts that the money was misappropriated from NLM, and that if NLM were to make a claim against her she would have no defence to that claim. She accepts that, as a matter of law, she was a volunteer when she received the money. She accepts that the money was in EGL's bank account, although she says that it remained there for only a very brief time (a “scintilla temporis” in Mr Kremen's phrase). She accepts that the money was misappropriated from EGL's account, and, thereafter, from GMG's account, before it arrived in the Solicitors' account for the purpose of the purchase of the property. She contends that the money remained NLM's money throughout the various transactions: NLM was the only entity beneficially entitled to it, and EGL was never beneficially entitled to it. Thus, she submits, this claim, whether Bracken's derivative claim or EGL's direct claim, and this application, must fail.”
“29. It is fundamental to that submission that EGL never acquired any interest in the money, whether as against NLM or against GMG or Ms Smalley. I reject that submission. When the money was misappropriated from NLM's account a trust arose in favour of NLM in respect of that money. When the money arrived in EGL's account it became mixed with the monies in that account. We are not here considering a specific asset, such as a bag of coins, but a transfer of funds from one account into another account. Once mixed in EGL's account, the money, as it is described, became an asset of EGL, no matter how short a time it spent in that account. EGL was under an obligation to account to NLM in respect of that money, as it had no right to it. EGL held the money on trust for NLM. 30. The same reasoning will apply to the subsequent transfers of the money until it was paid over to the vendor of the property. The vendor took without notice of the misappropriation, and so is under no obligation to account or as trustee. However, as between NLM, EGL, GMG and Ms Smalley, each prior recipient has a better title or claim to the money, and to an account for it, than the subsequent recipient, and each subsequent recipient is required to account to the prior recipient for it.” “32. There can be no doubt that NLM's equity takes priority over that of BGL. However, if Ms Smalley has any interest in the property it is a later interest than that of EGL. Consequently, EGL's interest takes priority over any interest that Ms Smalley may have. As between NLM and EGL, NLM has consented to EGL taking these proceedings in priority to it.”
“[EGL] …is beneficially entitled to 39/40th of the equity of redemption in the house and property known as 52 Chatsworth Gardens London W3 9LW [the Property], held in the name of the Second Respondent [Ms Smalley] and that the Second Respondent is beneficially entitled to 1/40th of the equity of redemption in the Property.”
“10. Mr Tager contended that the action had been brought to establish a proprietary interest in the Property; that only NLM could assert such a claim against Ms Smalley, as the sum of£272,000 had been misappropriated from the bank account of NLM; that EGL received that sum as a knowing recipient and assistant to its misappropriation, giving rise to a trust (resulting or constructive) in favour of NLM, with EGL having only a bare legal title; that the money was never an asset of EGL; that when the money was transferred to GMG with full knowledge of the relevant facts, that gave rise to a constructive trust also in favour of NLM; that a similar situation arose when Ms Smalley received the money from GMG; and that nothing occurred at any stage which could have given rise to a claim by EGL to a beneficial interest under a resulting or constructive trust. NLM remained throughout the only beneficiary under a trust of the money and alone had the right in equity to enforce against Ms Smalley a proprietary interest in the Property. 11. Mr Tager cited a number of recent authorities in support of his analysis: Westdeutsche Landesbank v. Islington BC[1996] AC 669 ; Twinsectra Ltd v. Yardley[2002] 2 AC 164 ; Foskett v. Mc Keown[2001] AC 102 ; and J Harrison (Properties) Ltd v. Harrison(2000) BCC 729 . He submitted that the judge had wrongly applied to the field of equitable proprietary interests the doctrine of relative title, which properly belonged to the law of title to land and chattels, and not to the field of equitable interests in property. EGL simply had no right to bring the action against Ms Smalley for a proprietary right and should be liable to pay all the costs.”
“14. It is also clear that everyone in the chain of payments, except the vendor of the Property, who was a bona fide purchaser for value without notice, was a volunteer with knowledge (via Mr Gutteridge) that the money received was paid out of NLM’s bank account other than for the purposes of the company and in breach of Mr Gutteridge’s fiduciary duties. So EGL, GMG and Ms Smalley had no right to retain that sum as against NLM. The payments of that sum out of the bank accounts of EGL and then GMG were misappropriations of the sums in their respective bank accounts made on the direction of Mr Gutteridge for purposes other than those of each company (i.e. for the personal benefit of Ms Smalley and himself) and therefore in breach of fiduciary duty. 15. In those circumstances, EGL had a sufficient interest to support proceedings against Ms Smalley to establish that she was not, as she originally claimed to be, the sole beneficial owner of the Property and for a declaration as to the beneficial interests in it. In my judgment, issues as to relative title and the law governing the availability of proprietary and personal claims, tracing and priority are unnecessary complications of a plain case. They do not arise for decision, it being agreed that Ms Smalley held the Property on trust and that NLM was ultimately entitled to a 39/40 th beneficial interest in it. 16. The case turns simply on issue of EGL’s standing to bring the proceedings against Ms Smalley. That issue is now only relevant to the question of the costs of the action. The deputy judge was correct in treating this as a case suitable for summary treatment. EGL had sufficient standing to bring the proceedings because the circumstances in which it received the sum of£272,000 from NLM and then paid it to GMG made it personally liable to NLM for the equitable wrongs of dishonest participation in breaches of fiduciary duty by Mr Gutteridge’s misapplication of NLM’s funds and accordingly accountable to it in equity. In these circumstances EGL had a real and legitimate interest (a) in securing a declaration from the court that Ms Smalley held the property on trust and (b) in enabling the beneficial interest in it to be restored to its rightful owner.”
“30. It is beyond argument that the equitable proprietary interest in the money was at all times vested in NLM. It never passed to Eye Group [EGL], or to the intermediary or to Mrs Smalley. All that did pass was the legal title to be held at each stage on trust for NLM. Since from the passage in Lord Millett’s speech cited above a claimant “will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset” the most that Eye Group could justify would be a claim to legal title. Eye Group never had any beneficial interest in the money either in its original or substituted form and had no standing to claim a beneficial interest in its own behalf. Any standing it might have would be as trustee of the money and as such liable to account to NLM. Hence the most that Eye Group could hope to achieve by its claim would be a declaration and order as is now agreed to be appropriate.”
“A typical case of a voidable contract induced by deceit is one in which C overpays for a house as the result of a fraudulent mis[re]presentation by D as to its physical condition. In such a case, when C pays over the purchase price he intends D to become the legal and beneficial owner of it, as D does; and D has a like intention in relation to the house when he assures it to C on completion. The contract remains voidable despite completion; but until it is avoided those respective beneficial entitlements to price and house remain the same. Mr Smith’s submission involves a reversal of that ordinary principle. On his argument, as from the moment of completion D becomes a trustee of the purchase money for C, and presumably C becomes a trustee of the house for D, since C cannot at the same time be beneficially entitled to both house and price. Mr Smith’s submission to the effect that D becomes a trustee of the money for C at the moment it is paid over, and that in the present case Westland or WIB became a trustee of the money for Mr Mimran immediately the money was advanced, is, in my judgment, incorrect. What the position is when and if, on discovery of the fraud, C elects to rescind the contract of course raises a different question.”
“(1) In the Companies Acts “shadow director”, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.”
“(5) The general duties [the general duties specified in Sections 171-177 of theCompanies Act 2006 ] apply to shadow directors where, and to the extent that, the corresponding common law rules or equitable principles so apply.”
“(5) The general duties apply to a shadow director of a company where and to the extent that they are capable of so applying.”
“142. In all the circumstances, there seem to me to be a number of reasons for thinking that shadow directors commonly owe fiduciary duties to at least some degree: (i) A shadow director will have assumed to act in relation to the company’s affairs (to adapt Lord Browne-Wilkinson’s words in White v Jones (above) and to ask the de jure directors to exercise powers that exist exclusively for the benefit of the company. (ii) A person who gives directions or instructions to a company’s de jure directors in the belief that they will be acted on can fairly be described as assuming responsibility for the company’s affairs, at least as regards the directions or instructions he gives. (iii) Although Parliament has not designated shadow directors as directors for all purposes in the Companies Acts [the British position seems to differ in this respect from that in Australia: sees.60 of Australia’s Corporations Act 1989 ,section 9 of the Corporations Act 2001 and Australian Securities Commission v AS Nominees Ltd (1995) 18 A.C.S.R. 459, it has provided for important consequences to flow from the status]. For example, a shadow director is treated as a director in the context of Ch.4 of Pt 10 of theCompanies Act 2006 (transactions with directors requiring approval of members) and can be the subject of proceedings under theCompany Directors Disqualification Act 1986 (see ss.6(3C) and 8(1)) and held liable for wrongful trading (sees.214(7) of the Insolvency Act 1986 ). Such provisions presumably reflect a perception that a shadow director can bear responsibility for a company’s affairs. (iv) There is a compelling analogy with the position of promoters. Promoters owe fiduciary duties as a result of their acceptance and use of powers “which so greatly affect the interests of the corporation”
“34 Either or both counsel for Mr Deverell and Mr Hopkins accepted that the instructions or directions did not have to cover the whole of the company's activities but must cover at least those matters essential to the corporate governance of a company including control of its financial affairs. They also accepted that the label attached to the communications from the shadow to the board were immaterial provided that the communication was understood or expected by both giver and receiver to be followed by the latter.”
“35 I propose to express my conclusions on these and other issues in a number of propositions, (i) The definition of a shadow director is to be construed in the normal way to give effect to the parliamentary intention ascertainable from the mischief to be dealt with and the words used. In particular, as the purpose of the Act is the protection of the public and as the definition is used in other legislative contexts, it should not be strictly construed because it also has quasi-penal consequences in the context of theCompany Directors Disqualification Act 1986 . I agree with the statement to that effect of Sir Nicolas Browne-Wilkinson V-C in In re Lo-Line Electric Motors Ltd 11988] Ch 477, 489. (2) The purpose of the legislation is to identify those, other than professional advisers, with real influence in the corporate affairs of the company. But it is not necessary that such influence should be exercised over the whole field of its corporate activities. I agree with the statements to that effect of Finn J in Australian Securities Commission v AS Nominees Ltd, 133 ALR 1, 52.-53 and Robert Walker LJ in In re Kaytech International pic[1999] BCC 390 , 402. (3) Whether any particular communication from the alleged shadow director, whether by words or conduct, is to be classified as a direction or instruction must be objectively ascertained by the court in the light of all the evidence. In that connection I do not accept that it is necessary to prove the understanding or expectation of either giver or receiver. In many, if not most, cases it will suffice to prove the communication and its consequence. Evidence of such understanding or expectation may be relevant but it cannot be conclusive. Certainly the label attached by either or both parties then or thereafter cannot be more than a factor in considering whether the communication came within the statutory description of direction or instruction. (4) Non-professional advice may come within that statutory description. The proviso excepting advice given in a professional capacity appears to assume that advice generally is or may be included. Moreover the concepts of "direction" and "instruction" do not exclude the concept of "advice" for all three share the common feature of "guidance". (5) It will, no doubt, be sufficient to show that in the face of "directions or instructions" from the alleged shadow director the properly appointed directors or some of them cast themselves in a subservient role or surrendered their respective discretions. But I do not consider that it is necessary to do so in all cases. Such a requirement would be to put a gloss on the statutory requirement that the board are "accustomed to act" "in accordance with" such directions or instructions. It appears to me that Judge Cooke, in looking for the additional ingredient of a subservient role or the surrender of discretion by the board, imposed a qualification beyond that justified by the statutory language.”
“(1) This section applies if in the course of the winding up of a company it appears that a person who— (a) is or has been an officer of the company, (b) has acted as liquidator or administrative receiver of the company, or (c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. (2) The reference in subsection (1) to any misfeasance or breach of any fiduciary or other duty in relation to the company includes, in the case of a person who has acted as liquidator of the company, any misfeasance or breach of any fiduciary or other duty in connection with the carrying out of his functions as liquidator of the company. (3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him— (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or (b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.” (a) is or has been an officer of the company, (b) has acted as liquidator or administrative receiver of the company, or (c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or (b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.”
“The range of persons against whom thes.212 of the Insolvency Act 1986 procedure can be used is wide. In addition to both executive and non-executive directors, and others whose position places them within the scope of the expression “officer of the company”, various other degrees of involvement in the conduct of the company’s affairs will be capable of bringing a person within the broad terms of subs.(1)(c), which apply to any person who “is or has been concerned, or has taken part in, the promotion, formation or management of the company”
“See 17.40 below. ‘Director’ clearly includes a ‘de facto’ director (see 17.4 above) but there has been some debate as to whether the provision can apply to a shadow director. In Holland v HMRC[2011] BCC 1 , 13, para 22 Lord Hope observed that s 212 did not apply to shadow directors ‘because, unlike s 214, the statute does not provide for this’. However, it may be argued that a shadow director may be pursued under s 212 because it appears from recent authority that normally a shadow director will owe fiduciary duties at least to some degree: Vivendi SA v Richards[2013] EWHC 3006 (Ch) , [2013] Bus LR D63,[2013] BCC 771 . Previously there were only limited situations in which a shadow director was held to owe directors’ duties to the company: Ultraframe (UK) Ltd v Fielding[2005] EWHC 1638 (Ch) , at [1279]–[1290]. Further, a shadow director would probably be caught under s 212(1)(c) as a person ‘concerned, or [who] has taken part in the... management’ of the relevant company.”
“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. (2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company's assets as the court thinks proper.”
“46. For my part, I would accept that a business may be found to have been carried on with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction. The Cooper Chemicals case is an example of such a case. But, if (which I doubt) Templeman J intended to suggest that, whenever a fraud on a creditor is perpetrated in the course of carrying on business, it must necessarily follow that the business is being carried on with intent to defraud creditors, I think he went too far. It is important to keep in mind that the pre-condition for the exercise of the court’s powers under s.332(1) of the 1948 Act – as under s.213 of the 1986 Act – is that it should appear to the court ‘that any business of the company has been carried on with intent to defraud creditors of the company’. Parliament did not provide that the powers under those sections might be exercisable whenever it appeared to the court ‘that any creditor of the company has been defrauded in the course of carrying on the business of the company’. And, to my mind, there are good reasons why it did not enact the sections in those terms.”
“(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if— (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration. (b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or (c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself. (2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for— (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction. (3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose— (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.” (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration. (b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or (c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself. (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction. (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.”
“24. It is the Claimants’ case that, while the knowledge and intentions of the Alleged Principal Conspirators and the Amicorp Participants (or some of them) are to be attributed to the Claimant Companies for the purposes of claims held by SCB and other creditors of Winsome and Forever Precious against the Claimant Companies, the knowledge and intentions of the Alleged Principal Conspirators and the Amicorp Participants are not to be attributed to the Claimant Companies for the purposes of the claims which the Claimants have against the Alleged Principal Conspirators and the Amicorp Participants.”