“However, even if there was no equitable assignment, this would not impact upon P&M’s rights to receive the distributions from SMA that they are entitled to pursuant to the LICSA unless (a) anyone else obtained a proprietary interest in the shares in the Arena Holdcos pursuant to the Isle of Man Settlement, and (b) that proprietary interest was unaffected by the terms of the Geneva Settlement. For the reasons explained in Part 4 below, neither of those conditions are satisfied. Accordingly, SMA (whose shares are held by the Enforcement Receivers to the order of the Court) is contractually bound, and can be compelled if necessary, to pay the distributions from the Arena Holdcos to P&M pursuant to the terms of the LICSA and any rights any of the Participating Parties obtained pursuant to the Geneva Settlement are subject to that contractual obligation.”
“Then one more point that Phoenix and Minardi take is that they say that even if -- and this is a new point in their skeleton -- even if they say they are unable to establish their own equitable rights under the LICSA they say that the distributions that the LICSA says are payable to Phoenix on liquidation of the Arena companies cannot fall within the Harbour Trust. It is effectively a backdoor proprietary argument; it might not be ours but it is not yours either. That doesn't work, and I will develop this shortly when I come to Phoenix and Minardi's case, but simply put whose rights are they saying they were, is one question, but it doesn't work because the trust bites over the shares in the companies. You cannot exclude from that distributions or half of the distributions on liquidation. That is the whole point of a trust that bites over the shares, and you can't effectively try to place a personal claim to assets above a proprietary claim in that way, it would undermine the entire point of proprietary rights.”
“My Lord, with the greatest respect to Mr Saoul, that is simply wrong. Rights to the distributions went to Phoenix. Whether or not they are equitable assignment or not there was a contractual obligation on the part of SMA to pay those distributions to Phoenix. The Orb claimants, through whom Harbour and Stewarts claim, gave up those rights and Harbour and Stewarts are bound by that agreement.”
“I don't know whether and, you know, whether there is room for any Tito v Waddell principle of benefit and burden type argument. But if the deal that got the beneficial interest from the Ruhan side was obtained on the basis that he or someone to whom he owed a debt, depending on what your particular case theory is, would get the, you know, up to 75 million of the proceeds of the distributions, then the law of Plum and Duff comes into play. I think these are all matters to be explored on closing, but I think on both sides there may be more unpacking on this point that than we have had in opening.”
“However, as P&M pointed out at para. 120 of their skeleton argument, it is important to keep the significance of this issue in perspective. Even if the Court holds that the LICSA did not effect an equitable assignment of all future distributions of surplus in the liquidations, SMA remains contractually bound to procure that such distributions are paid to Phoenix. It is now under the control of the Enforcement Receivers and they will doubtless ensure that SMA performs its contractual obligations as and when a distribution is made. The question whether the LICSA effected an equitable assignment of the right to receive such distributions only becomes relevant if the Court were to find that other parties have proprietary claims to the distributions. For the reasons set out below no party has any such claim following the Geneva Settlement, alternatively no claim which ranks ahead of P&M.”
“Nothing in the bilateral personal relationship between the third party to the trust, and the trustee prevents the beneficiary from collapsing the trust and calling in the trust property. Depending on the facts, the effect may be that the third party’s rights against the trustee may be worthless because the trustee has no assets against which the third party can enforce his personal claim, but that is a risk the third party takes by failing to bargain for proprietary rights, and flows from the structure of rights and obligations that have been agreed.”
“Let us again assume that our trustee holds a fee simple estate in trust and, acting properly in pursuance of his duties, contracts for the installation of a new roof. The roofer is a trust creditor. What we see in the common law, however, is that this creditor, just like a personal creditor of the trustee, has no direct access to the trust assets. Let us assume everything goes well. Either the trustee pays the roofer out of the trust assets, perhaps writing a cheque on a bank account held in trust; or, the trustee pays out of his own assets, and then, as is his right, reimburses himself out of trust assets. This shows us that the trustee can direct trust assets towards the trust creditor. Now assume things do not go well: the roofer does not get paid. In the common law, he must sue the trustee. Moreover, he does not sue him ‘as trustee’. Trustees are not understood to have a ‘trust capacity’. He just sues him. If the roofer gets a judgment, it is not a judgment against the trustee ‘as trustee’; it is just against the trustee. And, most revealingly, if the roofer comes to execute upon his judgment, he has no more right than would a personal creditor of the trustee to execute the judgment against the trust assets.”
“This structural point also makes inappropriate any read over of principles concerning benefit and burden, or as the Court referred to it in its more informal guise, the law of plum and duff … The upshot is that if the Court finds that Harbour / the Orb Claimants acquire equitable proprietary rights arising at either the point in time of the IOM Settlement, or the point in time of the Geneva Settlement, and on the other hand Phoenix’s rights against SMA are merely personal, then P&M’s contention at paragraph 120 of their skeleton argument is wrong.”
“Mr Lord Even if the LICSA doesn’t effect an equitable assignment it doesn’t matter. The shares are in the hands of the enforcement receivers [I interpolate at that point to note Minardi’s recognition that it was the ERs who were the owners and controllers of SMA] and if necessary, they can be compelled to pay the distributions to Phoenix … SMA are parties to the LICSA. They have agreed to its terms. They have agreed to direct the joint liquidators to pay the surplus to Phoenix and they must honour the contractual promise. Foxton J What, even if someone else has a proprietary interest? Mr Lord Well, if your Lordship finds that somebody has a prior interest that means that doesn't have to be honoured, then that would be a different position[emphasis added] and we will come on to that. But, just as things stand, SMA is obliged, first of all, to direct the joint liquidators so that the payment goes direct to Phoenix. But, if and insofar as that didn't happen, then they must account, if there is any amount outstanding under the loan note, for that amount to Phoenix. Foxton J All you have against them is a personal right. You just get to sue them in debt or damages, don't you? Mr Lord Or for specific performance. Foxton J Specific performance of obligations to pay money is -- unless you are talking about, you know, some specific fund which, in effect, the promisee has proprietary ownership, you don't get specific performance of promises. Mr Lord But the injunction, or the specific performance we would be seeking, was a direction. It is not going to be necessary on the facts of this case, but a direction, a further direction to the joint liquidators to pay us. Foxton J If you didn't get an equitable assignment under the LICSA, on what basis does the court grant discretionary relief that treats you as though you had? Mr Lord Because that is what the parties bargained for. Foxton J Parties who bargain -- well, they bargain but if someone made a promise to you that may have conflicted with obligations they owed as a trustee to someone else on this hypothesis, proprietary claims will generally trump personal claims. You would get to enforce whatever rights you have against SMA but, if they are holding assets on trust, you won't be able to reach those trust assets in your enforcement efforts. Why would the court grant you an injunction to improve your position on this hypothesis against an insolvent SMA? Mr Lord There is no evidence, I don't think, my Lord, that SMA is insolvent. Foxton J If they owe you this huge claim and all the assets they have are held on trust for someone else, they are, aren't they? Mr Lord Yes, but that would be subject -- we are coming onto -- which we will come to, which is our (inaudible) note. Foxton J The point about Professor Smith's roofer. Mr Lord Yes. Foxton J The short answer is you are subrogated to the trustee's proprietary lien. But I am not sure that simply cutting straight to say, well, you can injunct the performance of these promises of itself is going to short circuit this. Mr Lord I think part of the confusion may be any assumption that SMA is insolvent. SMA is a company that is in existence, whose shares are held by the enforcement receivers. [I would repeat my interpolation]. Now, if it were to receive the distributions when it shouldn't have done and they should have come to you, then, ignoring for these purposes -- and we will come on to it -- anybody else's proprietary rights, in my submission we would be perfectly entitled to go to the court and to say, ‘that money is ours, please can we have it’. Because that is what was agreed. One only gets into the further complication of proprietary rights either if SMA was insolvent and then there were other creditors and whatever. But we are not in that territory -- or if somebody else has a prior proprietary right [emphasis added]. In those circumstances, we are in the roofer example, and we will come to that, my Lord …. Foxton J I am going to need more help on that argument we have just been through, I think, from all parties. It is my fault. It is not one I have absorbed and been able to think about at an earlier stage. At least at first blush, I am trying to work out how it fits into the general position as a matter of law. Perhaps we will come back to it. It is dealt with in your written closing, just give me the references Mr Lord. Mr Lord My Lord, it is dealt with originally in paragraph 120 of our skeleton argument. I don't know if your Lordship has that. If your Lordship has that, we say: ‘If there was no equitable assignment, this would not impact upon P&M's rights to receive the distributions from SMA that they are entitled to, unless anyone else obtained a proprietary interest in the shares in the Arena holdcos pursuant to the Isle of Man settlement.’ Then you are fairly and squarely into the roofer example. B: 2 "That proprietary interest was unaffected by the 3 terms of the Geneva settlement." Which is the roofer example. [emphasis added] Foxton J That is everything else we are arguing about. Why shouldn't I be leaving you to pursue your – I have no idea what countervailing interests might pop up if you are seeking to enforce a personal claim by injunction against SMA, effectively requiring them to hand over the proceeds. I am afraid one paragraph tucked away in the many hundreds of pages of written submissions I have had in this case, I suspect that there is a rather large point lurking here, if we ever got to it. Mr Lord Well, I will think about it further, my Lord. In my simple way of thinking of things, which may not be helpful, it was simply that the enforcement receivers are in control of SMA; they are holding the shares in SMA as enforcement receivers and as officers of the court and they will do the right thing. Foxton J This will sound like a terrible cop out but how does that fall within the scope of the directed trial of determining a proprietary interest in assets? Mr Lord You have a fair point there, my Lord. Foxton J Right. Mr Lord What is before your Lordship are the proprietary claims. Foxton J If there were personal claims before me, the resolution of which would be capable of impacting on other parties, that would have had to have been covered by the advertising process, for example. For all I know, there may be a load of other people who say, well, on certain case hypotheses I have a personal claim against SMA. Messrs Thomas and Taylor, in effect, I think, say they have one but they are entitled to bring it into account in the adjustment of the interests under the Harbour trust against Orb. So the idea that I should make an injunction or specific performance now to let you scoop the pool, without having heard from any of them and without that forming a part of the directed trial, doesn't seem – Mr Lord I am not making an application for an injunction. That may be the short answer to that point. Of course, it is different if the shares in SMA are held on trust either at Isle of Man -- sorry, the shares in the Arena 21 holdcos are held on trust either at Isle of Man or following Geneva, because then we are in the roofer example. [emphasis added] Foxton J Good. Well, I think we may have run that hare to earth. What you are entitled to say is that is one of the weapons we say we have in our armoury, even if it isn't a weapon that, perhaps, isn't for this trial but is for another day”
“At paragraph 8 of their closing, P&M submitted that the Settlement Parties should not be able to ‘take the benefit of the release of Mr Ruhan's claims free of the burden of the Loan Note and the LICSA’. I understand the commercial appeal of that argument, to which I have given careful consideration. However, for it to succeed, a legal principle must be identified which can give it effect, otherwise the argument ignores what in commercial as well as legal terms is the very real distinction between the position if P&M had obtained proprietary rights in assets held by Dr Cochrane or SMA in the settlement negotiations, and position if P&M obtained only personal rights. The former, so far as they had priority, would reduce the extent of the assets recovered by the Orb Claimants, and hence subject to the Harbour Trust. The latter would not. While in land law, there are contexts in which a principle of no benefit without burden’ may subject those who acquire an interest in property to the obligation to perform a negative personal covenant associated with it, I was not referred to any legal principle which would make the rights of Harbour and the Orb Claimants in the Harbour Trust conditional upon the discharge of any positive personal covenants assumed by Dr Cochrane and/or SMA.”
“In a supplement to their written closing, P&M sought to bridge the divide between personal and proprietary claims through a further argument, contending that whilst they had only personal claims against Dr Cochrane (or SMA), they were subrogated to a proprietary right which Dr Cochrane or SMA had over the recovered assets in respect of their entitlement to an indemnity from trust assets against any personal liability. I now consider that argument, and whether it was fairly open to P&M at the time it was raised.”
“The interests in the following assets are held by their legal owners on the terms of the Harbour Trust and are to be applied and apportioned between the beneficiaries, namely Harbour, Orb arl, and Messrs Thomas and Taylor, in accordance with those terms (save as set out below): a. The shares in the Arena Companies (as set out in Schedule 2 to this order); b. Such future distributions as may be paid or payable to the shareholders of the Arena Companies.”
“Save insofar as set out above or below, the claims pursued by the parties at the Directed Trial are dismissed and none of the said parties hold any equitable or proprietary interests in any of the Relevant Property or the IUAs.”
“In the alternative, Phoenix argued that, even if the LICSA, on its true construction, did not effect an equitable assignment of SMA’s right to receive the surplus, and it therefore did not have any proprietary interest in it, the fact remained that SMA had agreed (with the authority of the Orb Claimants, Harbour and Stewarts) as part of the Geneva Settlement that the surplus would be paid to Phoenix (up to the value of the Loan Note). The surplus therefore did not form part of the Harbour Trust and there was no reason why SMA should not honour its contractual obligation under the LICSA to take all necessary steps to ensure that the surplus was paid to Phoenix (and could, if necessary, be compelled to do so). In the further alternative, Phoenix argued that it was entitled to be subrogated to SMA’s right as trustee to be indemnified out of the trust assets, and the equitable lien associated with it, in respect of its liability under the LICSA.”
“Ground 2 arises on the basis that the LICSA did not effect an equitable assignment in favour of the applicant. On that basis, any surplus formed part of the Harbour Trust and the applicant has no proprietary right thereto. This is not inconsistent with what the judge said at [178] where the judge was dealing with the equitable rights of others. Once the trust was fully constituted by the Geneva Settlement, there were no equitable rights of others which prevented the right to any surplus from forming part of the trust. Ground 3 was raised for the first time in the appellant's closing submissions in the court below. This was far too late, notwithstanding that the judge dealt with it as best he could on the material available.”
“Minardi and/or SMA could and should have argued the indemnity point at the Directed Trial … is absurd: i) A necessary ingredient of establishing a trustee indemnity is establishing that there is a personal claim against the trustee. It was made clear to P&M that the Directed Trial was not the forum for arguing and establishing personal claims. It is therefore difficult to see how it could have pursued this argument fully at the Directed Trial therefore (rather than simply giving notice of it). ii) SMA was the only party which could (and should) have made arguments about a trustee indemnity arising as a result of potential future liabilities. However, this was made impossible by the fact that it was represented first by Stewarts and then controlled by the ERs. Both had a clear conflict of interest, it was not in their interests to argue that if SMA was a trustee of the shares in the Arena HoldCos, it should be entitled to a trustee indemnity in respect of any future claims against it under LICSA.”
“That the Court declare and/or clarify that the assets identified at paragraphs 4a. and b. and Schedule 2 of the Order of Mr Justice Foxton dated11 June 2021 (the “Consequentials Order”) do not and were not intended to include any assets or distributions due to Minardi under the terms of the Liquidation Inter-Creditor Settlement Agreement dated April 2016 (respectively the “Minardi Assets” and “LICSA”) and were not intended to include directions regarding the Minardi Assets; Further or in alternatively, that the Court declare that the rights obtained by the Harbour Trust beneficiaries, namely Harbour, Orb arl, and Messrs Thomas and Taylor, in the assets identified at paragraphs 4a. and b. of the Order of Mr Justice Foxton dated11 June 2021 (the “Consequentials Order”) are subject to SMA’s contractual obligations to Minardi under the LICSA. Further or alternatively, that the Court declare SMA is entitled to a trustee indemnity from the shares of the Relevant Companies in respect of any claims made against SMA pursuant to LICSA, including but not limited to Minardi’s civil claim against SMA in the Marshall Islands (case no. 2022- 02128 HCT/Civ/Maj).”
“I do not believe it would be appropriate for me to approach the LICSA with any form of pre-disposition as to the strength of one or other party's negotiation position, as to the type of deal towards which the parties were aiming or as to what would constitute a 'fair' outcome to a dispute which was so singular both in its content and in the means by which it was pursued.”