are acting in three cases in which theCourt of Appeal will be determining sig-nificant issues which go to the heart ofthe law and practice of insolvency; theextent of the deprivation principle inthe BBC Worldwide and PerpetualTrustee appeals, the ability of the courtto sanction a scheme which affects pro-prietary rights in the Lehman jurisdic-tion appeal and the correct approach toestablishing a company’s COMI and therelationship between insolvency recog-nition and POCA restraint orders in theStanford recognition appeal. In eachcase judgment at first instance wasgiven in July or August and each of theappeals has been expedited for hearingthis term.

So what do we have for you in thisedition of the Digest? Well, it is prettygood. We have articles by Lucy Frazeron the UNCITRAL Model Law, GabrielMoss QC on The Secret Code ofInsolvency Law and William Trower QCon his role as a Reviewer of Complaintsmade against insolvency practitioners,as well as the usual Case Digests, newsin brief and the Insolvency Challenge.And one thing to highlight in particular.In this edition we have a new feature:our first annual review of offshore casesprepared by Jeremy Goldring and TomSmith.

As always if you are not already onthe Digest circulation list and wish to beadded (or if your contact detailschange), please just send an email tokirstendent@southsquare.com and wewill do our best to make sure that youreceive the next edition of the Digestwhen it comes out.

David Alexander QC - Editor

t has been said that the only functionof economic forecasting is to make

astrology appear respectable. Well, cer-tainly the last few months have beenunpredictable and confused with whatone can only described as mixed mes-sages emerging. Some say it is still pret-ty bleak out there. Others say the reces-sion is over. Some say that we arereturning to the good times with morebank bonuses. Others say that if we areout of it, we are going back into it soonand that the dreaded “W” is coming.With such a range of opinions, I guessthe only thing one can say with confi-dence is that someone is likely to beright!

So what has happened since the lastedition of the Digest? More retailershave hit trouble with, among others,Allied Carpets, O’Neills and the WineCellar going into administration andFocus DIY having a CVA approved by itscreditors. And the news for retailersdoes not look promising with a “worsethan last year” Christmas forecast(although that is good news for thoseconsumers who like those 50% offoffers pre-Christmas!).

Other news: In what is becoming acommon refrain, there has been stillmore disquiet about pre-packs andtheir lack of transparency. Bankruptcytourism (where foreigners come to theUK to make themselves bankruptbecause we have what is perceived tobe a lenient insolvency regime) isapparently on the increase. And the £11million Wrekin ruby may be worth littlemore than £100.

Moving from the outside world to 3-4South Square, members of Chambers

It’s as clear as mud!

DIGESTA regular review of relevant news, cases and articles from 3-4 South Square Barristers

November 2009

3-4

Feature articlepage 2The Limits of English Law in English Courts

Case digestspage 5Banking and Financial Services

page 6Civil Procedure

page 7Company Law

page 8Corporate Insolvency

page 12Personal Insolvency

page 13Professional Negligence

page 13Other cases

Feature articlespage 14The Secret Code of Insolvency Law

page 20Offshore Case Review

page24Reviewer of Complaints

News in briefpage 27

Insolvency Challengepage 30

3-4 Digest is published by 3-4 South Square Barristers,

Gray’s Inn, London WC1R 5HP. 020 7696 9900.

Publication print and production on behalf of

3-4 South Square Barristers by Wendover Publishing. 01428 658697.

In this issueI

2

“What law applies to a contract gov-erned by English law?” Surely, theanswer to this question is obvious.Surely no lawyer could sensibly sug-gest that any law other than Englishlaw could govern a contract with anEnglish governing law clause?

But apparently the answer to thisquestion is not as obvious as itseems. In a few recent cases it hasbeen argued that the English Courtsshould give effect to a foreign lawnotwithstanding that the parties havechosen English law to govern therelationship between them.

The argument is that under theUNCITRAL Model Law when anEnglish Court is asked to “assist” aforeign office holder, that assistancecan extend to the application of theappropriate foreign insolvency law toan English contract. The EnglishCourts are now being asked toaccept that a contract valid as a mat-ter of English law, should be treatedas invalid, because it would be inval-idated under the bankruptcy laws ofa foreign jurisdiction.

The ability or lack of ability of theEnglish Court to render ‘assistance’in this manner has been raised in anumber of recent cases.

Perpetual Trustee Co. Ltd v BNYCorporate Trustee Services Ltd andothers [2009] EWHC 1912 con-cerned a multi-issuer secured obliga-tion programme established byLehman Brothers International(Europe). The transactions relating to

the issues were governed by Englishlaw. The noteholders claimed to beentitled to priority under the terms ofthe trust deed under which eachissue was made. Lehmans issued acomplaint in the US BankruptcyCourt contending that the priorityprovisions on which the noteholdersrelied were forbidden under the USBankruptcy Code. It was argued byPerpetual that the provisions of aforeign bankruptcy code could notbe applied when determining theinterpretation of a contract governedby English law. The Vice Chancellorconsidered that ‘the extent of theCourt’s powers under the UNCITRALModel Law’ was ‘an important issue’(paragraph 62) but the ViceChancellor refused to determine therelevance of the foreign law on thebasis that it was ‘premature and aca-demic for this court to decide on theextent of its powers under the UNCI-TRAL Model Law or the common lawin the absence of a specific request’(at paragraph 63).

The question was raised morerecently in D/S Norden v SamsunLogix Corporations [2009] EWHC2304. Samsun was in receivership inKorea and its Receiver had beenrecognised in England under theModel Law. The Receiver hadobtained a stay on the enforcementof security. Norden applied to lift thestay imposed to allow it to bring pro-ceedings to enforce its security. TheReceiver opposed the application to

lift the stay on the basis that he waschallenging the validity of the securi-ty under Korean bankruptcy legisla-tion and the English court should notallow proceedings in England toenforce the security pending deter-mination of that issue. Nordenargued that any invalidity subse-quently found as a matter of Koreanlaw would be of irrelevant as a mat-ter of English law and so the stayshould be lifted. Guy Newey Q.C. sit-ting as a deputy judge of the HighCourt thought that it was likely thatthe UNICTRAL Model Law did notgive the English Courts the power toapply a foreign law to an Englishcontract but declined to conclusivelydetermine the issue. Instead he con-tinued the stay on the condition thatany participation by Norden in theKorean proceedings would not giverise to any estoppel, leaving openthe argument as to the effect ofthose proceedings to another day.

Whilst the question is clearly, asthe Vice-Chancellor identified, an‘important one’, the answer shouldbe equally clear. In circumstanceswhere parties have chosen Englishlaw to govern the relationshipbetween them, it is that law whichshould govern their relationship anda transaction should not be invalidat-ed because it contravenes the bank-ruptcy laws of a foreign jurisdiction.

This was the position under thecommon law prior to the entry intoforce of the Model Law. As a matterof common law the English Courtwould give assistance to a foreigncourt and a foreign office holder inthe interests of comity. But therewere limits to that assistance.Comity did not require the EnglishCourt to “[apply] provisions of the

The limits of English lawin the English CourtsLucy Frazer discusses whether the UNCITRAL Model Law permitsthe English Court to ‘assist’ an office holder in a foreign main proceeding by applying the transaction avoidance provisions of theforeign jurisdiction where the transaction to be set aside is governed by English law.

3

November 2009 3-4 digest

foreign insolvency law which formno part of the domestic system” (seeCambridge Gas Transportation Corpnv Official Committee of UnsecuredCreditors of Navigator Holdings Plcand others [2006] UKPC 26; [2007]1 AC 508 at paragraph 22).

It does not appear that the ModelLaw intended to alter that position.This is clear from the United NationCommission working papers leadingup to the Model Law.

In 1993 the Secretariat prepared anote to assist the United NationCommission on International TradeLaw to decide whether an in-depthstudy on the desirability and feasibil-ity of harmonized rules on bankrupt-cy should be undertaken. The issueof which law to apply to transactionavoidance in a bankruptcy andwhether a State would recognise aforeign court decision impeaching atransaction was identified as anissue at this early stage (see theUnited Nations Commission onInternational Trade Law 26th Session23 June 1993 A/CN.9/378/Add.4 atparagraph 32).

The various ways in which trans-action avoidance could be dealt withwas considered in detail two yearslater (see the United NationsCommission on International TradeLaw, Working Group on InsolvencyLaw 18th session, 26 September1995 A/CN.9/WG.V/WP.42 at para-graphs 39-59).

By 1996 the Working Group onInsolvency Law had consideredrevised articles of the draft UNCI-TRAL Model Legislative Provisionson Cross Border Insolvency. Thoserevised articles included a provisionallowing a recognising state to grantrelief which was “available under thelaws of the State of the foreign pro-ceeding … including actions toreverse or render unenforceable legalacts detrimental to all creditors”. TheWorking Group expressly rejectedthe incorporation of this draft provi-sion which would have allowed therecognising Court to grant reliefunder foreign law. Its comment onthe draft provision was “as to thepossibility … that the court mightissue measures pursuant to a foreignlaw, i.e. the law of the foreign pro-

ceeding, it was widely thought thatsuch a possibility was unrealistic andthat, therefore the reference to for-eign law should be deleted” (seeUnited Nations Commission on

In a few recent cases it has been arguedthat the English Courts should give effectto a foreign law notwithstanding that theparties have chosen English law to governthe relationship between them.

Lucy Frazer

International Trade Law 13th session24 October 1996 A/CN.9/433 at para-graph 133). The provision was sub-sequently deleted.

It is thus clear from the working

4

papers of the United NationCommission on International TradeLaw that it was not the intention ofthose drafting the Model Law that arecognising state would be obligedto, or would even be permitted to,apply the foreign insolvency legisla-tion of another state.

Indeed the final version of theModel Law makes no reference tothe incorporation of foreign law. Onthe contrary, where a reference tolaw is set out, it is clearly stated thatit is the local law of the recognisingstate which is to be applied.

So, Article 20 of the Model Lawprovides that the automatic staywhich is imposed on recognition of aforeign main proceeding is the staywhich would be imposed as a matterof local law “(2) the stay and sus-pension referred to in paragraph 1 ofthis article shall be… (a) the same inscope and effect as if the debtor, inthe case of an individual, had beenadjudged bankrupt under theInsolvency Act 1986 …. or, in thecase of a debtor other than an indi-vidual, had been made the subject ofa winding-up order under theInsolvency Act 1986; and (b) subjectto the same powers of the court andthe same prohibitions, limitations,exceptions and conditions as wouldapply under the law of Great Britainin such a case, and the provisions ofparagraph 1 of this article shall beinterpreted accordingly”.

Article 21 of the Model Lawexpressly provides that the reliefwhich may be sought by an office-holder is that relief which “may beavailable to a British insolvencyofficeholder under the law of GreatBritain”.

Article 23 of the Model Lawexpressly provides which transactionavoidance provisions can be calledinto play by the English recognisingCourt. Those provisions are the pro-

visions set out in the Insolvency Act1986.

The Guide to Enactment recognis-es the limitations of the Model Law.It expressly states that the ModelLaw “does not attempt a substantiveunification of insolvency law. Itoffers solutions that help in severalmodest but significant ways” (para-graph 3).

Those parties who seek to per-suade the English Courts to incorpo-rate foreign insolvency law intoEnglish law in reliance on the ModelLaw rely on the provisions for ‘co-operation’ (Article 25) and the abilityto seek ‘additional relief’ (Article 21).But it is unlikely that the Model Lawcould have meant to provide for arecognising state to incorporate analien law which is fundamentally dif-ferent from English law into its legis-lation simply by a concept of ‘co-operation’ or an ability to seek ‘addi-tional relief’. This was certainly theview of Nicholas Strauss QC sittingas a deputy judge of the High Courtin David Rubin and Henry Lan vEurofinance SA and others 31 July2009. In that case the Judge refusedto enforce a judgment of the NewYork bankruptcy court either as amatter of law or alternatively in hisdiscretion.

If the Model Law incorporated for-eign insolvency transaction avoid-ance provisions it would be goingfurther than the EC Regulation whichrespects the principle that the gov-erning law of a contract determinesthe validity of that contract in anysubsequent insolvency. The ECRegulation provides that a contractgoverned by the law of one memberstate is not to be set aside by theforeign law set aside provisions ofthe home insolvency in anothermember state unless such a contractcould be challenged under its gov-erning law (see Article 4(2)(m) and

Article 13 of the EC Regulation). Theposition in relation to security rightsis also preserved (Article 5 of the ECRegulation). It would be surprising ifthe position were more favourable tocountries outside the EC, wherethere has been a lesser attempt toharmonise the substantive laws ofdifferent states.

Furthermore where Parliament hasprovided that the English Courts canapply a foreign insolvency provisionthis is unambiguously expressly pro-vided for. It applies only to a particu-lar group of countries, expresslydesignated by the Secretary of Stateby order made by statutory instru-ment (see section 426 of theInsolvency Act 1986).

A conclusion that the Model Lawdoes not fundamentally alter the abil-ity of the English Court to determineissues in line with English insolvencylaw is also right as a matter of poli-cy.

The provisions of English insol-vency law have been carefullyworked out. The English avoidanceprovisions provide a justifiable clawback system in a limited period incertain circumstances prior to insol-vency. English office holders chal-lenging transactions in this periodare officers of the Court and are reg-ulated. The Insolvency Act provideschecks and balances for inappropri-ate and unreasonable behaviour ofthose office holders. It would repre-sent a major shift in the operation ofinsolvencies to allow foreign bank-ruptcy legislation which may or maynot provide for the same balances tobe struck to govern transactionswhich would ordinarily be governedsolely by reference to English law. Acontrary conclusion would be a radi-cal step in private international law.

If all that is wrong then the ModelLaw constitutes a remarkable pieceof legislation. If operated by allstates in such a manner it will vastlychange the shape of global insolven-cies henceforth. The decision inDavid Rubin and Henry Lan vEurofinance SA and others is cur-rently under appeal. It will be inter-esting to see whether, and if so, howthe Court deals with these new andimportant issues.

If the Model Law incorporated foreigninsolvency transaction provisions itwould be going further than the ECRegulation.

5

M sought an injunction against RBSto prevent it from reporting tocredit reference agencies inrespect of MÕs default during aperiod in which a regulated con-sumer credit agreement had beenunenforceable by reason of RBSÕsnon-compliance with s.77(1) of theConsumer Credit Act 1974.TheJudge held (inter alia) that: (1) RBShad not used its continued report-ing of the state of MÕs account tothe credit reference agencies dur-ing the period of non-compliancewith s.77 as a coercive tool to

persuade M to pay the outstandingamount of the loan. Rather, thereporting had been for the legiti-mate purposes of sharing creditperformance data with otherfinancial institutions to promoteresponsible lending; (2) the effectof unenforceability under s.65 ofthe Consumer Credit Act 1974was that the rights of the creditorand corresponding liability or obli-gations of the debtor continued toexist but were unenforceable,rather than that those rights werenever acquired or that the creditor

was deprived of those rights whilstthe agreement was unenforceable,Wilson v First County Trust Ltd[2004] 1 AC 816 considered; (3) inany event, there was a distinctionbetween a case of improper execu-tion to which s.65 applied and acase, such as the instant case,where it was accepted that theagreement was valid and enforce-able until R failed to comply withits duty under s.77(1) and wouldbecome enforceable again oncethat section had been compliedwith; and (4) reporting to creditreference agencies did not amountto ÔenforcementÕ.Therefore MÕsapplication was dismissed.

McGuffick v Royal Bank of Scotland plc [2009] EWHC 2386(Comm) Flaux J, 6 October 2009

case digests

Al Tamimi v Khodari [2009] EWCA Civ 1042Court of Appeal, 8 October 2009

K made loans to T which T usedfor the purpose of gambling.Trefused to repay arguing: (1) thatthe loans were irrecoverable byreason of s.1 of the Gaming Act1892 and/or s.40 of the ConsumerCredit Act 1974; and/or (2) thatthe amount repayable should bereduced under ss 140A and 140Bof the Consumer Credit Act 1974

on the grounds of unfairness.Atfirst instance,TÕs arguments wererejected, and judgment wasentered in favour of K. On KÕsappeal, the Court of Appeal held:(1) that s.1 of the Gaming Act1892 applied only where the loanagreement expressly required thefunds to be used for the purposeof gambling, and did not apply

where the borrower was free touse the funds as he saw fit, even ifit had been expressly contemplat-ed by both parties that he wouldprobably use the funds for gam-bling, Macdonald v Green (1951) 1KB 594 CA followed; (2) K did notmake the loans to T in the courseof business, and therefore s.40 ofthe Consumer Credit Act 1974had no application; and (3) in anyevent, the relationship had notbeen unfair to T.Appeal dismissed.

November 2009 3-4 digest

Hilary Stonefrost

Unsurprisingly, in the present economic and financial circumstances, there are a number of important judi-cial decisions on issues concerning corporate insolvency. Two cases relating to the insolvency of Lehmancame before first instance Judges in the summer and there are appeals in both cases; in Perpetual TrusteeCompany v Bank of New York Corporate Trustee Services Ltd the appeal was heard on 14 to 16 October andthe appeal in Re Lehman Brothers International (Europe) (in administration) will be heard in late October.The Court has also been asked to determine issues arising in the administration of Kaupthing Singer &Friedlander Limited; one case concerned the appropriate exchange rate to be applied to debts in an admin-istration and in the other case the Court was asked to give directions on the status of monies held in anaccount with the Bank of England.

In The Scottish Lion Insurance Company Limited, the Court of Session, at the hearing to sanction that com-pany’s scheme, which was opposed by US creditors who successfully opposed schemes of arrrangement inThe British Aviation Insurance Co. Ltd [2006] BCC 14 and in Re Sovereign Marine & General InsuranceCompany Ltd [2006] BCC 774, held that in solvent schemes creditor democracy “should not carry the day”.

Hilary Stonefrost

Edited by Hilary Stonefrost

BANKING AND FINANCIAL SERVICES Digested by Stephen Robins

Stephen Robins

6

Fortis Bank SA NV v Indian Overseas Bank[2009] EWHC 2303 (Comm) Hamblen J, 25 September 2009

Article 2 of the Uniform Customsand Practice for DocumentaryCredits (2007 revision) (ÒUCP600Ó) defines ÒConfirming BankÓto mean Òthe bank that adds itsconfirmation to a credit upon theissuing bankÕs authorisation or

requestÓ. IOB contended thatFortis had added its confirmationto a credit without IOBÕs authori-sation or request. Fortis relied onthe terms of the letter of credit,which expressly permitted theadvising bank to add its confirma-

tion at the request of the benefici-ary, and contended that thisamounted to sufficient authorisa-tion.The Judge preferred the con-struction advanced by Fortis. IOBhad expressly stated to Fortis thatit Òmay addÓ add its confirmation.By agreeing that it ÒmayÓ do some-thing, it had authorised that thingto be done.

Munib Masri v Consolidated Contractors International Co SAL& ANOR (2009) [2009] UKHL 43 HL

The question was whether theCourt had jurisdiction to orderunder CPR 71.2 a director of ajudgment debtor, who was resi-dent and domiciled abroad, toattend and provide informationabout the means of the judgmentdebtor. It was held that, in princi-ple, the rule-making power con-tained in the Civil Procedure Act

1997 was wide enough to enablerules to be made providing forthe examination of a director orofficer located outside the juris-diction in relation to the assetsof a judgment debtor. However, inconstruing Part 71, the presump-tion against extra-territorialitydid apply. In the case of corpo-rate judgment debtors, there was

a distinction between the debtoritself and its officers and,although foreign officers werenot expressly excluded, it did notappear to be contemplated thatParty 71 would apply to officersof the judgment debtor outsideof the jurisdiction.This was viewreinforced by the fact that therewas no provision in CPR Part 6enabling service of proceedingson an officer of the judgmentdebtor located abroad.

Dario Belletti v Pierantonio Morici [2009] EWHC 2316 (Comm)QBD (Comm)

The claimant obtained judgment inItaly in respect of an alleged invest-ment fraud perpetrated by thedefendant.The English Court madea worldwide freezing order againstthe defendant in aid of the Italianproceedings under S.25 CivilJurisdiction and Judgments Act1982.The claimant then obtained afurther ex parte order againstother defendants whom the

claimant alleged had assisted thefirst defendant in concealing assets.The other defendants applied toset the order aside. It was heldthat the order against the otherdefendants was based on theÒChabraÓ jurisdiction (TSB PrivateBank International SA v Chabra[1992] 1 WLR 231), but the Courthad no power to make such anorder against a defendant unless

there was some basis for it assum-ing territorial jurisdiction oversuch defendant.The only basis forterritorial jurisdiction was S.25 but,in the present case, it was notappropriate to make a Chabraorder under S.25 against the otherdefendants since neither the defen-dants nor the relevant assets hadany connection at all with the juris-diction.There was no connectinglink between the relief sought andthe English jurisdiction.Thereforethe ex parte order was set aside.

CIVIL PROCEDURE Digested by Tom Smith

Deripaska v Cherney (2009) [2009] EWCA Civ 849 CA (CivDiv)

leave to serve out that the naturalforum was not England, it was stillopen to the court that Englandwas the Òproper forumÓ for thetrial of action by reference to theinterests of the parties and theends of justice.The contrary argu-ment was a mis-reading of LordGoff s speech in The Spiliada. In

the present case, although Russiawas the natural forum, the judgehad considered that the risksinherent in a trial in Russia madeEngland the proper forum. It couldnot be said there was no evidence,or no evidence of sufficientcogency, to support the judgeÕsconclusion on that point and itwas not for the Court of Appealto re-exercise the discretionwhich he had exercised.

Tom Smith

case digests

The appellants appealed againstthe decision of the judge grantingpermission to serve proceedingsout of the jurisdiction and deter-mining that England was the prop-er place for the trial of the action.The Court of Appeal dismissedthe appeal.Where the court hadconcluded on an application for

November 2009 3-4 digest

7

Holland v The Commissioners for HM Revenue & Customs, CA(Ward, Rimer and Elias LJJ), [2009] EWCA Civ 625, 2 July 2009

H had set up a business with hiswife to administer the business andtax affairs of contractors workingmainly in the information technolo-gy industry.The business had a cor-porate structure designed to avoidpayment of corporation tax at thehigher rate.The structure wasflawed and resulted in the compa-nies having paid dividends unlawful-ly because there were insufficientdistributable reserves to permitthem.The companies went into liq-uidation and the commissioners

brought misfeasance proceedingsagainst H and his wife under sec-tion 212 of the IA 1986 on thebasis that they were liable for theunlawful dividend payments as defacto directors and liable to con-tribute to the companiesÕ assetsaccordingly. H, who with his wifewas found liable for the unlawfuldividend payments as a de factodirector and liable to contribute tothe companiesÕ assets accordingly,appealed, inter alia, on the basisthat he was not a de facto direc-

tor.The CA held that a personwho acted as a director of the solecorporate director of a companywas not, merely by so acting, to beregarded also as a de facto direc-tor of the subject company.Therewas no reason why a director of acorporate director should becomea de facto director of the subjectcompany where he was doing nomore than discharging his duties assuch. On the evidence, the CAconcluded that H had not assumedthe status and function of a com-pany director so as to make him-self responsible as if he were a dejure director.

COMPANY LAW Digested by Daniel Bayfield

Daniel Bayfield

NBD Sana Capital Mgmt Shareholding Co v (1) NBD SanaCapital (2) Suresh Kumar, Dubai International FinancialCentre Courts, Sir Antony Colman (18 October 2009).

The Applicant obtained an injunc-tion on a without notice basiswhich precluded the FirstRespondent, the general partnerof a Cayman islands registeredfund (Òthe FundÓ), from returningany part of the unused contribu-tions of the limited partners heldby the Fund pending final deter-mination of the claim brought bythe Applicant.The Respondentssought to set the injunction aside

on a number of grounds, includinga contention that the DIFC Courtdid not have jurisdiction to hearthe claim under Article 19(1) ofThe DIFC Court Law, Law No.10of 2004.The parties agreed that,pending final hearing of the claim,the position should be addressedby way of undertakings to theDIFC Court by both theApplicant and the FirstRespondent.The issue of whether

the DIFC Court has jurisdictionto hear the claim is to be consid-ered by the DIFC Court inDecember.This hearing is likely toinclude consideration as towhether a clause in a contractpursuant to which the partiessubmit to the non-exclusive juris-diction of the DIFC Court iscapable of conferring jurisdictionupon the DIFC Court where itwould not otherwise have juris-diction to hear the matter underthe provisions of The DIFC CourtLaw.[David Allison]

Re Lehman Bros International (Europe) [2009] EWHC 2600(Ch) Briggs J

The joint administrators of LBIEissued an application seeking direc-tions in relation to a number ofissues arising under the rules con-tained in the Client AssetsSourcebook (ÒCASSÓ) of theFinancial Services Authority pub-lished pursuant to MiFID. One ofthe representative respondents tothe application sought permissionto adduce expert evidence as tothe terms and interpretation of theclient money regulations enacted insix other Member States. It wasasserted that such evidence wasrelevant to the interpretation of theprovisions of MiFID. Briggs J dis-missed the application finding interalia (1) while it was permissible to

have regard to the decisions ofother Member States as to theinterpretation of a directive, therewas no case or dictum extendingthat approach to the interpretationof a directive by a Member StateÕslegislature in national legislation inimplementing that directive; (2)even if the ECJ in Skatteministerietv Henriksen [1988] ECR 2763could be said to have taken such anapproach, the case would beauthority for nothing more than theadmissibility of evidence establishinga uniform practice among allMember States.The practical diffi-culties of ascertaining by expert evi-dence whether there is such a uni-form practice would make this an

extremely expensive and cumber-some tool of interpretation, whollyat variance with the view of theAdvocate General in Henriksen thata harmonising directive should beable to be simply and easily under-stood by reference to the ordinaryuse of language of the provision inquestion, read in its proper contextas part of the directive as a whole;(3) the interpretation of EU legisla-tion by reference to a comparisonof different practices in MemberStates is illegitimate; (4) in anyevent, a review of the evidence sub-mitted suggested that there are sig-nificant differences in the terms andeffect of the regulatory equivalentsof CASS in other Member States.[Robin Knowles QC, AntonyZacaroli QC, Felicity Toube,David Allison, Adam Al-Attar]

Robin Knowles QC

8

case digests

The Scottish Lion Insurance Company Limited, [2009] CSOH127 (Lord Glennie), 10

The company petitioned for sanc-tion of a scheme of arrangementunder s. 899 of the Companies Act2006.The sanction was opposed byfive of the companyÕs creditors.ThecompanyÕs business was a mixture ofdirect insurance and reinsuranceand a significant part of the businesswas occurrence insurance; the pro-vision of cover for liabilities arisingout of events during the life of thepolicy but in respect of which claimsmight be made long after the policyhad expired.The company has been

in run-off since 1994.The hearingwas of two preliminary issues aspart of the hearing of the applicationto sanction the scheme. On the firstissue, which was whether the deci-sion by the chairman that the statu-tory majorities were achieved couldbe challenged, the Judge rejected thecompanyÕs submission that a chal-lenge could only be advanced onperversity or irrationality groundsand held that where the court isrequired to exercise its discretionwhat can and cannot be taken into

account is a matter for case-by-casedevelopment. On the second issue,whether it can ever be fair to sanc-tion a ÒsolventÓ scheme in the faceof creditor opposition to havingtheir occurrence cover compulsorilyterminated, the Judge held that acompany applying for the sanctionof a solvent scheme should placebefore the court averments andsupporting material justifying theproposition that the minority shouldbe bound by the decision of themajority.The company had given noreason, apart from the wishes of theshareholders, why the companyshould not continue in run-off.

CORPORATE INSOLVENCY Digested by Georgina Peters

Kaupthing Singer & Friedlander Limited (Ch) (Floyd J), 16June 2009

Rule 2.86 of the Insolvency Rules1986 provides that in an adminis-tration debts incurred in foreigncurrencies are to be converted intosterling at the Òofficial exchangerateÓ.The official exchange rate isÒthe middle exchange rate on theLondon Foreign Exchange Marketat the close of business, as pub-lished for the day in questionÓ.

There is, however, no institutionknown as the London ForeignExchange Market which publishesan exchange rate. In the circum-stances, the official exchange rateshould be treated as being the mid-dle rate published by the Bank ofEngland on its website for the dayin question since such rate wasÒofficialÓ, was published and, since it

was taken at 4pm, could be said tobe at the close of business. In par-ticular circumstances where theBank of England did not provide anexchange rate for Icelandic krona:Sterling due to difficulties in themarket, it was appropriate for theJoint Administrators to apply anaverage of the close of businessrates published by ThomsonReuters and Bloomberg for the dayin question.[Tom Smith]

Robin Dicker QC

Stuart Isaacs QC

Georgina Peters

Brazzill and others v Willoughby and others [2009] EWHC1633 (Ch) (Chancery Division (Peter Smith J) 10 July 2009

The Joint Administrators ofKaupthing Singer & FriedlanderLimited ("KSF") applied for direc-tions in relation to certain sumsheld in an account in the name ofKSF at the Bank of England. On 3October 2008, the FSA issued itsfirst supervisory notice to KSF(Òthe NoticeÓ). Paragraph 2 of theNotice required KSF to open asegregated trust account with theBank of England. On opening theaccount, KSF was required tocredit it with a cash amount thatwas at least equal to ’deposits’received from ’customers’ on 2and 3 October. Further, KSF wasrequired to credit the accountwith a cash amount at least equalto the value of subsequent’deposits’ received from ’cus-

tomers’.The notice however didnot define ’deposits’ or ’cus-tomers’ for the purpose of para2. KSF opened the account andcredited sums to it in respect ofdeposits it had received on 2 and3 October. On 8 October 2008,the Treasury made a transferorder, relating to KSFÕs rights andliabilities in respect of certainaccounts to a third party, in theexercise of its powers under s 12of the Banking (SpecialProvisions) Act 2008. On thesame date, KSF was placed intoadministration.The court held that: (1) A validtrust had been created over all ofthe monies standing to the creditof the account; (2) For the pur-poses of paragraph 2 of the

Notice, the word ÒdepositÓ has itsordinary and natural meaning,namely a sum of money paid onterms that it will be repayable,and includes both Sterling andforeign currency deposits made byall ÒcustomersÓ of KSF of whatev-er species; (3) The beneficiaries ofthe trust were all customers ofKSF who made deposits in theperiod 2-7 October 2008 whetheror not KSF in fact paid moniesinto the Account matching suchdeposits; (4) As KSF did not in factmake matching payments into theaccount in respect of all depositsreceived from customers in therelevant period, the total amountof deposits received by KSFexceeded the total amount ofmonies credited to the account inthe relevant period.As a result ofthis deficiency, the interests of thecustomers who made deposits in

Lloyd Tamlyn

November 2009 3-4 digest

9

Perpetual Trustee Company Ltd v (1) Bank of New YorkCorporate Trustee Services Ltd (2) Lehman Brothers SpecialFinancing Inc [2009] EWHC 1912 (Ch) (Sir Andrew Morritt,Chancellor of the High Court), 28 July 2009

In October 2002 the LehmanGroup established a multi-issuersecured obligation programme: theDante Programme. In summary,retail noteholders were perusadedto subscribe to notes issued by anspv.The proceeds of the noteswent to purchase notes issued byanother spv in a tax-friendly juris-diction.This spv purchased bonds(Òthe CollateralÓ) issued by highly-rated major banks which werecharged to a security trustee(eventually, an English incorporatedsubsidiary of the Bank of NewYork), D1.The beneficiaries of thecharge held in trust were LBSF(D2), a US subsidiary of LBHI, theLehman parent company, and atrustee for the retail noteholders(Perpetual). LBSF entered into aswap with the second spv which ineffect gave LBSF the right to theequivalent of the income from theCollateral and eventually the capi-tal value of the Collateral, inexchange for LBSF, guaranteed byLBHI, paying the spv sums whichwould fund the interest and capitalredemption payments on the retailnoteholdersÕ notes.The retail cus-tomersÕ notes were sold on thebasis that if LBSF defaulted, thenoteholders would have priorityover the capital and this was pro-vided in the trust deed relating to

the Collateral and in the terms ofthe notes.As is well known, LBHIfiled for chapter 11 voluntarybankruptcy in the US on 15 Sept2008. LBSF filed a couple of weekslater. Under the trust provisionsand under the terms of the notes,either filing was a default whichtriggered noteholder priority overthe collateral. On the other hand,if there had been no default, LBSFwould generally have had priorityin respect of sums payable underthe swap.At the time the swapwas terminated, LBSF was Òin themoneyÓ for a sum referreed to asÒUnwind CostsÓ. LBSF claimedthat what it argued was a changeof priority, triggered by insolvencyprocedings, was void under USlaw, which should be applied viathe Cross-Border InsolvencyRegulations or common law, andthe English proceedings should bestayed while the US courts deter-mined this question. In the alterna-tive, it argued that the alterationof priority was void under Englishlaw as a breach of the principle incases such as British Eagle.TheChancellor decided that theBritish Eagle principle did notapply for a number of reasons,including the fact that LBSFÕs pri-ority was subject to a conditionprecedent rather than a condition

subsequent, terminated automati-cally upon default and thereforethere was no removal of a vestedasset which LBSF had at the startof its insolvency proceedings.Although it was not necessary todeal with the further points, theChancellor also held that even ifthere had been a deprivation, sincethe insolvency filing of LBHI pre-ceded that of LBSF and was itself adefault which altered priorities tothe Collateral, prior to the filing byLBSF, the British Eagle principlewould not apply to invalidate note-holder priority. He also consideredthat although British Eagle appliedonly to English and not US insol-vency proceedings, that made nodifference here because it couldbe applied via comity or by puttingLBSF into liquidation here.Although no stay was granted toawait the result of the US pro-ceedings, the Chancellor post-poned the grant of any final reliefso as not to preclude any requestor other application made by aforeign representative appointedby the US court under the Cross-Border Insolvency Regulations2006.An expedited appeal by LBSFwas heard by the Court of Appeal(Lord Neuberger M.R., Patten andLongmore LJJ, 12-14 October2009, together with an expeditedappeal from the BBC/Woolworthsdecision of Peter Smith J. and judg-ment is expected around the endof October 2009.[Gabriel Moss QC, David Allison]

the Relevant Period in the moniesstanding to the credit of theAccount abate pro rata; (5) If acustomer of KSF made a depositin the relevant period and KSFmade a payment into the accountmatching such deposit, then, if thecustomer made a withdrawal of

such deposit in the relevant peri-od which KSF funded out of itsgeneral assets, KSF became enti-tled to a corresponding interest inmonies standing to the credit ofthe Account and payment in full inpriority to the claims of any bene-ficiaries of the trust; (6) On the

true construction of the transferorder, all of the relevant KSFaccount holders’ rights wereassigned to HM Treasury.TheJudge gave permission to appeal.[Stuart Isaacs QC, Robin DickerQC, Lloyd Tamlyn, AndreasGledhill, Marcus Haywood]

David Allison

Andreas Gledhill

Gabriel Moss QC

10

Swissair Schweizerische Luftverkehr-Aktiengesellschaft[2009] EWHC 2099 (Ch) (David Richards J), 6 August 2009

The Swiss liquidator of the compa-ny applied under the Cross-BorderInsolvency Regulations 2006 for anorder for remittal to him of assetsof the company realised by theEnglish liquidators in England, to beadministered as part of the assetsof the principal liquidation inaccordance with Swiss law.TheEnglish liquidators also applied fordirections for the remittal.Theissues were whether the Courthad the power to order remittaland also whether it would beappropriate in the circumstances.

Mr. Justice David Richardsanswered both those questions inthe affirmative.The relief soughtwas granted both under thecourtÕs power to give directions tothe liquidators and under Article21.2 of the UNCITRAL Model Lawon Cross-Border Insolvency. In sofinding, the Judge considered thatthere was nothing in the speechesin the House of Lords decision inRe HIH Casualty & GeneralInsurance Ltd [2008] UKHL 21which called into question thelong-established principle that the

court possessed power to orderremittal of assets to a foreign liqui-dation where the local law provid-ed for a pari passu distributionamong unsecured creditors (cf. ReBCCI (No 10) [1997] Ch 213). Inparticular, because the companywas already in liquidation inEngland when the Swiss liquidatorapplied for recognition,Article29(a)(i) of the Model Law requiredthat the remittal be consistentwith the English liquidation. On thefacts the Judge found that it wasunquestionably consistent.[Martin Pascoe QC, DavidAllison]

Three companies in the IMO car-wash group of companies applied tosanction three linked schemes ofarrangement.The companies werebalance sheet and cash flow insol-vent.The schemes of arrangementwere as between the senior lendersand did not by their operative termsaffect the rights of other creditors,in particular, the mezzanine lenders.The mezzanine lenders contendedthat the schemes of arrangementwere unfair because the value of thecompaniesÕ businesses and assetswere such that they had a real (andnot merely theoretical) economicinterest in the restructuring andbecause the schemes of arrange-ment in fact involved a breach of

cashflow valuation relied on by themezzanine lenders could not there-fore ÔdisplaceÕ the evidence of mar-ket value.The allegations of breachof duty, which were not foreshad-owed in evidence, were withoutsubstance because, first, havingregard to the value of the compa-nies, a duty to have regard to credi-torsÕ interests (other than the inter-ests of the senior lenders) was aduty to have regard to the interestsof the mezzanine lenders who didparticipate in negotiations to pro-tect their own position; and, second-ly, the companiesÕ directors werewithout any or any substantial bar-gaining power as against seniorlenders with accrued rights ofenforcement. [Gabriel Moss QC,Robin Dicker QC, Barry Isaacs,Richard Fischer, Adam Al-Attar]

D/S Norden A/S v Samsum Logix Corporation [2009] EWHC2304 Ch (Guy Newey QC), 12 August 2009

S entered rehabilitation pro-ceedings in Korea which wererecognised as foreign main pro-ceedings under Schedule 2 to theCross-Border InsolvencyRegulations 2006 (the ÒModelLawÓ).The English court grantedrelief under Article 21(1)(g) ofthe Model Law in the terms of amoratorium under paragraph 43of Schedule B1 to the InsolvencyAct 1986, including a prohibitionon the taking of steps to enforcesecurity without permission ofthe court. N, a creditor which

wished to take stapes to enforcesecurity in the form of a lien onsub-hire, applied to the court forpermission to do so, notwith-standing the moratorium. Sopposed the application on thebasis that it had petitioned theKorean court for NÕs security tobe set aside under certain provi-sions of Korean insolvency law(the Ò Avoidance PetitionÓ). Ncontended that any order of theKorean court setting aside itssecurity would be ineffective inEngland, because, inter alia, its

security was expressly governedby English law. N also submittedthat it would be prejudiced if thecourt were to refuse to grantpermission, since it would thenbe forced to defend theAvoidance Petition which, inthe event of such a defencebeing unsuccessful, wouldenable S to contend that Nhad submitted to the jurisdic-tion of the Korean court so asto be bound by the KoreancourtÕs decision. The DeputyJudge held that, other thingsbeing equal, questions as tothe extent, if any, to which theKorean courtÕs decision in SÕs

case digests

In re Bluebrook Ltd [2009] EWHC 2114 (Ch) (Mann J) 11August 2009

Lexa Hilliard QC

duty by the companiesÕ directorswho had not done enough in nego-tiations with the senior lenders tosecure concessions for the compa-nies and hence their creditors as awhole. Mann J rejected these con-tentions:The mezzanine debt wascontractually subordinated to thesenior debt.The senior lenderswere entitled to enforce their secu-rity against the companies and torestrain any enforcement by themezzanine lenders.As enforcementwas highly likely, the relevanthypothesis for assessing the value ofthe companiesÕ businesses andassets was a sale in the current mar-ket and not a theoretical discountedcashflow valuation.The discounted

Martin Pascoe QC

Lucy Frazer

November 2009 3-4 digest

11

Stanford International Bank Ltd v The Director of the SeriousFraud Office, Court of Appeal (Waller, Jacob and StanleyBurnton LJJ), 18 August 2009

The Antiguan Liquidators ofStanford International Bank Ltd(SIB) appealed against the deci-sion of HH Judge Kramer QC atthe Central Criminal Court on 29July 2009, refusing to vary arestraint order granted by him infavour of the Serious Fraud Office(Restraint Order) so as to permitthe Liquidators to remit toAntigua a sum of US$1.658m forthe purpose of funding the on-going costs of the liquidation. Inthe event that this appeal was

allowed, the SFO and the USReceiver (appointed by theUnited States District Court forthe Northern District of Texas asReceiver over the assets world-wide of SIB and other StanfordEntities), applied for a stay of thatpart of the recognition order ofMr. Justice Lewison made on 3July 2009, whereby Lewison Jallowed the Liquidators to remitthat sum to Antigua for the samepurpose. On 18 August 2009, theCourt of Appeal, inter alia, varied

the Restraint Order so as toallow the Liquidators access tothe lesser sum of US$889,800 toenable them to fund the expensesof the liquidation pending thesubstantive appeals against theorders of Lewison J and HHJKramer QC to be heard inNovember 2009, upon theLiquidators undertaking to abideby any subsequent order theEnglish court may make for theremittance of that sum back tothe jurisdiction.[Stuart Isaacs QC, AntonyZacaroli QC, Felicity Toube,David Allison, Daniel Bayfield,Georgina Peters]

Butters & Ors v BBC Worldwide & Ors [2009] EWHC 1954(Ch) Ch D (Peter Smith J) 20 August 2009

The administrators of WWRealisation 8 Limited (ÒMediaÓ)and Woolworths Group plc(ÒGroupÓ) challenged the validityof certain clauses in a joint ven-ture agreement (Òthe JVAÓ) whichset out the terms upon whichMedia and BBC Worldwide Ltd(ÒBBCWÓ) held their shares in 2Entertain Ltd (Ò2EÓ). 2E was thesole shareholder of companycalled BBC Video Ltd (ÒBBCVideoÓ). Completion of the JVAwas conditional upon the grantby BBCW to BBC Video of alicence of intellectual propertyrights and continuing access tofuture rights in accordance withthe terms of a Master Licence

Agreement (Òthe MLAÓ). Clause16.2.5 of the MLA and clause26.7 of the JVA (Òthe RelevantClausesÓ) purported to have theeffect that upon Group or Mediahaving suffered an InsolvencyEvent and a notice having beenserved, Media was obliged to sellits shares in 2E to BBCW for aprice which is to be determinedon the basis that the MLA hasterminated.The administrators ofMedia contended, inter alia, thatthe Relevant Clauses were voidbecause they infringed the depri-vation principle.The Court heldthat (1) the MLA was terminatedon the occurrence of anInsolvency Event (namely on 2

December 2008) and in the eventthat it was not terminated onthat date, it was in any event ter-minated on 5 February 2009 byvirtue of the implied surrender ofthe MLA and grant of the newlicence agreed between BBCWand BBC Video; (2) The RelevantClause together infringe the dep-rivation principle and are void;(3) However, the Court would dono more than to strike out theoffending parts of the RelevantClause.As consequence, clause16.2.5 of the MLA could be madeeffective without infringing thedeprivation principle.The Courtof Appeal heard the appeal in thiscase in mid October 2009.[Richard Sheldon QC, MarkArnold, Barry Isaacs, MarcusHaywood]

favour could be enforced inEngland would be best addressedif and when the Korean Courthad so ruled; Perpetual TrusteeCo Ltd v BNY CorporateTrustee Services Ltd (2009)EWHC 1912 (Ch) applied.However, the Court had power

to impose conditions on thegrant or continuation of reliefunder the Model Law and, in thecircumstances, it was appropriateto provide for the continuationof the moratorium as regards Nto be made subject to condi-tions, including that S be prevent-

ed from contending in England indue course that N might bebound by the Korean CourtÕsdecision setting aside securitymerely by reason of NÕs defenceof the Avoidance Petition.[Lexa Hilliard QC, LucyFraser, Stephen Robins]

Antony Zacaroli QC

FelicityToube

Barry Isaacs

Mark Arnold

Richard Sheldon QC

12

William v Bateman [2009] EWHC 1760 (Ch) (David Richards J)22 July 2009

The wife of a bankrupt sought toextinguish her husbandÕs trusteeÕsinterest in the former matrimonialhome by insolvency set off underIA 323.At first instance, the courtdeclared that the wife had a 50 percent beneficial interest in the for-mer matrimonial home and hedirected that, subject to certain

deductions in favour of the wife(including a deduction of£37,295.50 in respect of an equityof exoneration), the proceeds ofsale should be divided equally.Thewife argued that £37,295.50 shouldhave been set off against thetrusteeÕs interest in the propertyas at the date of her husbandÕs

bankruptcy in 1990. If true, thiswould have annihilated his interest.On appeal, David Richards J upheldthe refusal to declare any such setoff.The wife may have had a con-tingent claim against her husbandas at the bankruptcy date but thehusband had no claim against thewife.There were no cross claimsto be set off and the true and onlyissue was the correct division ofthe former matrimonial home.

Re Lehman Brothers International (Europe) (InAdministration) [2009] EWHC 2141 (Ch) (Blackburne J), 21August 2009

The Administrators of LBIE areseeking to promote a scheme ofarrangement in order to: (i) crys-tallise the positions of LBIEÕs cus-tody and prime brokerage clientssuch that their financial positionsunder all of their financial con-tracts between them and LBIEwill be ascertained; and (ii) put inplace systematic procedures tofacilitate the return of certainproperty (including securities andmoney derived from those secu-rities received by LBIE after goinginto administration) which is, or

will in the future be, in LBIEÕsdirect custody or control and inrespect of which its clients have aproprietary interest. On a prelim-inary application brought by theAdministrators and LBIE todetermine whether, as a matterof jurisdiction, the Court wouldhave the power to sanction sucha scheme, the Court declaredthat, insofar as the proposedscheme of arrangement is con-cerned with the distribution byLBIE of property held or con-trolled by it on trust for any of

its creditors, and to the extentthat it varies or extinguishes theproperty rights of such creditors,the Court has no jurisdictionunder Part 26 of the CompaniesAct 2006 to sanction it. TheJudge, recognising the Òexception-al problemsÓ faced by theAdministrators and the Ò verygreat effort that they have devot-ed to devising a means... to bringabout a speedy return of [trustassets]Ó, granted permission toappeal and the Court of Appealhas expedited the hearing of theappeal which will be heard in lateOctober 2009.[William Trower QC, AntonyZacaroli QC, Daniel Bayfield]

Re Kaupthing Singer & Friedlander Ltd [2009] EWHC (Ch)2309 (Norris J), 2 October 2009

which the first interim dividendwas paid) are given full value, anddebts falling due for payment afterthe date of distribution are dis-counted in accordance with rule2.105; (2) the provisions of rules2.86 to 2.88 of the Rules apply tosums due from the company inadministration and sums due tothe company in administration; (3)interest accruing from the date ofthe administration on sums duefrom the company in administra-tion and sums due to the companyin administration is left out of the

account; and (4) in relation tosums due from the company inadministration and sums due tothe company in administration, theprovisions of rule 2.105 are appliedto the value of the debt payable inthe future excluding interest accru-ing from the date of the adminis-tration. Following the taking of theaccount in accordance with rule2.85, interest accrues and ispayable on any net balance due tothe company in administration pur-suant to rule 2.85(8) as from thedate of the administration inaccordance with the relevant con-tractual terms or otherwise.[Tom Smith, Richard Fisher]

The Administrators of KSF appliedto the Court for directions as tothe construction of the provisionof the Insolvency Rules dealingwith insolvency set-off (rule 2.85)and, in particular, concerning therelationship between the rulesrelating to interest and the rulesrelating to set-off.The Court heldthat for the purposes of taking theaccount in respect of mutual deal-ings pursuant to rule 2.85: (1)debts falling due for paymentbefore the date of distribution (inthe present case, being the date on

PERSONAL INSOLVENCY Digested by Adam Al-Attar

Adam Al-Attar

Richard Fisher

William Trower QC

November 2009 3-4 digest

13

Trustee in Bankruptcy of Louise St John Poulton v Ministryof Justice [2009] EWHC 2123 (Ch) (Hazel Marshall QC sittingas a Deputy Judge of the High Court), 2 September 2009

£45,500.The trustee in bankruptcybrought proceedings against theMinistry of Justice claiming dam-ages for breach of statutory dutyand/or negligence by the CourtsService.The judge held that IR6.13 imposed a statutory duty onthe Court Service towards the

creditors of a bankrupt whichenabled a trustee in bankruptcy tobring a claim for damages forbreach.The judge, after a lengthydiscussion, considered that theduty would be without contentotherwise (paragraph 100).Therewas however no common lawduty of care owed.There were nofacts outside the existence of IR6.13 which could give rise to anyduty of care (paragraph 112).

A bankruptcy petition was filed inthe Guildford County Court inJanuary 2004.The Court failed tosend notice of that petition to theChief Land Registrar in accordancewith IR 6.13. In March 2004, thebankrupt sold some land in Surrey,releasing a net equity of around

Stone & Rolls Ltd (In Liquidation) v Moore [2009] UKHL 39(Lords Phillips, Scott, Walker, Brown and Mance), 30 July2009

gence against MS, seeking to recov-er losses caused to S&R as a con-sequence of the extension of theperiod of its fraudulent activitycaused by MS’s breach of duty. MSaccepted, for the purposes of theinstant proceedings, that they werein breach of their duty to exercisereasonable care and skill in carryingout their responsibilities as auditorsand that but for their breach thefraud perpetrated by S would havebeen discovered earlier. M argued,however, that the action could notsucceed because it was founded onS&R’s fraud and was met by thedefence of ex turpi causa.The

House of Lords held (Lords Scottand Mance dissenting) that: (1) S&Rwas primarily rather than vicarious-ly liable for the frauds; (2) S’s fraud-ulent conduct was to be treated asthe conduct of S&R, and the princi-ple of ex turpi causa defeatedS&R’s claim. In the case of a "one-man company" that had deliberatelyengaged in serious fraud, awarenessof that fraud was to be imputed tothe company; (3) There was nogood reason to apply a differentrule to a company in liquidation.Apart from special statutory claimsin respect of misfeasance, wrongtrading and so on, the companycould not assert any cause ofaction which it could not haveasserted before the commence-ment of its liquidation.

Where a "one-man company" haddeliberately engaged in seriousfraud, the principle of ex turpicausa prevented it from claimingthat its auditors were in breach oftheir duty of care in failing todetect that fraud.The appellantcompany (ÒS&RÓ) appealed againsta decision of the Court of Appealupholding the striking out of itsclaim in contract and tort againstthe respondent auditors (ÒMSÓ).S&RÕs beneficial owner and soledirecting mind and will, S, had usedthe company as a vehicle fordefrauding banks.The liquidators ofS&R brought an action in negli-

PROFESSIONAL NEGLIGENCE Digested by Marcus Haywood

OTHER CASES

Mark Phillips QC

Eduardo da Silva v UEFA UEFA Appeals Body – Geneva 1stSeptember 2009

Arsenal FC played Celtic FC in aqualifying match of the UEFAChampions League at EmiratesStadium on 26th August 2009. In26th minute the Celtic goalkeeperbrought down Eduardo in the penaltyarea and a penalty was awarded.Eduardo scored.After the match theRefereeÕs Assessor watched the SkySports coverage and concluded thatEduardo had simulated a foul. On28th August 2009 Eduardo wascharged under Article 10(1)(c) ofUEFAÕs Disciplinary Regulations,which provides for a suspension for

two matches or for a specified peri-od for acting with the obvious intentto cause any match official to makean incorrect decision. On 1stSeptember 2009 UEFAÕs Control andDisciplinary Body found the chargeproved and Eduardo was suspendedfor two matches. Eduardo appealedarguing: (a) that there had been nosimulation, a proper analysis of thevideo evidence demonstrated thatthe left thigh of the Celtic goalkeeperhad hit EduardoÕs right foot when hewas travelling at speed and so hadknocked him off balance; (b) the ref-

eree had not been deceived, he hadseen contact between the goalkeeperand Eduardo and (c) there was noobvious intention to simulate, thiswas a dishonest state of mind andthe Appeal needed evidence fromwhich they could be satisfied thatEduardo had the obvious intentrequired. Having reviewed the videoevidence and having heard from theReferee and the RefereeÕs Assessor,UEFAÕs Appeal Body set aside thedecision of the Control andDisciplinary Body on the ground thatit could not be satisfied that Eduardohad deceived the Referee or that hehad had the requisite obvious inten-tion. [Mark Phillips QC]

Marcus Haywood

14

FIA v Renault F1 World Motorsport Council – Paris 21stSeptember 2009

On 28th September 2008Fernando Alonso drove hisRenault F1 car to victory from15th on the grid. Despite havingbeen fastest in practice, he hadhad a problem with a fuel pumpduring qualifying two.At the startof the race,Alonso had beenfuelled for only 14 laps. During therace he had been the first car topit on lap 12. On lap 14 AlonsoÕsRenault team mate, Nelson Piquetcrashed his car at turn 17 where itwas difficult for the marshalls toretrieve it.This resulted in the safe-ty car being deployed whichchanged the race in AlonsoÕs favour.Nelson PiquetÕs crash had beendeliberate. It had been discussedbetween Flavio Briatore, the TeamPrincipal and Pat Symonds theTechnical Director at a meetingwitnessed by Òwitness XÓ afterqualifying on the Saturday.According to Nelson Piquet, at ameeting 4 hours before the race onthe Sunday attended by FlavioBriatore, Pat Symonds and NelsonPiquet, Pay Symonds had raised the

idea with him. Pat Symonds evi-dence was also that this was dis-cussed at this meeting. Shortlyafterwards Pat Symonds showedNelson Piquet a map of the trackand told him at which corner tocrash and on what lap.The WorldMotorsport Council convened anextraordinary meeting on 21stSeptember 2009 at which RenaultF1 was to answer charges that theteam had conspired with its driverNelson Piquet to cause a deliberatecrash at the Singapore Grand Prixin breach of the InternationalSporting Regulations. Renault F1accepted that there had been aconspiracy involving Flavio Briatore,Pat Symonds and Nelson Piquetand did not contest the charge.Flavio Briatore and Pat Symondsresigned from Renault F1.TheWorld Motorsport Council decid-ed to impose an order of perma-nent disqualification on Renault F1suspended for two years.TheWorld Motorsport Council willonly activate this disqualification ifRenault F1 is found guilty of a com-

parable breach during that time.Anoffer by Renault to make a signifi-cant contribution to the FIAÕs roadsafety campaign was accepted andRenault F1 was ordered to pay thecosts and the meeting.The WorldMotorsport Council declared thatfor an unlimited period the FIAwould not sanction anyInternational Event, Championship,Cup,Trophy, Challenge or seriesinvolving Flavio Briatore in anycapacity whatsoever. He was alsoto be denied access to any areasunder FIAÕs jurisdiction. It was alsodeclared that the FIA would notrenew the Superlicence of any driv-er who was associated with FlavioBriatore, or any entity or individualassociated with him.A similar dec-laration was made in respect of PatSymonds for five years.Nelson Piquet received immunityprovided that he gave truthful evi-dence to the FIA. Having deter-mined that his evidence was truth-ful, he was entitled to immunity. Itwas found that Fernando Alonsowas not in any way involved inRenault F1s breaches of the regula-tions.[Mark Phillips QC]

Neslon PiquetJunior leavingthe FIA withMark PhillipsQC (secondfrom right )

CURRENT ISSUES IN INSOLVENCY 2009

SWEET & MAXWELL

Friday 27th November 2009 9.00am – 5.10pmRadisson SAS Portman Hotel22 Portman Square, London W1

3-4 South Square is delighted to invite you to the annual Current Issues in Insolvency Conference held in association with Sweet & Maxwell. Members of Chambers will join with other speakers to provide you with detailed interpretation of a range of topical insolvency law issues.

The conference offers you in-depth assessment of case law – both UK and international – insights into procedural changes and guidance on how recent legislation is playing out in practice during the current recession.

Topics analysed during the day will be:

Cross-border insolvency

Office holders’ liabilities

Pre-packs

Schemes of arrangement

Insolvency taxation

Insolvency and bank failures

The event is accredited for 6.5 CPD hours. The standard delegate fee is £495.00 (+ VAT).

Gabriel Moss QC David Marks QC

Professor Ian Fletcher Hilary Stonefrost

Daniel Bayfield Marcus Haywood

Georgina Peters

For full details and to book your placeVisit: sweetandmaxwell.co.uk/conferences-events/sweet-maxwell-conferences.aspx

Call: 020 7393 7859Email: conferences@sweetandmaxwell.co.uk

Members of Chambers who will be speaking at the conference:

16

Back in the mists of time when I wasa law student I was taught that inEngland we did not have comprehen-sive codes of law as they had on theContinent. However, this fundamentalpoint has not been so obvious tosome of our judges dealing withinsolvency matters.

In fact, even the idea thatContinental countries have compre-hensive codes of law is something ofa fiction when one looks closely atthe behaviour of continental judges,particularly in insolvency cases. Caselaw on the continent reveals a greatdeal of “interpretation”, effectivelyextending the meaning of the socalled “code” and treating it surpris-ingly much like a purposive interpre-tation of statutes would in our ownjurisdiction.

The striking recent situation inwhich he House of Lords split in theirinterpretation of the law was the caseof the huge Australian insurer, HIH,reported as McGrath v Riddell [2008]BCC 349. My detailed analysis of thejudgments in that case appeared inthe November/December 2008 (Issue10) part of Insolvency Intelligence atpage 21 under the heading ““Modified Universalism” and theQuest for the Golden Thread”.

The title referred to LordHoffmann’s approach in pointing outthat “modified universalism” was the“golden thread” in cross-frontierinsolvency. Lord Walker agreed andLord Phillips seemed to agree too.

For Lords Scott and Neuberger,there seemed to be no magic in thegolden thread and they appeared to

treat the Insolvency Act 1986 as acomplete statutory “code”.

With a nod to Dan Brown and theDa Vinci Code, I shall refer to the“code” approach as the quest for the“Holy Grail” of insolvency law. Thosewho have read the book or seen thefilm will know that finding the grailinvolves the interpretation of variouscodes. The question for insolvencylaw therefore is whether there is a“code” and if so, which members ofthe House of Lords/Supreme courtcan join Tom Hanks in having brokenit!

The respective roles of statute andcommon law in insolvencyAll civilised legal systems appear toneed a balance between on the onehand certainty, for commercial pur-poses, and fairness and justice onthe other. It is the role of strict, literallaw, usually in the form of statute, toprovide for certainty and the role ofcase law to balance it with fairnessand justice. In terms of both theContinental and the Anglo-Saxon tra-ditions the case law can be seen to“supplement and correct” strict legalprovisions.

In different areas of law there isdifferent scope for this supplement-ing and correcting role. Where theneed for certainty is supreme, as incriminal law, there is little scope forthis kind of balance. In the case ofinsolvency law, which is fundamen-tally about the just and fair processof administration of a debtor’s assetsand/or the distribution of the assetsor their proceeds for the benefit of

creditors, there has always been con-siderable scope for the supplement-ing and correcting role of case law.This is so both in England and on theContinent.

Specifically in England and in rela-tion to insolvency law, there are over125 years of cases illustrating thispoint. I am not aware that anyone hasever compiled a comprehensive sur-vey or analysis of all the relevantareas. Five of the areas are referredto in my “Modified Universalism”article mentioned above.

Even a cursory glance at the legis-lation which is relevant to insolvencylaw in Sealy & Milman: AnnotatedGuide to the Insolvency Legislation2008/2009, 11th Edition shows thatin the space of 2,000+ pages there isa vast amount of legislation but nopart of it and no aggregate of the var-ious parts purports to be a completecode of insolvency law. If there is aninsolvency code in England, it is verysecret indeed and only known to theelite whom we could call the “Priory”,since they presumably guard thesecret insolvency code in the sameway that Dan Brown’s “Priory”guards the Holy Grail.

Disapplication of mandatory statu-tory rulesAs I pointed out in my article on theHIH case, both Lord Scott and LordNeuberger appear to have had a con-siderable problem with the judge-made “ancillary liquidation” doctrinewhere the effect of it was to “disap-ply” the mandatory statutory schemeof distribution under the Insolvency

The Secret Code ofInsolvency LawGabriel Moss QC, with apologies to Dan Brown, on the quest for the HolyGrail of Insolvency Law

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November 2009 3-4 digest

Gabriel Moss QC

Act 1986. In finding this a problem,their learned lordships appear not tohave been aware of or fully to havetaken on board the many cases overa very protracted period in whichcase law doctrines in insolvency lawhave had exactly such a role. They donot, of course, directly disapply astatute, since a case law doctrinecannot do that, but have that effect inpractice.

This type or role and effect can betraced back to the Praetors of ancientRome and subsequently to the role ofequity in English law.

For example, the Insolvency Act1986, like previous statutes, pro-vides, in the case of liquidation, amandatory distribution scheme.When an administrator obtains per-mission to distribute to unsecuredcreditors, similar provisions apply.Where, however, the rule in ex parteJames applies, moneys are takenfrom what the House of Lords hasdescribed as the statutory trust forcreditors generally and paid over to aparticular creditor who would other-wise have to prove pari passu withother unsecured creditors. The typi-cal use of the rule in ex parte James(re Condon ex parte James (1874) 9Ch. App.609) was, prior to a reformof the law by the House of Lords, todirect liquidators to repay sums paidto the estate by mistake by creditorsin circumstances where the ordinarylaw did not allow any recovery, forexample payments under a mistakeof law.

The mandatory statutory rulesrelating to proofs in liquidation (andtheir copies in administration, CVA’sand schemes of arrangement) saynothing about two proofs which aretechnically distinct but in substancerelate to the same debt. Yet the caselaw has always excluded “doubleproof” under the Insolvency Act 1986and its predecessors (Squires(Liquidators of SSSL Realisations(2002) Limited) v AIG Europe (UK)Limited reported as Manning v AIGEurope (UK) Limited [2006] BCC 233(CA); Polly Peck International Plc (inadministration) (No 4) [1996] BCC486 at 493). It might be argued thatthe rule against double proof is to beimplied into the statutory provisions.

However, this seems implausiblewhere very detailed and lengthy ruleshave been enacted from time to timeand numerous detailed amendmentspassed over the years. Throughout aperiod of over 125 years the questionof the rule against double proof andits precise content and developmenthas been left to the case law. Wherethe rule against double proof applies,then, in flat contradiction to thewords of the statutory provisions, noproof, or perhaps more accurately,no dividend, is allowed in any casewhich, however, technically correctly,involves a claim which in substance

is regarded under the case law as aproof in respect of the same debt.

It is a very common feature of liq-uidations that a liquidator either com-mences or continues a proceeding inthe name of the company. If thoseproceedings are lost, the adversecosts payable to the successfulopponent are given a super-priorityahead of the costs, expenses andremuneration of the liquidator. I havecalled this the “estate costs rule”.There is nothing and never has beenanything about this in the InsolvencyAct 1986 or the rules made thereun-der. Nevertheless the rule is so well

“Nothing in the Chapter limits the ability ofthe court to provide additional assistance toa foreign representative under this title orunder other laws of the United States.”

18

scheme of distribution and to paythem to particular creditors wherejustice or fairness so requires (ReAtlantic Computer Systems Plc[1990] BCC 859 at 878, 881 G, ReMirror Group (Holdings) Limited[1992] BCC 972, 976 G-H, Re JapanLeasing (Europe) Plc [1999] BPIR911, 923H-924B, Re Mark One(Oxford Street) Plc [1999] 1 WLR1445, 1447 - 1448, Re WolseyTheatre Company Limited [2001]BCC 486, 487).

The ancillary liquidation doctrineI have set out quite a bit of detailabout this doctrine in the articlereferred to above.

The doctrine involves directing theancillary liquidator to remit assets inthe local jurisdiction, net of costs andpreferential claims under local law, tothe main proceeding. This necessari-ly, of course, involves the de factodisapplication of the mandatorystatutory scheme under local law.That is because the mandatory statu-tory scheme is once again supple-mented and corrected by questionsof fairness and justice which requirethat as far as practicable and justthere should be a single universaldistribution under the same fair prin-

established that it has been men-tioned with approval by the House ofLords (Norglen Limited v ReedsRains Prudential Limited [1998] BCC44, [1999] 2 AC 1).

The application of the rule by adirection from the court involves tak-ing assets subject to the mandatorystatutory scheme of distribution andpaying them over on a super-prioritybasis to the adverse party in the liti-gation. This can involve even takingback from the liquidators remunera-tion properly paid to them under thestatutory scheme. It is very difficultto see how it could be suggested thatthe estate costs rule can be impliedinto the express rules. The sugges-tion was made in one old case thatthere was nothing in the expressrules which mandated such pay-ments, and therefore they should notbe paid, but this was firmly rejectedby the courts. The basis of the rule isput in the cases as a matter of simplebasic fairness and justice for theadverse litigant.

A long line of cases in more recentyears now establishes that the courtcan, in appropriate cases, give direc-tions to liquidators or administratorsto take assets which would be sub-ject to the mandatory statutory

ciples. As Lord Hoffmann points out in the

HIH case, every one of these situa-tions involves some departure fromthe mandatory statutory scheme. Forexample, the main liquidation willinevitably have different preferentialcreditors which will take a first biteout of the assets remitted. The cus-tomary deduction of local preferentialcreditors complies with the localmandatory statutory scheme but thededuction of the preferential creditorsfrom any pari passu dividend to ordi-nary unsecured creditors is plainly adeparture from the mandatory statu-tory scheme in the ancillary jurisdic-tion. Nevertheless, there has beenconsistent case law, including atHouse of Lords level, for over a 100years endorsing the ancillary liquida-tion doctrine. Accordingly, onceagain, there is a long line of case lawendorsing a de facto departure fromthe mandatory statutory scheme andits “disapplication” in cases whereremission to the main jurisdiction isordered.

Statutory interventionsIn recent years, section 426 of theInsolvency Act 1986, the ECRegulation on Insolvency proceed-

The Insolvency Code is the “Holy Grail” of insolvency law

19

3-4 digestNovember 2009 3-4 digest

ings and the Cross Border InsolvencyRegulations 2006 have all createdstatutory interventions in the area ofrecognition for and/or judicial assis-tance to, foreign insolvency proceed-ings. However, none of these statuto-ry interventions has dealt expresslywith the pre-existing ancillary liquida-tion doctrine.

In particular, section 426 has noth-ing to say about the ancillary liquida-tion doctrine at all. The ancillary liqui-dation doctrine, unlike section 426,does not depend upon any requestcoming from a foreign court. Nordoes it allow any direct application offoreign law. It simply involves aspecies of court direction to its officerto comply with conflict of laws rulesdealing with jurisdiction and appropri-ate forum. Obviously, where there is arequest from a foreign court unders.426, this must be a very significantconsideration when looking at thediscretion to remit in accordance withthe ancillary liquidation doctrine.However, section 426 neitherexpressly nor impliedly contradicts orreplaces the ancillary liquidation doc-trine.

It follows that Lord Hoffmann,along with Lord Walker, wasabsolutely right in placing the issue inHIH in the realms of the application ofthe ancillary liquidation doctrine, withthe request reinforced by the exis-tence of a section 426 request.However, Lord Hoffmann again wasplainly right in holding that in acced-ing to the request the English courtwas applying English law and not thelaw of the requesting jurisdiction.

The analyses of Lord Scott andLord Neuberger, with the greatest ofrespect to them, are quite wrong tofocus on section 426 as an answer toa non-existent problem about the“disapplication” of the English statu-tory regime. There was ample andindeed lengthy, not to mention highlevel case law establishing the abilityof the English courts, by giving direc-tions to its officers, in a de factosense to “disapply” the mandatorystatutory regime. Nor does anythingin section 426 contradict the ancillaryliquidation doctrine. Without suchcontradiction, the previous commonlaw rules live on (Collins and AikmanEurope SA [2006] BCC 861).

With regard to the Cross Border

Insolvency Regulations 2006, imple-menting the UNCITRAL Model Law,here again there is nothing in the leg-islation to contradict the ancillary liq-uidation doctrine and Article 7expressly preserves the ability toassist a foreign representative “underother laws of Great Britain”, which inEngland would include common lawdoctrines such as ancillary liquida-tion. It is true that some of theRegulations cover the same groundand, for example, can lead to thecourt authorising the “foreign repre-sentative” taking the assets from therecognising jurisdiction and distribut-ing them in accordance with his ownlegal system. Nevertheless, that powerhas come into effect, it is suggested,alongside the ancillary liquidation doc-trine: see now Re StanfordInternational Bank Ltd [2009] EWHC1441 (Ch) (under appeal).

The EC Regulation on InsolvencyProceeding is rather a different mat-ter. In those cross frontier insolvencycases where it applies, it makesexpress provision for jurisdiction,choice of law and recognition/enforce-ment. Where there is a main and asecondary proceeding, then theRegulation lays down separate statu-tory distributions under each law, gov-erned by each law. The reference tolaw here is to ordinary national domes-tic law in each jurisdiction and not tochoice of law rules.

This does contradict and exclude theancillary liquidation doctrine, which is achoice of law rule of English law, inthose cases where the Regulationapplies in relation to main and second-ary proceedings. Nevertheless, it isinteresting to note that where a singlede facto distribution would be conven-ient, a way has been found to organisethat whilst maintaining the require-ment of the Regulation that there bede jure separate main and secondaryinsolvency distributions in each juris-diction. In one case, (Re EurodisElectron plc, Arnold J., 21 Nov 2008,

no judgment given) the English courtwas prepared to direct that the Englishadministrator in the main proceedinguse the Dutch trustee in the secondaryproceeding as agent to carry out a defacto joint distribution which compliedwith both Dutch and English law,which fortunately had similar priori-ties. This solution replicates the costsavings and fairness of having oneuniversal distribution without contra-dicting the mandatory statutoryrequirements of the Regulation.

ConclusionNo-one can fail to admire the out-standing contribution made by LordHoffmann to insolvency law. It is sug-gested that his analysis in the HIHcase is plainly right and that the ancil-lary liquidation doctrine lives on tocontinue its long case law history ofcreating justice and fairness. With thegreatest of respect to Lords Scott andNeuberger, their concerns about the“disapplication” of mandatory statuto-ry rules of English insolvency lawappear to be based on an incompleteappreciation of the history and detailof the subject, which reveals a numberof areas where the case law has sup-plemented and corrected the statutoryprovisions and has de facto disappliedthem in the interest of justice.

The history and nature of insolvencylaw in England is the history of aninterplay between statutory and caselaw provisions. This is a history, whichif ignored, leads to error and confu-sion.

It is suggested therefore that thecode needed to unlock the mysteriesof insolvency law is not in fact asecret one, but just a code which hasbeen misunderstood by two of theirLordships. Lords Hoffmann andWalker have interpreted the code cor-rectly and have discovered that theHoly Grail is none other than the“Golden Thread”. It is not guarded byany secretive Priory or even 3-4 SouthSquare!

The history and nature of insolvency law inEngland is the history of an interplaybetween statutory and case law provisions,and which if ignored, leads to error andconfusion.

20

Offshore case annual reviewIn addition to practising in the courts in

England and Wales, many members of

Chambers have appeared in or, where they are

not allowed to appear as advocates, assisted

with cases in common law foreign jurisdictions.

In particular members of Chambers have

appeared, some many times, in court in the

Bahamas, Bermuda, British Virgin Islands, the

Cayman Islands, Dubai, Gibraltar, Hong Kong

and the Isle of Man. Regular assistance at all lev-

els of seniority is provided for litigation and dis-

pute resolution in Jersey and Guernsey. For

more details see the 3-4 South Square website

at www.southsquare.com.

Given this, it was a logical extension to the

usual case digests to add an annual review of

offshore cases to the Digest. Below is the first

such annual review compiled by Jeremy

Goldring and Tom Smith.

David Alexander QC – Editor

Jersey

The decision of the Royal Court in Ansbacher Trustees vFreeman [2009] JRC 003 dealt with two interestingand important questions in the context of trust litiga-tion commenced by beneficiaries against a trustee forbreach of trust. These concerned the locus standi ofthe object of a mere power to sue for breach of trustand the application of the rule against reflective losswhere the company in question is owned by a trust. Inrelation to the first question, a typical discretionarytrust will provide for trusts of income, subject to pow-ers of appointment of capital or income in favour of aspecified class of beneficiaries until the vesting dateand then ultimate default trusts in favour of the bene-ficiaries. However, there has been an unresolved ques-

tion as to whether the object of a power of appoint-ment, as opposed to the beneficiary of a trust, hasstanding to sue the trustee for breach of trust. TheRoyal Court held that the object of a mere power didhave such standing.

The second question which the Royal Court had toconsider in Ansbacher was whether the rule againstreflective loss applied so as to prevent a beneficiary ofa trust suing a trustee for breach of trust where thetrust property was held through a company andtherefore the loss had prima facie been suffered bythe company. Although it did not express a final view,the Court considered that there very arguablegrounds for concluding that the principle has no

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November 2009 3-4 digest

application in these types of cases where a discre-tionary beneficiary is asking for reconstitution of thetrust fund because of a failure by the trustee to super-vise the investments of a wholly owned company. Thisis therefore an example of a case where the applica-tion of rule against reflective loss might lead to anunacceptably harsh result and where the Jersey court,as a matter of policy, would decline to apply the rule.

From a litigation perspective, one of the mostimportant decisions in Jersey was the decision of theJersey Court of Appeal in Leeds United v Admatch[2009] JCA 097. Under Jersey procedure, it had beenthe position that a plaintiff resident abroad could forthat reason alone be ordered to give security forcosts, the principle being that it would be unjust for asuccessful defendant to have to pursue a plaintiffabroad for his costs. However, the ECHR has beenenacted into Jersey law by the Human Rights (Jersey)Law 2000 and in Admatch the Court of Appeal heldthat a blanket approach whereby foreign plaintiffscould be ordered to give security on the grounds fortheir residence abroad alone was contrary to Article14 of the ECHR as discrimination. Rather, each casehad to be considered on its merits in order to identifywhether there was some objectively justifiable reasonfor ordering security such as likely difficulties inenforcing a costs award in the country of the plain-tiff ’s residence. The effect of the decision will be toease access to the Jersey courts for foreign plaintiffs,particularly those based in countries such as Englandwhere costs orders made by the Jersey court can bereadily enforced.

In GL v Nautilus Trustees Ltd [2009] JRC 164A theRoyal Court considered the basis on which a transferand gifts made into a trust could be set aside ongrounds of mistake. Applying the decision in Gibbon vMitchell [1990] 1 WLR 1304 it was held that a volun-tary transaction would be set aside whether thedisponor did not intend it to have the effect which itdid, whether the mistake was of fact or of law. On thefacts of the Nautilus case, the settlor made a mistakeas to the effect of the terms of the trust and the courtexercised its discretion to set the relevant transactionsaside.

Guernsey

In Re Flightlease Holdings Ltd, 14 January 2009, theRoyal Court of Guernsey had to consider the opera-tion of the rule in Cherry v Boultbee and, in particular,the inter-relationship between the operation of thatrule and contractual non-competition and subordina-tion provisions which are commonly found in groupfinancing structures. The rule in Cherry v Boultbeeprovides that a person with a claim against an estatecannot claim his share of the estate without first mak-ing good any contribution which he owes to theestate. However, it is generally accepted, and was

common ground in Flightlease, that the operation ofthe rule can be excluded by agreement. The facts ofFlightlease concerned two sister companies, FLGuernsey and FL Ireland: FL Guernsey owed FL Irelandan inter-company debt but had also acted as surety ofFL Ireland’s debts owed to third parties and thereforehad a contingent claim to an indemnity against FLIreland. Both companies were in liquidation. Underthe application of the rule in Cherry v Boultbee, FLIreland would have had to make good its contributionto FL Guernsey’s estate in respect of the indemnitybefore it could recover under the inter-company debt.However, FL Ireland argued that the effect of the sub-ordination provisions contained in the guaranteesissued by FL Guernsey effectively excluded the opera-tion of the rule. The Royal Court rejected this argu-ment on the basis that the language in the guaran-tees did not relate to the ascertainment of the fundrepresented by FL Guernsey’s estate and it was thisexercise which involved the application of the rule.This is an interesting decision on the way in which therule in Cherry v Boultbee can be excluded by contrac-tual agreement; a point with which the English Courtswill shortly have to grapple themselves.

Cayman Islands

In Re Fortuna Development Corp [2008] CILR 67 theCayman Islands Court of Appeal considered anattempt to strike out a petition on the basis of themaking of a plainly reasonable offer (CVC v DemarcoAlmeida [2002] 2 BCLC 108) in the context of a share-

Jeremy Goldring

22

holder dispute. It was held that the appointment of avaluer as an expert requires that the valuer be bothimpartial and independent. Impartiality relates tomatters such as bias. The concept of independencerelates to the ability of the valuer to exercise a freeand unrestrained judgment on the question of value.Loss of independence could therefore occur as aresult either of external factors compromising the val-uer’s autonomy or freedom of choice, or as a result ofinternal factors such as an earlier conclusion on valuefor a special purpose from which the valuer might notbe free to depart. However, as regards both impartiali-ty and independence concepts, there is no scope forimporting notions of apparent bias or lack of inde-pendence into the role of a valuer. In the case of achallenge to a valuer’s position or decision, proof ofactual want of impartiality or proof that the valuer’sindependence has in fact been compromised wouldbe required.

In Re Bristol Fund Ltd; Re Beacon Hill Master Fund Ltd,2 May 2008, the Grand Court decided that the audi-tors of two mutual funds in liquidation, who had thebenefit of releases and indemnities under an auditengagement letter and the articles of association,

were entitled to prove in the liquidations of the fundsfor (i) the accrued costs of successfully defending oneclaim brought in the US and (ii) the contingent costsof defending ongoing proceedings in relation toanother claim in the US, where: (a) the auditors werereleased and indemnified against any liability ‘relatingto the audit services it provided to the Funds, where suchlosses are attributable to any fraudulent acts or omis-sions, misrepresentations or wilful default by manage-ment and employees’ of the funds; and (b) the costsclaimed by the auditors were ‘attributable’ to the fraudof the funds’ management in the sense (applyingFleming v. Wandsworth LBC (1984) 83 LGR 277) thatthere was a more than insignificant contributorycausal connection between that fraud and the audi-tors’ incurring of the costs. However, it was also decid-ed that any provision by the liquidators in relation tothe contingent part of the claim would not, however,need to extend to damages to which the auditorsmight become liable by reason of their own ‘wilfuldefault or wilful neglect, fraud or dishonesty’ since(applying Re City Equitable Fire Insurance Co [1925] 1Ch 407) the irreducible core obligations of an auditor,to act honestly and in good faith, would remainnotwithstanding the terms of any indemnity.

In the case of Re Strategic Turnaround MasterPartnership Ltd, 12 December 2008, the Court ofAppeal of the Cayman Islands considered the ques-tion of whether a redeeming investor in a mutualfund was entitled to petition for winding-up. It washeld that, notwithstanding that a redeeming investorin a mutual fund had, prior to the date of the suspen-sion of redemptions, become a creditor on the pass-ing of the redemption date, and the debt had notbeen paid, the investor was not entitled to petition forthe winding up of the fund as a creditor on theground of insolvency where: (a) as a matter of con-struction, the directors of the fund had power underits articles of association and a confidential explanato-ry memorandum to suspend the payment of redemp-tion proceeds after the redemption date; (b) it wasarguable that the power had been exercised by reso-lutions of the directors prior to the presentation ofthe petition; and (c) the petitioning investor could nottherefore show that it was owed a debt by the fundthat was due and payable. Nonetheless, the windingup petition was not struck out, but was allowed tocontinue on the just and equitable ground on thebasis of an allegation that the power to suspend thepayment of redemption proceeds had been improp-erly exercised.

Dubai

In Dutch Equity Partners Ltd v Daman Real EstateCapital Partners Ltd (Dubai International FinancialCentre Courts, Deputy Chief Justice Hwang, reportedat the Defendant was a company registered in the

Tom Smith

23

November 2009 3-4 digest

DIFC which was developing a building within theDIFC. The Claimant was a 5% shareholder in theDefendant. The Claimant commenced proceedingsseeking (i) a declaration that the articles of associa-tion of the Defendant remained the incorporationarticles and not those which had placed before thegeneral meeting of the Defendant in April 2005(“Claim 1”); and (ii) a declaration that the manage-ment agreement (“the Management Agreement”),pursuant to which the Defendant company hadengaged an associate company (“DAM”) to managethe building project, was invalid (“Claim 2”).

The Claimant relied on inter alia the following mat-ters in support of Claim 1: (i) the meeting was calledon fewer than 21 days’ notice as required by Article58(1) of the 2004 Companies Law; (ii) the notice of themeeting could not be understood without referenceto the Management Agreement which was notenclosed with the notice of the meeting; (iii) thenotice of the meeting referred to “ratification” of thearticles as opposed to “adoption” of a new set of arti-cles; (iv) the notice did not contain a fair, candid andreasonable explanation of the business to the votedupon at the meeting; (v) the new articles were not dis-tributed before the meeting; and (vi) there was noproper show of hands taken at the meeting.

The Defendant acknowledged that there had beencertain procedural irregularities in relation to the gen-eral meeting, but contended that the Court shouldgrant a declaration pursuant to Article 157 of the2006 Companies Law that the procedural irregulari-ties did not invalidate the approval of the new arti-cles.

The learned Judge found as follows (i) Article 157extended to a company’s internal administrative pro-cedures and was not, as contended by the Claimant,restricted to dealings between a company and theRegistrar of Companies; (ii) a defect of notice wouldnot normally invalidate a company meeting unless asubstantial injustice had been caused by the defect;(iii) no substantial injustice had been caused on thefacts of the case. Accordingly, the Court granted theapplication pursuant to Article 157 and found that theincorporation articles of the Defendant were replacedwith those which had been placed before the generalmeeting in April 2005.

The learned Judge dismissed Claim 2, accepting theDefendant’s submission that the Claimant had nolocus standi to pursue the claim for inter alia the fol-lowing reasons: (i) the Defendant was the properclaimant to bring an action to seek a declaration thatthe Management Agreement was invalid; (ii) theClaimant was a minority shareholder and the rule inFoss v Harbottle precluded the Claimant seeking a dec-laration in relation to the validity of the ManagementAgreement as it did not fall within any of the excep-tions to this rule; (iii) Article 24 of the 2006 CompaniesLaw meant that there was no room for the operationof the doctrine of ultra vires in relation to the entry

into the Management Agreement; (iv) the Claimant’sallegation that the Management Agreement was ille-gal as it circumvented the requirement under DIFClaw that a company must be managed by not lessthan two directors was rejected.

The learned Judge found that any breach of theCompanies Law would not render the ManagementAgreement invalid as there was an insufficient nexusbetween a statutory provision which requires a com-pany to be managed by two or more directors andthe entry into a Management Agreement which dele-gates most of the directors’ powers; (v) the Courtrejected the Claimant’s allegation that the failure ofDAM register in the DIFC invalidated the ManagementAgreement on grounds of illegality. The learnedJudge held, on the assumed fact that DAM shouldhave registered in the DIFC, that there was an insuffi-cient nexus between the failure to register and theentry into the Management Agreement so as to ren-der the agreement invalid.

British Virgin Islands

In SV Special Situations Fund Ltd v Headstart Class FHoldings Ltd, British Virgin Islands (a decision ofOlivetti J on 21 November 2008) SV applied to theCourt to set aside a statutory demand served on it byHeadstart in respect of unsatisfied redemptionrequests. Olivetti J refused to set the statutorydemand aside.

The Judge found as follows: (i) Headstart was a“creditor” within the meaning of section 9 of theInsolvency Act 2003 (“the Act”) as: (a) the prohibitionunder section 197 of the Act on past members claim-ing in the liquidation of a company becomes rele-vant only following an order for the winding-up of acompany; and (b) in any event, the claim ofHeadstart, albeit deriving from unpaid redemptionrequests, was no longer characterised as the claim ofa former member following the agreement reachedbetween the parties in relation to the timing of theredemption payments.

(ii) The directors were no longer entitled to exercisetheir discretion under the articles to redeem inspecie by the provision of securities to Headstart.The evidence revealed that the directors of SV hadexercised their discretion to meet SV’s redemptionobligation in cash. Alternatively, SV was nowestopped from contending that it had a right tomeet its obligations to Headstart by the provision ofsecurities.

(iii) Once a creditor had established an undisputeddebt in excess of the prescribed minimum ofUS$2,000 it was entitled to serve a statutory demand.The fact that Headstart’s redeemed shares amountedto only 4% of the fund was irrelevant. The size of thedebt relative to the total assets of SV did not, withoutmore, amount to proof of substantial injustice.

24

Complaining about theconduct of InsolvencyPractitionersWilliam Trower QC explains his role as the IPA's independent Reviewer of

Complaints

Since 1986 there has been a regimein place for authorising persons toact as insolvency practitioners. Thereare two methods by which authorisa-tion can be obtained. The first is byvirtue of an individual's membershipof a recognised professional body,where the rules of that body permitthe individual so to act. The secondis where the authorisation is grantedby the Secretary of State (being theonly competent authority within themeaning of section 392 of IA 1986).There are four recognised profes-sional bodies in England and Wales,including the InsolvencyPractitioners Association (“IPA”).

The role of recognised profession-al bodies in authorising and there-after regulating insolvency practition-ers was contemplated by the CorkReport, but the present position (amix of Government and professionalauthorisation) was a compromisebetween the Cork proposal and theoriginal White Paper proposal thatevery insolvency practitioner shouldbe required to hold a certificateissued by the Secretary of State.

In reaching that compromise, theGovernment recognised that theauthorisation of insolvency practi-tioners (and their subsequent regula-tion) could, in many cases, be moreeffectively carried out by recognisedprofessional bodies. However, anysuch system requires the relevantauthorisation and regulatory func-

tions to be approached in a consis-tent manner. In furtherance of thatrequirement the Secretary of Statehas agreed an MOU with the recog-nised professional bodies which setsout eight governing principles.

The third of these principles seeksto impose consistency amongst therecognised professional bodies bythe development of common ethicaland professional standards throughthe Joint Insolvency Committee. Partof the process by which compliancewith these common standards isenforced is reflected in the fourth ofthe agreed principles, which is to theeffect that each recognised profes-sional bodies must have in place “anaccessible, effective, fair and trans-parent procedure for dealing withcomplaints against members”.

By members the principle is refer-ring only to those members autho-rised to act as insolvency practition-ers. The MOU makes plain that theprocedures contemplated by thisprinciple require each recognisedprofessional body to progress allcomplaints expeditiously and impar-tially and to have in place appropri-ate review procedures to facilitatethis.

In complying with this require-ment, the IPA adopts a stagedapproach. In any case where a per-son is dissatisfied with the standardof work or conduct of an insolvencypractitioner, a complaint can be

made for consideration in the firstinstance by the IPA's complaints offi-cer. After appropriate investigation,the complaints officer will refer thematter to the InvestigationCommittee for a decision as towhether there is prima facie evidenceof misconduct and, if so, what fur-ther steps ought to be taken. TheInvestigation Committee is com-prised of senior members of the IPA,and at least two lay members, one ofwhom is often a lawyer.

If it is satisfied that a prima faciecase has been made out against theinsolvency practitioner, theInvestigating Committee has a rangeof sanctions available to it, the threemost important of which are (a) theissue of a warning letter, (b) theagreement of a consent order and(c) reference to the DisciplinaryCommittee. In practice, the consentorder procedure, by which as itsname implies any penalty can beimposed by consent, is used by theIPA to resolve a large number of thecomplaints in respect of which aprima facie case is established.

It may not surprise the reader tolearn that many complaints are mis-conceived and so it is not at allunusual for the InvestigationCommittee to conclude that no primafacie case is established. Where thatoccurs, the complainant is entitled toa review of that decision by a func-tionary (who at the moment is me)

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November 2009 3-4 digest3-4 digest

WilliamTrower QC

known as the Reviewer ofComplaints. My role, which is gov-erned by the Reviewer of ComplaintsRegulations, is to form an opinion asto whether any one or more of fourdefined circumstances apply. If theydo, I am required to remit the com-plaint to the Investigation Committeewith a recommendation that thewhole or some part of it be reconsid-ered. If they do not apply, I amrequired to inform the complainantand the Committee of that fact, giv-ing written reasons for my decision.

The circumstances which I amrequired to consider are (a) whetherfresh evidence of a material naturehas been received since the date ofthe Committee's decision (b)whether there has been a failure tofollow the procedure for processingor consideration of complaints laiddown in the relevant rules (c)whether there is reason to suspect alack of independence on the part ofany member of the Committee whotook part in the consideration of thecomplaint and (d) whether the find-ing was not one which ought reason-ably to have been arrived at by theCommittee upon due considerationof the facts and matters before it.Circumstances (b) and (c) requireme to be satisfied that theCommittee's consideration of thecomplaint has been prejudiced bythe relevant failure.

The review exercise is carried outon paper, and, in some cases, it isan onerous task. In conducting thatexercise I have access to all of theIPA's files and papers. I can alsorequire the Investigation Committeeto obtain from the relevant insolven-cy practitioner such further explana-tions, books records and documentsas I consider necessary. Although Iam only required to give written rea-sons where I have concluded thatnone of the defined circumstancesapply, I will always write a report,whatever the outcome of my review.The reports which I write are madeavailable to the complainant, the rel-evant insolvency practitioner and theInvestigation Committee.

It can readily be seen that a reviewunder this procedure does notamount to a full rehearing.Furthermore, there are other limita-tions on the extent of my powers.

The first is that, where a prima faciecase is established, but the com-plainant is dissatisfied with thepenalty (e.g. where the insolvencypractitioner manages to agree alenient consent order penalty) I haveno jurisdiction. The second is that Icannot make any decision as to whatshould happen next - if I am satisfied

that one of the identified circum-stances applies, I am required toremit for reconsideration. The deci-sion on how then to proceedremains that of the InvestigationCommittee.

In practice, this procedure worksreasonably well. It satisfies theMOU's requirement to have in place

Many complaints are misconceived and so itis not at all unusual for the InvestigationCommittee to conclude that no prima faciecase is established.

26

In practice the vast majority of com-plainants are satisfied with the way inwhich their complaints are dealt with bythe Investigation Committee

appropriate review procedures tofacilitate the expeditious and impar-tial consideration of all complaints.At the same time it leaves to a com-mittee of self regulating profession-als the decision as to whether or notto proceed with a complaint, so longas it does not act in an unfair orwholly unreasonable manner.

At the stage they first make theircomplaint, there are a number ofmisconceptions which complainantsoften have as to the processinvolved. The IPA seeks to dispelthese misconceptions by thedescription of the complaints proce-dure which appears on its website,but it is often the case that thisdoesn't do the trick. Fortunately forme, the investigating officer will nor-mally be able to put right any initialmisconception, but there are occa-sions on which it is painfully appar-ent that the complainant has still notunderstood the position at the timethe papers hit my desk.

The first misunderstanding formany complainants is that they donot have a very clear grasp of thedistinction between, on the onehand, acts of professional miscon-duct and, on the other hand, errorsof judgment, innocent mistakes, inef-ficiency or incompetence which arenot sufficiently serious or discred-itable as to bring the practitioner, theIPA or the profession more generallyinto disrepute. It is, of course, onlythe former which are susceptible todisciplinary proceedings.

The second misunderstanding isthat complainants often seem toregard a complaint to the IPA as alegitimate alternative to a review bythe court of some aspect of theinsolvency process in which theyhave an interest. This will rarely bethe case. It is not unusual for a com-plainant to think that the IPA is ableto compel a practitioner to alter adecision he has made or even toobtain compensation for some

allegedly wrongful act.Indeed, if the complaint is in fact

actionable in some way, and moreparticularly if proceedings arealready underway, the InvestigationCommittee will normally defer con-sideration until the court hasreached a decision. The IPA's com-plaints' procedures are obviouslynot an alternative to the remediesgiven by the insolvency legislation.Thus, in the normal case, a bank-rupt's complaint about the level ofhis trustee's fees or a negligentdecision as to the terms of sale ofan asset, will either be dismissedoutright or deferred until the courthas considered whether or not togrant relief.

The third misunderstanding, whichis linked to the first two, is that com-plainants often seem to think that thecomplaint process is an appropriatemechanism for resolving an interpartes dispute with the insolvencypractitioner. It is not; particularlywhere there is more than a hint thatthe complaint has been brought tobring pressure to bear on the practi-tioner concerned. Doubtless aninsolvency practitioner is expected tohave broad shoulders in such cases,but the Investigation Committee willnot normally proceed where the realquestion is how to resolve issueswhich arise in relation to particularinsolvencies.

In practice the vast majority ofcomplainants are satisfied with theway in which their complaints aredealt with by the InvestigationCommittee, or at least cannot besaid to be so dissatisfied that theseek a review by me.

From my point of view that is agreat relief. It is to be hoped, howev-er, that the very fact that the IPA(and other recognised professionalbodies) have a reviewer of com-plaints, may enhance confidence inthe transparency and fairness oftheir complaints procedures.

diary dates

5th November 2009.Insol International Seminar including a semi-

nar by David Allison on Hedge Fund Litigation.

Grand Cayman.

11th November 2009.ABI Detroit Consumer Bankruptcy Conference.

Dearborn, Michigan, USA.

11th November 2009.ILA Annual Dinner.

Natural History Museum, London

12th November 2009.R3 Conference including a talk by Lucy Frazer

on “Transaction Avoidance”.

Leeds, UK.

24th November 2009.Insol International Seminar.

Auckland, New Zealand.

27th November 2009.3-4 South Square and Sweet & Maxwell con-

ference “Current Issues in Insolvency 2009”.

Radisson SAS Portman Hotel, London.

201021st-23rd February 2010.Insol International Annual Conference.

Dubai, UAE.

15th-18th April 2010.American Bankruptcy Institute, 28th Annual

Spring Meeting.

Gaylord National Resort & Convention Center,

National Harbour, MD, USA.

19th-22nd May 2010.R3 Annual Conference.

Vilamoura, Portugal.

13th-17th October 2010.Insol Europe Annual Congress.

Vienna, Austria.

201122nd-23rd September 2011.

Venice, Italy.

INSOL Europe, Annual Conference.

November 2009 3-4 digest

news in brief

Britain's big four auditing firmshave been left exposed to a surgein negligence claims after theGovernment refused to limit fur-ther the damages they could face.Deloitte, Ernst & Young, KPMGand PricewaterhouseCoopers(PwC) lobbied hard for a cap onpayouts. Senior figures involvedin the discussions said that Lord

Mandelson, the BusinessSecretary, appeared receptive totheir concerns but stopped shortof changing the law. The decisionis a huge blow to the firms -some face lawsuits relating toBernard Madoff's $65 billionfraud - which believe there maynot be another chance for achange in the law for at least two

years. They fear that they will betargeted by investors and liquida-tors seeking to recover lossesfrom Madoff-style frauds and bigcompany failures.At present, auditors can be heldliable for the full amount of loss-es in the event of a collapse, evenif they are found to be only part-ly to blame.

No protection for audit firmsagainst claims of negligence...

Hong Kong's Chief Justice Andrew Li, astaunch defender of the city's judicial inde-pendence after its return to Chinese rule, saidhe would take early retirement next year. Li,who has led Hong Kong's judiciary since 1997,said he would resign on August 31, 2010, threeyears before reaching the retirement age of 65,and ruled out speculation that he had beenunder political pressure to step down. "Myearly retirement is in the best interests of the

judiciary. It will be conducive to an orderly suc-cession planning," he told reporters. Li saidmany High Court judges would reach theirretirement age between 2011 and 2014, and thatthe resulting succession planning would bebest left to a new Chief Justice. Hong Kong hasbeen governed under the principle of "onecountry, two systems" since its return toChinese sovereignty in 1997, with Britain's sys-tem of common law left intact.

Hong Kong retirement

David Marks QC has been appointed as a member of theNational Security Appeals Panel, which determines data pro-tection and related matters concerning the security services.He thereby becomes a judge of the Upper Tribunal in the newadministrative tribunal system set up under the Tribunals,Courts and Enforcement Act 2007.

National Security AppealsDirector jailedfor sauce fraudNeil Stansfield, 51, has been

jailed for fraudulent trading

after a trading standards

investigation revealed that he

bought Tesco and Waitrose

products, repackaged them

and sold them on as organic

produce through Fortnum &

Mason.

His firm Onefood - which

stood for 'Organic, Natural and

Ethical'- sold a £20 Waitrose

salmon for £51, while pork

pies bought from a local

butcher for £1.30 were sold for

£2.50.

The company, which

employed up to 12 people and

had recorded annual sales of

between £500,000 and £2.5

million, went into liquidation

last year.

Times Law PanelLucy Frazer has been appointed as amember of The Times Law Panel. TheTimes Law Panel is an advisory bodyof 100 of the country's most promi-nent barristers and solicitors, repre-senting a range of expertise frompublicly-funded criminal work tohigh-value commercial transactions.Members are hand-picked at the dis-cretion of The Times’ editors for anindefinite period of time.

Supreme CourtThe 11 judges of the new SupremeCourt were sworn in on 1 October2009, ending 133 years of the Houseof Lords. The court is based in therenovated Middlesex Town Hall onParliament Square. Its President isLord Phillips of Worth Matravers

Chancery Appointments Peter Roth QC has been appointed tothe Chancery bench on the elevationof Mr Justice Patten to the Court ofAppeal. Geoffrey Vos QC has beenappointed to the Chancery Divisionwith effect from 27 October 2009, fol-lowing the retirement of Mr JusticeBlackburne.

ArbitrationStuart Isaacs QC gave an in-houseseminar on 8 October 2009 toGibson Dunn & Crutcher onRemedies for Breach of anArbitration Agreement.

Stuart Isaacs QC

27

28

CVA Consultation The Insolvency Service’sreview of CVAs closed on 9September 2009. Proposedchanges include an extensionof the moratorium available tosmall companies against credi-

tor action to medium-sizedand large companies, makingit easier for small concerns toaccess rescue finance and pro-viding greater security forloans advanced after a business

comes out of administration.R3 is reported to have offeredqualified support to the pro-posals though it fears themeasures will prove too tech-nical and complicated.

Curse of the Gem

The fifth annual Chambers Bar Awardswere held on Thursday 1st October2009 at the Grosvenor House Hotel.As in 2008, 3-4 South Square wasnamed as Insolvency/CorporateRestructuring set of the Year for 2009.Robin Dicker QC was named as

Insolvency/Corporate RestructuringSilk of the Year for 2009.

ChambersBar Awards

A ruby gemstone previouslyvalued in a company’saccounts for £11 million ison sale in Rock n Gem mag-azine for £100. The Gem ofTanzania’s £11 million valua-tion helped Wrekin

Construction, a Shropshirebuilding company, movefrom a deficit of £8 millionto a balance sheet surplus of£6 million in just 9 months.When administrators werecalled in earlier this year the

Gem was exposed as a fake.Ernst & Young have reportedthat "the joint administratorsare seeking to maximise reali-sations from the Gem ofTanzania for the benefit ofthe creditors".

MadoffnewsIrving Picard, the court-appointed trustee of theBernard Madoff businessempire, has filed a $200-mil-lion lawsuit against the jailedfinancier's two sons, brotherand niece, alleging that theybenefited from Madoff's $60-billion fraud by using hisinvestment firm as a “familypiggy bank” to fund their lav-ish lifestyles. Picard's lawsuit,filed in the New York federalbankruptcy court, alleges thefamily members all receivedimproper or fraudulent fundsfrom Madoff's $60-billioncrime, which they used tofund business deals as well aspurchase multimillion-dollarhomes, luxury cars, boats andfancy clothes.

Fourth plinthPeter Sargent, the president of R3,

took to the Fourth Plinth on 28

September 2009 to give free debt

advice and help people with debt

problems. He said:“Standing on the

Fourth Plinth will provide an exciting

opportunity for me to talk to the gen-

eral public about debt and insolvency

issues which are affecting an increas-

ing number of people. This year we

expect 166,000 individuals and

30,000 businesses to go into insolven-

cy which in itself is a vast number but

the knock on effect of this will be felt

even further throughout our society.”

In what must rank as one of Russia’s strangest legalcases, a court began a libel hearing in defence ofthe reputation of Joseph Stalin.

Yevgeni Dzhugashvili,Stalin’s grandson, is takingpart in a demand for ten million roubles (£200,000)in damages from Novaya Gazeta, a liberal opposi-tion newspaper, over an article that accused theSoviet tyrant of personally approving executions.

The case is being brought by Leonid Zhura, adevoted Stalinist, who insists the dictator neveractually killed anybody - despite the deaths of mil-lions in purges and slave labour camps under hisrule. Hearings opened in October at BasmannyCourt in Moscow into his complaint that Anatoli

Yablokov, an historian, had insulted Stalin’s memo-ry. Mr Yablokov wrote that the Soviet leader hadsigned orders to murder Soviet citizens, and thatStalin and the KGB were linked “by the gravestcrimes, above all against their own people”.

The newspaper reproduced documents fromSoviet archives showing Stalin’s signature on listsof people for execution, some with handwrittennotes insisting that all of the accused should bekilled.

The case is being seen as another step inKremlin-backed efforts to rehabilitate Stalin as astrong leader who turned the Soviet Union into asuperpower.

Meanwhile in Russia...

29

November 2009 3-4 digest3-4 digest

3-4 South Square held an insolvency law seminar andreception at the Midland Hotel in Manchester onWednesday 23 September 2009.

The seminar, which was chaired by David AlexanderQC, was very well attended by solicitors and insolvencypractitioners from the Manchester area.

Talks were given by Adam Goodison (trusts and insol-vency), Lexa Hilliard QC (non executive directors andwrongful trading), Lloyd Tamlyn (officeholders’ remu-neration), John Briggs (council tax arrears and bank-ruptcy) and David Alexander QC and Stephen Robins(attacking administrations and administrators).

The evening was deemed a great success by all.

Gabriel Moss QC has securedan extension for a limitedperiod to the 20% discountavailable in relation to the2nd edition (2009) of “TheEC Regulation on InsolvencyProceedings, A Commentaryand Annotated Guide”.Edited by Gabriel with IanFletcher and Stuart IsaacsQC, also both of 3-4 SouthSquare, and with contribu-

tions from other members ofChambers (David Marks QC,Felicity Toube, DanielBayfield, Tom Smith,Georgina Peters and AdamAl-Attar), this book providesa complete analysis of theEC Regulation, includingessential case-law develop-ments, and is a must for any-one who requires knowledgeof insolvency law applicable

not only in the UK but alsothroughout the EU. The 20%discount is available fororders placed directly withOUP. To order your copyplease call +44(0)1536741727 or email OUP atwww.bookorders.uk@oup.com bookorders.uk@oup.comWhen ordering please quotethe following reference:ALMOSS09.

Strasbourg UniversityDavid Marks QC was an invited guest

lecturer at the University of Strasbourg

summer school for the Erasmus

European masters students course on

Comparative European Insolvency in

August, where he delivered two papers

in French on various aspects of UK

Insolvency Law.

Old law firm failsA Wirral law firm is the latest victim of

the Recession - collapsing after 190

years of business. Lees Lloyd Whitley

(LLW) is believed to have been serious-

ly affected by the downturn in the UK

housing market. The firm's partners

announced LLW is being broken up

and will file for administration. The firm

can trace its history back to the forma-

tion of Whitley & Co, in Liverpool, in

1820.

Alarm at Iran trialsThe Law Society and Bar Council have

expressed concern about reported

'mass trials' in Iran. The fourth such trial,

of more than 100 people accused of

crimes including rioting and vandalism

following the disputed June 2009 elec-

tions, is reported to have started recen-

ty.

St Gallen ConferenceThe St Gallen Second International

Dispute Resolution Conference took

place on 16 and 17 October 2009 with

presentations on international judicial

dialogue in insolvency by Adam

Goodison (below) of 3-4 South Sq,

Professor Paulus of Berlin University,

and Professor Westbrook of University

of Texas

John Briggs

20% Discount for EU Regulation BookStephen Robins

Manchester Conference

Lexa Hilliard QC, Lloyd Tamlyn, and (below) the conference venue, the Midland Hotel Manchester

30

Insolvency ChallengeMany thanks to all those who entered the July Insolvency Challenge. The correct answers and the winner appear in the box at the foot of the page. As for this issue of the Digest, a yet further challengewith a difference based on an idea from Christopher Brougham QC (right). The clues are in the pictures.There will, of course, be a Magnum of Champagne for the winner, the winner being drawn from a wig tinif there is more than one correct entry. Answers by email to kirstendent@southsquare.com or by post tothe address on the back page in either case by Friday 15th January 2010.

1.

2.

3.

4.

31

November 2009 3-4 digest

July Insolvency ChallengeThe correct answers to the July 2009 Insolvency Challenge were (1) Lord Hoffmann (2) Lord Millett (3) Sir John Chadwick (4) Professor Roy Goode(5) Lord Brightman (6) Muir Hunter (7) Sir Gavin Lightman and (8) Sir David Richards. Once again there were a considerable number of correctentries. But the winner, as drawn by 3-4 South Square’s senior practice manager, Paul Cooklin, is Paula Richmond of Zolfo Cooper in Leeds towhom go our congratulations and a magnum of champagne.

...and the common denominator?

5. 6.

7. 8.

9.

32

Michael Crystal QC

Christopher Brougham QC

Gabriel Moss QC

Simon Mortimore QC

Stuart Isaacs QC

Richard Adkins QC

Richard Sheldon QC

Richard Hacker QC

Robin Knowles CBE QC

Mark Phillips QC

Robin Dicker QC

William Trower QC

Martin Pascoe QC

Fidelis Oditah QC

David Alexander QC

3-4 South SquareBarristers

Telephone+44 (0)20 7696 9900

Fax+44 (0)20 7696 9911

Emailclerks@southsquare.com

Felicity Toube

Jeremy Goldring

Lucy Frazer

David Allison

Daniel Bayfield

Tom Smith

Richard Fisher

Blair Leahy

Stephen Robins

Marcus Haywood

Hannah Thornley

Simon Fuller

William Willson

Georgina Peters

Adam Al-Attar

Antony Zacaroli QC

Stephen Atherton QC

David Marks QC

Lexa Hilliard QC

Ronald DeKoven

John Briggs

Mark Arnold

Adam Goodison

Hilary Stonefrost

Lloyd Tamlyn

Glen Davis

Andreas Gledhill

Barry Isaacs

Ben Valentin

“Barristers who are invariably terrific, and clerks who know their business to a tee.”

“You cannot get any better”

Chambers 2009

Post3-4 South Square, Gray’s Inn

London WC1R 5HP, UK

Document ExchangeLDE 338 Chancery Lane

Websitewww.southsquare.com

Senior Practice Manager: Paul Cooklin - paulcooklin@southsquare.com