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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Fortress Value Recovery Fund I LLP v Blue Skye Special Opportunites Fund LP & Ors [2013] EWHC 14 (Comm) (16 January 2013) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2013/14.html Cite as: [2013] 2 BCLC 351, [2013] BPIR 276, [2013] 1 All ER (Comm) 973, [2013] EWHC 14 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/01/2013

The Honourable Mr Justice Flaux:

Introduction

1. The second, third, fifth to twelfth, fifteenth, seventeenth and twenty first defendants (who are described for convenience hereafter as "the RPC defendants" since, at the time of the hearing, they were represented by Reynolds Porter Chamberlain LLP) and the sixteenth defendant who is separately represented, make applications to strike out certain paragraphs of the Amended Particulars of Claim, alternatively for summary judgment against the Claimants, alternatively they resist the permission to amend the Particulars of Claim which the Claimants seek. The shape of the application as it was pursued at the hearing on 18 to 20 December 2012 was somewhat different from the application as issued, principally because certain claims have been withdrawn by the Claimants and other claims have been the subject of extensive amendment and because the RPC defendants and the sixteenth defendant have abandoned certain grounds of their applications.

Factual Background and the claims advanced

2. The second and third defendants are the managers of an investment structure in which the claimants and others are investors. The underlying assets of the structure are businesses in Italy ("the Italian assets") which are said by the second and third defendants to have a value in the region of €200 million, although that figure is in issue. As originally set up in December 2008, the investment structure was based around the first defendant, the Blue Skye Fund, an English limited partnership, which held indirectly the whole interest in the Italian assets, through holding all the shares in the sixth defendant, Blue Skye Lux, which was the holding company for the Italian assets.
3. The principal limited partner in the Fund was the fourth defendant, Stepstone, a Luxembourg registered company which held a 99.999% interest in the Fund. Stepstone was the joint venture vehicle by which the claimants and others invested in the structure. The General Partner was the fifth defendant, Blue Skye GP Ltd, a Guernsey registered company.
4. Stepstone was itself owned as to 48.95% by the third claimant ("Cypress Way"), also a Luxembourg registered company, 36.7% by DeA Capital Investments SA, an investment vehicle for the De Agostini group, a private investment group in Italy, 9.3% by the thirteenth defendant Omega Skye and 4.9% by the fourteenth defendant, Omega Partners (formerly called IdeA), those last two being entities which were or became ultimately owned by the second and third defendants. The management and administration of the partnership was regulated by a Partnership Deed dated 24 December 2008 between Stepstone, IdeA, the thirteenth defendant and the fifth defendant, which was expressly governed by English law and contained a London arbitration clause.
5. Stepstone's acquisition of its interest in the Fund was funded by way of a loan of €98.471 million from the second claimant, ("ZBS"), an English limited partnership with its principal place of business in the Cayman Islands, pursuant to a Loan Agreement which was expressly governed by English law and contained an exclusive English jurisdiction clause. The investment was not open-ended, but repayable no later than December 2011 and Stepstone itself was formed for a limited period of time ending in December 2012.
6. The ZBS loan was secured by a deed of assignment ("the Security Assignment") pursuant to which Stepstone assigned to the first claimant ("Fortress"), all of its rights and interest in the Blue Skye Fund and any rights accruing to, derived from or otherwise connected with those rights and that interest as security for its obligations under the Loan Agreement. The Security Assignment was also expressly governed by English law and contained an exclusive English jurisdiction clause. Fortress, a Delaware corporation, is a global investment manager listed on the New York Stock Exchange and with assets under management exceeding US$40 billion.
7. Mr McQuater QC on behalf of the claimants summarises the claimants' case in their Skeleton Argument for this hearing in these terms: "The claimants' case in summary is that in the course of 2011 Mr Cerchione and Mr D'Avanzo, acting in concert with the other defendants, designed and implemented a dishonest scheme to reorganise the Blue Skye Fund and its assets. The purpose and effect of the scheme was to diminish or eliminate the claimants' rights and interests in the investment property and underlying Italian assets, to take the control and benefit of the assets for themselves, and to enable them and their associated entities to extract fees and other value from the assets without reference to or oversight from the claimants."
8. The detailed allegations concerning this allegedly dishonest scheme ("the Scheme") are set out in section 4 of the Amended Particulars of Claim [86-135] and at Section C [27-149] of Stepstone's Part 20 Particulars of Claim. It is necessary to set out some of the detail in order to put in context the applications currently being made by the RPC defendants and the sixteenth defendant. In doing so, I have adapted the extremely helpful Appendix to Stepstone's Skeleton Argument provided by Mr Craig Orr QC and Mr Goldsmith and Mr Brown, his juniors, although it is important to emphasise at the outset that in doing so I am merely using a convenient means of summarising the claims and allegations made by the claimants and Stepstone, not in any sense prejudging the issues or making any findings of fact.
9. It is alleged that the Scheme had nine or ten main elements or phases. The first phase involved the acquisition by Omega Skye, the thirteenth defendant, of IdeA on 31 January 2011 and the use of IdeA's shareholding in Stepstone to procure the appointment of the sixteenth defendant, Mr Padula, to the board of Stepstone to act at the direction of the second and third defendants. It is said that those defendants thereby gained control of the Stepstone board.
10. The second phase is said to have involved the re-organisation of intermediate entities in the investment structure between 7 and 16 March 2011, including:

(1) The acquisition by BenLomond, the seventh defendant, then a subsidiary of Blue Skye Lux, the sixth defendant, of Blue Skye FH, the twelfth defendant, to which BenLomond then contributed its shareholding in Alfa Skye (comprising part of the Italian assets);

(2) The transfer by Blue Skye Lux of the remainder of the Italian assets to Blue Skye FH in return for the allotment to Blue Skye Lux of Convertible Preferred Equity Certificates ("CPECs") issued by Blue Skye FH;

(3) The transfer by Blue Skye Lux of the Blue Skye FH CPECs to its subsidiary, BenLomond, in return for the allotment to Blue Skye Lux of CPECs issued by BenLomond. Those CPECs were subsequently contributed by Blue Skye Lux, together with the shares held by Blue Skye Lux in BenLomond, to the Blue Skye Fund on 10 May 2011, following which Blue Skye Lux was removed from the structure altogether;

(4) The incorporation of Greentea and Blue Skye SCS, respectively the eleventh and tenth defendants, at the direction of the second and third defendants.

11. The third phase involved the approval on 22 March 2011 by the board of Stepstone, by the fifteenth and sixteenth defendants, Mr Lichy (the claimants' appointee) dissenting, of the proposed restructuring of the Blue Skye group. It is alleged that this facilitated the subsequent restructuring and put in train the alienation of the Claimants and Stepstone from the Blue Skye Fund.
12. The fourth phase involved further steps taken on 22 March 2011 in order to remove all rights of control exercisable by Stepstone and/or the Claimants over the Italian assets and to vest complete control of the Italian assets in the second and third defendants (and/or entities owned and/or controlled and/or associated with them, specifically Blue Skye SCS). Those steps included:

(1) The contribution by BenLomond of the Blue Skye FH CPECs and shares (and therefore the Italian assets) to Blue Skye SCS in return for partnership units in Blue Skye SCS which the claimants and Stepstone allege was at an excessive premium, and the contemporaneous subscription for partnership units in Blue Skye SCS by BSkye Investors, the twenty first defendant. The result was that the units in the Blue Skye SCS partnership were held as follows: (i) 501 units or 49.85% by Blue Skye Capital, the ninth defendant, in return for €501; (ii) 498 units or 49.55% by BenLomond in return for €198,699,502; (iii) 5 units or 0.5% by BSkye Investors in return for €1,000,000 and (iv) 1 unit or 0.1% by Blue Skye Management, the eighth defendant, in return for €1.

(2) The entry by Blue Skye Capital into an undertaking ("the Undertaking") with BenLomond to pay to BenLomond any dividends distributed to Blue Skye Capital by Blue Skye SCS or an amount equal to any proceeds of sale resulting from the disposal of Blue Skye Capital's partnership units in Blue Skye SCS.

13. The effect of those steps was that (i) Stepstone's 99.999% interest in the Italian assets was replaced by a 49.55% interest in them, together with the benefit of the Undertaking and (ii) a new Luxembourg partnership, Blue Skye SCS was interposed between the Fund and the Italian Assets. This was under the control of a General Partner, Blue Skye Management, which was ultimately owned and controlled by the second and third defendants and could not be removed without its own consent and thus the consent of the second and third defendant. The claimants and Stepstone contend that at this stage therefore, although the Fund retained an indirect economic interest in 99.999% of the Italian assets via BenLomond which was a limited partner in Blue Skye SCS, that was an interest entirely without control.
14. The fifth phase was the issue by Blue Skye SCS on 22 March 2011 of €107 million SCS Convertible Notes. Pre-emption rights were offered to Stepstone and its shareholders, but the claimants and Stepstone contend that these were illusory, either because they were not in a position financially to fund the purchase or, in the case of Cypress Way, because it was ineligible to subscribe to the Convertible Notes or because, in any event, it would have been unwilling to subscribe further capital, since it had previously been pressing Stepstone to withdraw its existing participation in the Fund.
15. Thereafter, the SCS Convertible Notes were subscribed for (a) as to €104 million by Greentea in return for the issue by Greentea to Blue Skye SCS of €104 million Greentea Floating Rate Notes (the "Greentea Floating Rate Notes"); and (b) as to €3 million by BSkye Investors (controlled by the second and third defendants), said to be in return for a cash payment of €3 million. The claimants and Stepstone contend that if the SCS Convertible Notes are converted, BenLomond's interest (and hence the interest of the Blue Skye Fund and Stepstone) in the Italian Assets would be reduced to virtually nothing.
16. The sixth phase was the acquisition on 30 June 2011 by Blue Skye FH of a call option over the share capital of Greentea (the "Call Option"), thereby effectively enabling Blue Skye FH to purchase the vast majority of the partnership units in Blue Skye SCS very cheaply for €31,000. It is contended by the claimants and Stepstone that the intention was that, once exercised, the Call Option would result in circularity of ownership (Blue Skye FH would own Greentea which would own Blue Skye SCS which would own Blue Skye FH), thereby leaving BSkye Investors (and therefore the second and third defendants) as the only entity with any substantial economic interest in the Italian assets.
17. The seventh phase involved the grant on 1 August 2011 by the Blue Skye Fund to Blue Skye FH of a pledge over the shares it held in BenLomond (the "Pledge"), said to be in return for a loan from Blue Skye FH of €6,315,000 (the "Blue Skye FH Loan"). Under the Pledge, the voting rights in the BenLomond shares subject to the Pledge are exercisable by Blue Skye FH until repayment of the Blue Skye FH Loan. BenLomond subsequently assumed the obligations of the Blue Skye Fund under the Blue Skye FH Loan. It is contended by the claimants and Stepstone that by these transactions, the RPC defendants further secured their control over the Blue Skye Group and the Italian assets.
18. The eighth phase involved the withdrawal by Stepstone in December 2011 of its interest in the Blue Skye Fund, in return for a holding of €103.4 million Greentea Floating Rate Notes and the shares and CPECs in Benlomond. It is contended by the claimants and Stepstone that by this means Stepstone's interest in the Fund, worth approximately €200 million, was replaced by a holding of Greentea Floating Rate Notes, which will pay only €103.4 million plus interest and then not until 2018 (long after the maturity of the ZBS loan and the expiry of Stepstone), together with shares and CPECs in BenLomond that will be practically worthless if the SCS Convertible Notes are converted.
19. The final phase of the Scheme alleged against the RPC defendants and the sixteenth defendant is the dissolution of the Blue Skye Fund towards the end of 2011 and the subsequent placing of Stepstone into bankruptcy (by the fifteenth and sixteenth defendants, Mr Lichy again dissenting). It is contended by the claimants and Stepstone that these steps were designed to make it even more difficult for them to exercise their rights in relation to the Italian assets.
20. As already noted above, the Stepstone investment originally comprised a 99.999% limited partnership interest in the Blue Syke Fund which, pursuant to the Partnership Deed, could be redeemed on notice. This meant that Stepstone (or Fortress as assignee in the event of a default) could instigate the liquidation of the Italian assets or take them under its direct control. As a result of the Scheme, the investment has now been transformed into a shareholding in BenLomond which is pledged to Blue Skye FH and the 2018 Notes issued by Greentea. The claimants and Stepstone contend that they no longer have any ability to influence the management of the Italian assets or their disposal and are entirely dependent upon the decisions of the defendants and, as a consequence the value of the investment property has been diminished or eliminated.
21. On the basis of these allegations, the claimants advance a number of claims which, in summary, are as follows:

(1) ZBS and Fortress claim against Stepstone for breach of the Loan Agreement and of the Security Assignment respectively.

(2) ZBS and Fortress advance claims in tort against all defendants except Stepstone for unlawful means conspiracy and unlawful interference. Cypress Way has abandoned its claims in tort in the Amended Particulars of Claim.

(3) ZBS claims against all the defendants except Stepstone in tort for procuring breach by Stepstone of the agreements.

(4) Fortress claims as assignee in respect of Stepstone's loss (i) against the fifteenth and sixteenth defendants for breach of their fiduciary duties owed to Stepstone under Luxembourg law; (ii) against the fifth defendant for breach of the Partnership Deed; (iii) against all the other defendants except Stepstone for procuring that breach; and (iv) against all the other defendants except Stepstone for dishonest assistance of variously the fifth and/or fifteenth and/or sixteenth defendants.

(5) In the alternative to the English law tort claims, ZBS and Fortress claim against all the defendants except Stepstone in tort under Luxembourg law on the basis of intentional acts, alternatively negligent conduct or imprudence which is actionable in tort under Luxembourg law.

(6) All the claimants seek orders under sections 423 to 425 of the Insolvency Act 1986, unwinding the reorganisation of the structure and restoring the economic substance to what it was prior to the Scheme.

22. The RPC defendants and the sixteenth defendant emphatically deny in their Defences that the reorganisation was pursuant to a dishonest Scheme. The Defences set out in considerable detail how every aspect of the alleged Scheme was undertaken honestly and with a genuine commercial purpose and how the claimants were aware of what was going on. It is not necessary for the purposes of the present applications to refer to the Defences at length, but in summary, it is contended that the transfer of the Italian assets to Blue Skye SCS was necessary to satisfy regulatory requirements under Italian banking law relating to persons holding controlling interests in financial intermediaries, which had been raised in discussions with the Bank of Italy during 2010. The defendants say that they were concerned that Cypress Way and ZBS would not satisfy "integrity" requirements because they were based in the Cayman Islands and Cypress Way had refused to disclose information concerning its ultimate beneficial ownership.
23. It is alleged by the defendants that the issue of the Convertible Notes and, subsequently, the Floating Rate Notes was a separate matter which arose during 2011 because it was necessary to raise further liquidity in the structure in order, amongst other things, to repay the ZBS loan.
24. Not only do the defendants deny that they acted dishonestly but they contend that the reorganisation has not affected the value of the investment or caused the claimants any loss but, on the contrary, has created and preserved the value of the Italian Assets.
25. The substantive merits of the parties' cases in relation to the allegations of fraud are obviously not in issue on these applications, since there is an acute conflict of evidence between the parties as to the motives and purpose of the various stages of the reorganisation. All that it is necessary to say, as have other judges of the Commercial Court (Christopher Clarke J in February 2012 and Blair J in May 2012), is that, on the material before the court, the claimants have a good arguable case that they have suffered loss and damage as a result of a dishonest Scheme.
26. In a letter sent on 28 November 2012 the day before the Case Management Conference, the RPC defendants offered to unwind that part of the Scheme involving the convertible notes, to which the claimants say they are agreeable in principle. However, as the claimants point out, the RPC defendants have not been prepared to accede to the claimants' request to unwind the remainder of the reorganisation.

Procedural history

27. It is necessary to set out some of the procedural history of the case. The Claim Form was issued on 21 December 2011. The Claimants obtained an injunction without notice against the RPC defendants and the sixteenth defendant on 26 January 2012, which was continued at subsequent return dates. The injunction freezes the investment holding structure and maintains the status quo by restraining disposals, transfers, dealings, restructuring or reorganisation of the interests in the entities comprised in the structure.
28. The Particulars of Claim were served on 1 March 2012, Defences on 18 April 2012 and Replies on 15 June 2012.
29. The second, third, fifth, thirteenth and fourteenth defendants made an application for a stay of certain of the claims against them on the grounds that they should be pursued in arbitration pursuant to the London arbitration clause in the Partnership Deed. That application was heard by Blair J who on 30 May 2012 ordered that the claims against the fifth, thirteenth and fourteenth defendants should be stayed and should go to arbitration but the claims against the second and third defendants should not. An appeal by the second and third defendants against that decision is due to be heard by the Court of Appeal later this month.
30. At the Case Management Conference on 29 November 2012, I made various Orders in relation to the future conduct of the proceedings and the Part 20 proceedings to which I refer in more detail below with a view to a trial in February 2014.

The Part 20 proceedings

31. Stepstone had been declared bankrupt on 28 March 2012 by the Luxembourg court which appointed Mr Rukavina as Official Receiver. After a period of time agreed with the claimants' solicitors in which to conduct his own independent investigations, Mr Rukavina concluded, as had the claimants, that there had been a fraudulent Scheme of which Stepstone was also a victim. Accordingly, he instructed DAC Beachcroft LLP, the London solicitors he had consulted, to issue Part 20 proceedings.
32. The Part 20 Claim Form was issued on 24 September 2012, the day before the RPC defendants themselves sought to pre-empt any such claim by issuing their own proceedings in Luxembourg. The Part 20 Claim Form as issued did not state in terms that Stepstone was in bankruptcy and represented by its Official Receiver, although clearly those proceedings were issued with the authority of and pursuant to the instructions of its Official Receiver. Accordingly, that error of nomenclature, if such it was, was a minor procedural irregularity capable of being cured, which it was, by amendment to make it clear Stepstone was in bankruptcy represented by its Official Receiver Mr Rukavina. That amendment was made without permission pursuant to CPR 17.1, as Mr Rukavina was entitled to do, prior to the Part 20 Claim being served.
33. The English court was thus clearly first seised of the relevant causes of action for the purposes of Article 27 of the Judgments Regulation. This evidently perturbed the RPC defendants who had hoped to get in first with the Luxembourg proceedings in fact commenced a day later on 25 September 2012. They commenced a second set of proceedings in Luxembourg in which they sought to set aside Mr Rukavina's instruction of English solicitors and commencement of the Part 20 proceedings on what can only be described as the spurious and factually incorrect grounds that Stepstone had been acting alone and independently of the Official Receiver.
34. In addition, at the time of the Case Management Conference which I heard on 29 November 2012 and at the time of the hearing of the present applications on 18-20 December 2012, the RPC defendants were challenging the jurisdiction of the English court over the Part 20 proceedings, contending that the Part 20 proceedings were a nullity on the basis that, since when issued they did not state in terms that Stepstone was represented by Mr Rukavina, in issuing proceedings in the name of the bankrupt company rather than his own name, Mr Rukavina had acted in a manner which was not permissible under Luxembourg law. This application to have the Part 20 proceedings declared a nullity was due to be heard by me on 7 and 8 February 2013. It always seemed to me that the application was hopeless. The status of the Part 20 proceedings in England is a matter for the English court and English procedural law, under which as I have said, any defect in the proceedings when issued was one of mere nomenclature capable of being cured and which has been cured. The Part 20 proceedings were clearly valid and not a nullity. That application has recently been abandoned by the RPC defendants and (to the extent he adopted it) by the sixteenth defendant.
35. The Part 20 Claim Form and the Part 20 Particulars of Claim have now been served on all the other defendants. It is not necessary to set out the claims made in any great detail since I have already set out the factual background above. However, in summary, Stepstone advances three types of claim against the other defendants:

(1) Stepstone accepts, vis-à-vis the claimants that it was in breach of contract but alleges that such breach was caused by the defendants designing, orchestrating, implementing or participating in the Scheme. Accordingly Stepstone claims for "Liability Damage" ie the loss it has suffered from being liable to ZBS and Fortress for breach of the Loan Agreement and Security Assignment, either by way of a contribution or indemnity under the Civil Liability (Contribution) Act 1978 or as damages pursuant to causes of action which mirror those in the main action.

(2) Stepstone claims that it has suffered further loss as a result of the other defendants' wrongful participation in the Scheme namely the loss of or diminution in value of its interest in the Blue Skye Fund ("Fund Damage"). It claims damages and/or compensation under the same causes of action, alternatively accounts of profits in equity.

(3) Stepstone seeks an order pursuant to sections 423 to 425 of the Insolvency Act 1986, alternatively Article 1167 of the Luxembourg Civil Code to unwind the reorganisation and restore the economic substance of the position as it was prior to the Scheme.

The matters still in issue on the applications to strike out and for summary judgment

36. The RPC defendants issued Application Notices to strike out certain of the claims, alternatively for summary judgment in July and August 2012. An essentially identical Application Notice was issued by the sixteenth defendant on 22 November 2012. By the time that I heard the Case Management Conference on 29 November 2012, the claimants had served, in draft, Amended Particulars of Claim which withdrew certain of the claims originally pleaded of which the defendants had complained and made substantial amendments to other claims. As a consequence, some of the grounds in the Application Notices were not pursued. The RPC defendants and the sixteenth defendant indicated prior to the hearing of the applications that certain other grounds were no longer being pursued. There is also a claim by the claimants under the so-called Actio Pauliana in Luxembourg law which the RPC defendants contend is unsustainable. Since the RPC defendants served further expert evidence of Luxembourg law on this issue shortly before the hearing, it was agreed that the determination of this issue should be adjourned to a later date.
37. Accordingly, in summary, the following matters remain in issue on these applications. The references to "the defendants" are to all the defendants except Stepstone:

(1) The defendants' application for summary judgment under CPR Part 24 on the applicable law of the claims in tort or delict;

(2) The defendants' application to strike out the English law claim by ZBS for the ZBS loss.

(3) The defendants' application to strike out Fortress's claims for the Stepstone loss in so far as they fall outside the Security Assignment;

(4) The defendants' objection to the amendment to plead indemnity claims against Stepstone;

(5) The defendants' objection to the amendment in [74A] of the Amended Particulars of Claim;

(6) The defendants' objections to the claim under sections 423 to 425 of the Insolvency Act 1986;

(7) The costs of discontinuance of claims.

The relevant test on strike out and summary judgment applications

38. The application to strike out must be being made under CPR 3.4 on the basis that the particular paragraphs of the claimants' pleaded case disclose no reasonable or valid cause of action. It is well established that the court will not grant an application to strike out a claim unless it is certain that the claim is bound to fail: see Hughes v Colin Richards & Co [2004] EWCA Civ 266.
39. In the case of applications for summary judgment under CPR 24 it is equally well-established that the court should not engage in a mini-trial where there is any conflict of evidence. The dangers of too wide a use of the summary judgment procedure were emphasised by Mummery LJ in his judgment in Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical [2006] EWCA Civ 661 and by Lewison J (as he then was) citing Doncaster Pharmaceuticals in Federal Republic of Nigeria v Santolina Investment Corporation [2007] EWHC 437 (Ch), both of which cases I cited and applied recently in Bord Na Mona v British Polythene Industries [2012] EWHC 3346 (Comm) at [32]-[33]. The points made in those cases are of particular relevance to the first and sixth issues before the court: applicable law of the tort and whether there is sufficient connection with England for the purposes of the Insolvency Act 1986.
40. In Doncaster Pharmaceuticals Mummery LJ said at [4-5] and [17-18] as follows:

"4. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the [respondent's] prospect of successfully establishing the facts relied on by him is 'real', that is more than 'fanciful' or 'merely arguable..'

5. Although the test [whether the claim has a real prospect of success] can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the "no real prospect of success" test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials.

…

17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice.

18. In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."

41. The same point was made by Lewison J in the Santolina case at [4(vi)]:

"Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."

The applicable law of the claim in tort or delict

42. The defendants seek to have determined at this stage, on a summary basis, the applicable law of any claim the claimants have against them in tort or delict, on the basis that, as they contend, the applicable law is Luxembourg law. For reasons I will elaborate below, in my judgment it is neither necessary nor appropriate to decide that issue before trial. Before giving those reasons, I shall set out the relevant provisions of the Rome II Regulation and summarise the law as to the effect of those provisions and then the defendants' case as to why the applicable law of any tort is Luxembourg law and the claimants' response to that case.
43. Article 4 of the Regulation sets out the general rule that the applicable law of the tort or delict should be the lex loci damni, that is the law of the place where the damage occurs, in these terms:

"Article 4

General rule

1. Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.

3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question."

44. Article 4(1) expressly provides that only the law of the place where the damage occurs is relevant, not the law of the place where the harmful event occurred, representing a deliberate departure from the case law of the European Court of Justice on Article 5(3) of the Judgments Regulation which provides that both systems of law are alternative gateways to jurisdiction. That deliberate departure in favour of a rule focused solely on the place where the direct damage arises is reflected in the Explanatory Memorandum i.e. the travaux preparatoires for the Regulation and in Recitals (15) to (17) to the Regulation itself.
45. As the wording of Article 4(1) itself and the previous case law on what has become Article 5(3) of the Judgments Regulation make clear, the court is concerned with the law of the place where the direct damage occurred, not of the place where indirect adverse consequences or financial loss were suffered: see the decision of the European Court of Justice in Marinari v Lloyd's Bank [1995] ECRi-2719 and the judgment of Andrew Smith J in Hillside (New Media) Ltd v Baasland [2010] EWHC 3336 (Comm); [2010] 2 CLC 986 at [28] applying those principles to Article 4(1) of the Rome II Regulation.
46. The effect of the various decisions of the European Court on the place where the damage occurred was helpfully summarised by Simon J in London Helicopters Ltd v Heliportugal LDA-INAC [2006] EWHC 108 (QB); [2006] 1 CLC 297 at [20] in these terms:

"The place where the damage occurred (within the meaning of the first part of the jurisdictional rule in the Bier case) is not the place where a claimant simply suffers financial loss. It is necessary to see where the event giving rise to the damage produced its 'initial', 'direct', 'immediate' or 'physical' harmful effect. For example, in the Bier case, the direct loss was the application of saline waste to the nursery. In the Dumez France case (see §13 of the Judgment) the initial or direct damage was the withdrawal of support to the subsidiary. The harm to the plaintiffs in the Dumez France case was 'merely the indirect consequence of the financial losses initially suffered by their subsidiaries'. In the Marinari case it was the initial or direct act of interference with the notes."

47. As recital (18) to the Regulation also makes clear, Articles 4(2) and 4(3) are exceptions to that general rule in Article 4(1). Article 4(2) in effect provides that where both parties to a claim have their habitual residence in the same country, there is a special connection with the law of that country. Article 4(3) as the recital describes it: "should be understood as an 'escape clause' from Article 4(1) and (2), where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country." The provision is only to be used on an exceptional basis. The defendants rely upon [35-032] of Dicey, Morris & Collins: The Conflict of Laws which states that Article 4(3) should only be applied where there is a "clear preponderance of factors" pointing to another country than that indicated by Articles 4(1) and (2). The Explanatory Memorandum refers to the "centre of gravity" of the tort.
48. The defendants' case in summary as to why under Article 4(1) the applicable law is Luxembourg law, is as follows:

(1) The various stages of the alleged scheme as summarised in [86] of the Particulars of Claim or Stepstone's Summary of the Background to the Claims are nearly all matters which occurred and had their immediate and direct consequences in Luxembourg.

(2) The Stepstone loss which Fortress claims as assignee consists of the diminution in the value of the assets of a Luxembourg company and any decrease in value was directly and immediately caused and suffered in Luxembourg.

(3) The claimants' contention that the Stepstone loss occurred in England because one of its central elements was damage to the Blue Skye Fund, an English limited partnership, is focusing on only one element of the loss and also ignores the fact that the Fund was administered from and had its principal place of business in Guernsey.

(4) The ZBS loss arises from the fact that following the implementation of the scheme, the value of ZBS's security, i.e. Stepstone's assets, has been diminished so that they are insufficient to repay the ZBS loan. The claimants' contention that the ZBS loss occurred in England because the loan agreement is governed by English law and would otherwise be enforceable against Stepstone's interest in the Blue Skye Fund in England is misconceived, because the ZBS loss derived entirely from the Stepstone loss and irrespective of whether the ZBS loss is a recoverable loss, it should be regarded as an indirect consequence of the events alleged to comprise the scheme and thus is to be ignored for the purposes of Article 4(1).

49. The defendants contend that, in any event, Article 4(2) imposes Luxembourg law as the applicable law on the basis that Stepstone is habitually resident in Luxembourg and any claim based on or derived from the Stepstone loss in so far as it is made against any person or entity habitually resident in Luxembourg is governed by Luxembourg law. The defendants contend that all the RPC defendants (except the third defendant who is habitually resident in Italy), together with the sixteenth defendant, are or were, at the material times, habitually resident in Luxembourg.
50. The defendants contend that the claimants cannot begin to show a clear preponderance of factors pointing to England rather than Luxembourg for the purposes of Article 4(3). So far as the three matters relied upon by the claimants are concerned, the first, that the Loan Agreement, Security Assignment and Blue Skye Partnership Deed are governed by English law is not evidence of a manifestly closer connection with England and ignores the fact that other agreements, such as the Convertible Notes, the Undertaking and the Call Option are governed by Luxembourg law.
51. The defendants contend that the second matter, the claimants' contention that a core component of the original investment structure was the Blue Skye Fund, an English limited partnership, does not assist the claimants, as from 24 December 2008 onwards, the principal place of business of the Fund was Guernsey.
52. So far as the third matter is concerned, that the alleged Scheme was devised, controlled and implemented by the second and third defendants from London, the defendants deny this, but also say that, even if they were in London, the fact that they may have planned and orchestrated the Scheme in London does not mean that the tort was manifestly more closely connected with England. This was a point which Mr Wardell QC in particular was keen to emphasise in seeking to persuade the court to decide on a summary basis that the applicable law of the tort is Luxembourg law under Article 4(1) and that the claimants could not show a real prospect of success at trial in demonstrating a manifestly closer connection with England than Luxembourg. He submitted that no amount of evidence at trial about the second and third defendants planning the Scheme would make any difference, because the implementation of the alleged Scheme and all the overt acts alleged to comprise the Scheme took place in Luxembourg.
53. The primary position of Mr McQuater QC on behalf of the claimants and Mr Orr QC on behalf of Stepstone was that it was neither necessary nor appropriate to decide the applicable law of the tort now. It was not necessary because, even if the defendants were right that the applicable law was Luxembourg law, so that the claims under English law torts such as unlawful means conspiracy and unlawful interference fell away, if the claimants establish their case as to the effect and purpose of the alleged Scheme at trial, the defendants will still be liable for intentional or negligent tortious acts under Luxembourg law as pleaded at [168] and [169] of the Particulars of Claim.
54. They submitted that it was not appropriate to decide the issue of applicable law before trial and in any event prior to disclosure and witness evidence, in circumstances where there are disputed issues of fact as to matters such as habitual residence of the defendants and where Article 4(3) expressly requires consideration of "all the circumstances of the case" which can only be considered at a full trial.
55. In summary, their response to the defendants' contentions was as follows:

(1) The Blue Skye Fund was an English registered limited partnership which was regulated by a Partnership Deed governed by English law and which provided for London arbitration. The Fund was at the heart of the original investment structure. Whilst the General Partner Blue Skye GP (the fifth defendant) may have been registered in and administered from Guernsey and clause 2.4 of the Partnership Deed said that the principal place of business of the Partnership was Guernsey or such other place as the General Partner should determine, the General Partner had delegated the management and operation of the Fund to the second and third defendants as "Key Managers" and they had run the Fund from London. The Fund accordingly carried on business in England.

(2) The Stepstone loss assigned to Fortress consisted of the loss of its interest in the Fund, an English registered limited partnership, and the damage to its rights under a Partnership Deed governed by English law, by the transfer of assets from the Fund to the Luxembourg limited partnership Blue Skye SCS, the tenth defendant. Accordingly, for the purpose of Article 4(1), the Stepstone loss occurred in England. The ZBS loss consisting of the diminution in the value of its security because Stepstone's assets had been depleted by the Stepstone loss similarly occurred in England. Mr McQuater drew attention in this regard to the pleaded case at [140] and [142] of the Amended Particulars of Claim.

(3) The original investment structure set up in 2008 consisted of an interlocking network of agreements governed by English law and containing an exclusive English jurisdiction clause or a London arbitration clause, for example the Partnership Deed, the Loan Agreement and the Security Assignment. The only relevant agreements not subject to English law were those such as the Convertible Notes used by the defendants to implement the dishonest Scheme of which the claimants complain. The effect of the defendants' argument would be that the defendants could dictate the applicable law of the tort by formulating the reorganisation in a jurisdiction under the laws of which they would not be liable.

(4) The claimants rely upon a number of pieces of evidence in support of their case that it is strongly arguable both that the Fund was run by the second and third defendants from an address in Princes Street in London and that both those defendants lived in London at the relevant time when the scheme was being planned and then implemented.

(5) Article 4(2) can be of no relevance to the tortious claims by Fortress and ZBS against any of the defendants, neither of which is habitually resident in Luxembourg. So far as Cypress Way is concerned, it no longer pursues claims in tort.

(6) If the claimants are wrong that the direct damage they suffered occurred in England for the purposes of Article 4(1), then the matters set out at (1) to (4) above demonstrate a manifestly closer connection of the tortious acts and conduct alleged with England than with Luxembourg.

56. I agree with Mr McQuater that it is neither necessary nor appropriate to decide the issue of applicable law now on a summary basis. It is not necessary because there is no discernible benefit in terms of case management given that, if the claimants establish their case on the facts, the defendants will face a liability in tort irrespective of which system of law applies to the tortious acts and conduct. By abandoning those aspects of their strike out application ([10] and [35] of the Grounds) which alleged that the claims were unarguable as a matter of Luxembourg law, the defendants necessarily accept that there are arguable claims in tort against them under Luxembourg law. In the circumstances, it matters not whether in the event that the claimants establish their case on the facts, the defendants are liable for a whole series of categories of tort in English law or for an all-encompassing tort in Luxembourg law. I suspect that at trial, the real battleground will be whether the Scheme was, as the claimants allege, a dishonest one designed to prejudice them or, as the defendants contend, entirely honest and above board and that, if the claimants make out their case on the facts and that they have suffered the losses alleged, the court is not likely to be unduly troubled with the question under which tort law regime those losses are recoverable.
57. The fact that, irrespective of the applicable law, if the facts are established, the defendants will be facing liability in tort, whichever system of law applies to the claim in tort, also seems to me to be the answer to the point Mr Wardell made by reference to [12] of the Explanatory Memorandum that determination of the applicable law will facilitate the settlement of disputes. That may well be the case if there is a liability in tort under one system of law but not the other, but it is difficult to see how in the present case determination that one system of law rather than another was applicable would promote settlement.
58. If it were simply a question of determining where any direct damage occurred for the purposes of Article 4(1) then it might be the case that it would be appropriate to decide the issue of the applicable law on a summary basis, but once Article 4(3) is arguably applicable, it does not seem to me to be appropriate to do so. Obviously if the defendants could demonstrate that the claimants had no real prospect of establishing a manifestly closer connection with England the position might be different but, for the reasons set out below, I consider that the claimants do have a real prospect of establishing at trial that the tortious acts and conduct are manifestly more closely connected with England.
59. In support of his submission that it was not appropriate to decide the issue of applicable law in a complex case such as the present until the court was in possession of the full factual picture at trial, Mr McQuater relied upon the decision of Burton J in Alliance Bank JSC v Aquanta Corporation [2011] EWHC 3281 (Comm). In that case, the defendants alleged that it could be determined, for the purposes of an issue as to jurisdiction, that there was no serious issue to be tried in relation to the applicable law of a conspiracy claim, contending that the issue was governed by Kazakh law as the law of the place where the matters alleged to give rise to the conspiracy took place. The claimants alleged that the issue was governed by English law, as the proper law of the relevant fraudulent transactions.
60. Burton J declined to decide the issue at an interlocutory stage, concluding that there was a serious issue to be tried as to whether English law was the applicable law of the tort in these terms at [41]:

"It seems clear to me that I cannot decide this question without a full understanding of the facts. At the moment, I would regard it as likely that Cyprus law is the same as English law, and, in any event, am safe in adopting the presumption (which I could not adopt in relation to Kazakh law because I am told, as was Teare J, that there is no law of conspiracy in Kazakh law) that Cyprus law is the same as English law so far as the common law of conspiracy is concerned (see Dicey, Morris & Collins The Conflict of Laws (14^th Ed) 9-025 and supplement), but even without the alternative candidacy of Cyprus law, I would regard it as a serious issue to be tried as to whether English law is the proper law of the tortious acts alleged."

61. That cautious approach was endorsed by Tomlinson LJ in the Court of Appeal in that case: [2012] EWCA Civ 1588 at [90]:

"For my part I consider that the judge was wise to conclude that he could not reach even a provisional view as to the likely proper law of the tort without a full understanding of the facts. In concluding that there is a serious issue to be tried whether English law, or perhaps some other system of common law derived therefrom such as that of Cyprus, is the governing law, he did not I think err in his assessment. An assessment at this stage which ruled out the serious prospect of English law or some other common law derivation therefrom ultimately being shown to be the proper law of the obligations would, I think, have been over-confident. "

62. Similar caution seems to me to be appropriate here. Furthermore, that cautious approach seems to me to be consistent with the approach to summary judgment applications in complex cases advocated by Mummery LJ in Doncaster Pharmaceuticals which I cited earlier in this judgment at [40]. In the circumstances, I do not consider it appropriate to decide the issue of applicable law summarily at this stage. I propose simply to set out my reasons for concluding that the claimants have a real prospect of successfully establishing at trial that the applicable law of the tortious acts and conduct of the defendants is English law.
63. In my judgment, it is seriously arguable that the Fund was run and managed by the second and third defendants in London from premises at 12 Princes Street, London W1. The Partnership Deed gave the fifth defendant as General Partner wide powers of management and control of the Fund, including the power to delegate and it appears to have been intended that the running of the business would be delegated to the second and third defendants as the "Key Managers" (see for example clauses 4.3.4 and 14.1(e)). There is strong evidence from the filings at Companies House and elsewhere that, at all relevant times at least until some time in 2012, the second defendant was living in London. The evidence put forward by the claimants at the stage of the without notice application to serve the proceedings on the other defendants was that the second defendant was domiciled in England and, as Mr McQuater points out, that evidence was never challenged by any of the defendants. The first suggestion that the second defendant is habitually resident in Luxembourg came on instructions in a witness statement of Mr Hibbert of RPC in July 2012, after pleadings had been exchanged.
64. Whilst the evidence of the third defendant living in London is not as strong, a number of Italian company law filings showed him as resident in London. The presentation to investors in June 2011 at the time when on the claimants' and Stepstone's case, the scheme was already in train, referred to the Fund as having offices in the United Kingdom, Italy and Luxembourg. An email sent by Ms Teboul, the marketing director, to a potential investor on 22 June 2011 was signed off with the 12 Princes Street address for Blue Skye Investment Group and a corresponding London telephone number. The email described the group as a "mid-market credit and asset-based investor in London and Milan with €200 million [assets under management]" (evidently a reference to the Italian assets).
65. There are a number of other pieces of evidence which point to the Fund being run by the second and third defendants from London. For example, in an article on the Fund in Hedge Funds Review in April 2011, the second defendant is described as "managing partner at Blue Skye Investment Group and one of the two managers for its only product, the Special Opportunities Fund". The third defendant is described as "the other managing partner". The article goes on to state that: "As a UK limited partnership with the general partner registered in Guernsey, it is 'regulated upstairs and downstairs'". On the third page of the article a table is set out giving details of the Fund which states its "Domicile" as "UK".
66. The defendants challenge the conclusion that the Fund was carrying on business in England and contend that, at all material times, the Fund was domiciled, carried on business and was habitually resident at its place of central administration in Guernsey (i.e. where the General Partner was registered and carried on business). They deny that the second and third defendants ran the Fund in London or that the third defendant lived in London. There is thus an acute conflict of evidence as to where the Fund was run from and carried on business and where the second and third defendants were based at the relevant time. That conflict of evidence is incapable of resolution at an interlocutory stage and all that can or need be said is that the claimants have a sufficiently arguable case, which has a real prospect of success at trial that, at the time the Scheme was planned and implemented, the Fund was being run from London by the second and third defendants who were based in London and that the Fund was thus carrying on business in England. Furthermore, on the basis of the evidence they put forward, the claimants have a sufficiently arguable case to go to trial that it is to be inferred that the planning and implementation of the Scheme was carried out by the second and third defendants in London.
67. The existence of that conflict of evidence and the fact that it cannot be resolved without full disclosure by the defendants and, in due course, cross-examination of the individual defendants at trial, demonstrates why it is inappropriate to determine the issue of applicable law summarily now. It seems to me that if the claimants establish at trial that the Fund was indeed run from London and carried on business in England, then they will have a real prospect of establishing that, for the purposes of Article 4(1), the direct damage occurred in England, because it is arguable that the direct damage consisted of the loss of or diminution in value of Stepstone's interest in the Fund and that interest in the Fund, a limited partnership, was situated in England because the partnership was carrying on business in England: see Dicey, Morris & Collins: The Conflict of Laws 15^th edition [22-049].
68. Furthermore, in their commentary on Article 4(1) at [35-026], the editors of Dicey, Morris & Collins express the view that: "In misappropriation cases, it seems appropriate to locate damage at the place where an asset (tangible or intangible) is taken from the claimant's control." That approach would in the present case arguably locate the damage in England, because the critical aspect of transfer of control was the transfer of assets away from the English registered limited partnership the Blue Skye Fund, which, for the reasons I have given, was arguably carrying on business in England to the Luxembourg registered limited partnership Blue Skye SCS.
69. I cannot see how Article 4(2) will be of any relevance, since neither ZBS nor Fortress is habitually resident in Luxembourg, wherever any of the defendants is habitually resident. Whilst Cypress Way may well be habitually resident in Luxembourg, it is no longer pursuing separate claims in tort (see the deletions by amendment of [141] and in [145] and [170] in the draft Amended Particulars of Claim.
70. Even if the claimants did not have a sufficiently arguable case to go to trial that the direct damage occurred in England, so that, under Article 4(1), the applicable law of any tort is English law, in my judgment, for a number of reasons, the claimants have a real prospect of succeeding under Article 4(3) in demonstrating that the tortious acts and conduct complained of have a manifestly closer connection with England than with Luxembourg.
71. First, given that, for the reasons I have given, the claimants have a seriously arguable case that the Fund was run from London and carried on business in England, even if the defendants are correct that the damage suffered by the Fund is not the direct damage which occurred for the purposes of Article 4(1), nevertheless the Fund was at the heart of the original investment structure and the fact that the Scheme, if established, had the effect of removing the assets from and dissolving the Fund of itself provides a close connection with England.
72. Second, each of the English torts alleged, conspiracy, unlawful interference, procuring breach of contract and dishonest assistance, directly or indirectly involved either the breach of contracts governed by English law (the Partnership Deed, Loan Agreement and Security Assignment) or damage to the interest and rights of the claimants under such contracts (in the case of the Loan Agreement and Security Assignment). The adverse effect on those English law contracts arguably provides another close connection with England and, in any event, Article 4(3) itself expressly recognises that a pre-existing contractual relationship may give rise to a manifestly closer connection.
73. The defendants seek to challenge that conclusion by pointing out that the agreements and instruments most closely connected with the alleged scheme are governed by Luxembourg law. Whilst it is not necessary to determine the issue now, it seems to me the difficulty with that argument is the one identified by Mr McQuater, that these agreements were the mechanisms by which the allegedly dishonest Scheme was implemented, not pre-existing agreements, whereas Article 4(3) is focusing on agreements in place before the allegedly tortious acts took place.
74. Third, for the reasons I have already given, it is arguable that the whole Scheme was planned, orchestrated and implemented by the second and third defendants in London. If established, this serious mismanagement of the Fund by the Key Managers took place in England and demonstrates that the centre of gravity of the relevant torts is England. Mr Wardell QC in particular sought to challenge that conclusion by pointing out that the various steps in the Scheme and overt acts in any conspiracy largely took place in Luxembourg. Once again, it is not necessary to determine this issue now, but it seems to me that, if the claimants' case is established at trial, it will involve the conclusion that the various other defendants, whether natural persons or entities, were in effect "puppets" of the second and third defendants, who, on this hypothesis, were the "puppet masters" pulling the strings from London. The fact that the carrying out of the second and third defendants' instructions involved overt acts in another jurisdiction does not seem to me to detract from the torts in question being at least arguably more manifestly connected with England.
75. Accordingly, for all the above reasons, I have concluded that the claimants have a real prospect of establishing at trial that the applicable law of the tortious acts and conduct alleged is English law and the defendants' application to have this issue determined in their favour summarily should be dismissed.

The ZBS loss

76. The defendants originally objected to the claim by ZBS for the so-called ZBS loss suffered as a consequence of the conspiracy on the grounds that the claim was for reflective loss. What was contended was that ZBS was in substance claiming as a creditor of Stepstone for the loss caused to Stepstone by the scheme. The defendants relied upon the dictum of Neuberger LJ (as he then was) in Gardner v Parker [2004] EWCA Civ 781, to the effect that the rule against reflective loss which applies to claims by shareholders of a company (see the decision of the House of Lords in Johnson v Gore Wood [2002] 2 AC 1) was equally applicable to claims by creditors of the company.
77. At [70], Neuberger LJ said:

"...there is no logical reason why [the rule against reflective loss] should not apply to a shareholder in his capacity as a creditor of the company expecting repayment of his debt. Indeed, it is hard to see why the rule should not apply to a claim brought by a creditor (or indeed, an employee) of the company concerned, even if he is not a shareholder. While it is unnecessary to decide the point, as [the creditor] was a shareholder in [the debtor], it is hard to see any logical or commercial reason why the rule against reflective loss should apply to a claim brought by a creditor or employee, who happens to be a shareholder, of the company, if it does not equally apply to an otherwise identical claim by another creditor or employee, who is not a shareholder in the company."

78. In fact, after the application to strike out was issued, the claimants served draft Amended Particulars of Claim which pleaded at new [140.6A] that ZBS has suffered loss in that the value of its security for the ZBS loan constituted by Stepstone's assets has been lost or diminished. The defendants accept that this way of putting the loss suffered, as diminution in the value of ZBS's security, is arguable and should not be struck out. What remained at the hearing was a somewhat arid dispute about seven words in [140.7] inserted by amendment: "or by way of payment by Stepstone". As Mr McQuater pointed out, the dispute was particularly arid since, at the Case Management Conference on 29 November 2012, the defendants had consented to the entire amendment in [140.7] including the seven words, as reflected in [1] of my Order which gave permission to make that amendment.
79. In any event, even if the defendants had not already consented to the amendment which they now seek to question, I would have given permission to amend for two reasons. First, whether or not the rule against reflective loss extends beyond shareholders of the company to creditors is not the subject of any binding judicial decision but only of the dictum I have quoted, albeit from as eminent a source as Lord Neuberger and it seems to me the contrary view must at least be arguable so that the point is not one on which it can be said the claimants are bound to fail.
80. Second, and more importantly, ZBS is a secured creditor. In Gardner v Parker Neuberger LJ stated at [74] that the fact that the employee creditor in that case (clearly an unsecured creditor) might be barred from making a claim for reflective loss did not leave him without a remedy, specifically where the company was insolvent, by putting the company into liquidation and funding a claim by the liquidator against the defendant. However, as Mr McQuater pointed out, that course would not be open to ZBS as a secured creditor. Under the Insolvency Rules 1986, the secured creditor has to put a value on his security and can only prove in the liquidation for the unsecured balance of any overall debt: see per Lightman J in Razzaq v Pala [1997] 1 WLR 1336 at 1343B-C.
81. Mr McQuater also relied upon the recent decision of Edward Bartley-Jones QC sitting as a Deputy High Court Judge of the Chancery Division in International Leisure Limited v First National Trustee Company UK Limited [2012] EWHC 1971 (Ch). At [36-47] the learned judge concluded that the rule against reflective loss did not apply to a secured creditor, there a debenture holder. In particular, at [46] he considered the dictum of Neuberger LJ in Gardner v Parker:

"I can see nothing in the judgment of Neuberger LJ in Gardner (at paras 67-75) which mandates, or even suggests, the conclusion that a claim by a secured creditor attracts the rule against reflective loss. For reasons already given, it seems to me that there are fundamental distinctions between the position of an unsecured creditor and a secured creditor. No duty is owed by the receiver to the unsecured creditor and the unsecured creditor has no primary entitlement to the claimed loss. The unsecured creditor's prejudice arises only through the depletion of the assets of the company not, as in the present case, where the secured creditor has the primary entitlement to obtain and retain all damages awarded for the breaches of duty."

82. Given that first instance decision that the rule against reflective loss does not apply to secured creditors, it seems to me that the defendants' objection to the pleading in [140.7] of the Amended Particulars of Claim is misconceived and they should have maintained their original consent to the amendment. It is clearly arguable that the rule does not apply to secured creditors. Furthermore, in my judgment, when properly analysed, the claim for the ZBS loss both as originally pleaded and as pleaded by amendment is not a claim for reflective loss but for diminution in the value of the security for the ZBS loan-see [146.2] of the Reply to the Defence of the RPC defendants, served in June 2012, before the application to strike out was issued.

The scope of the Security Assignment

83. Fortress pursues a number of contractual and non-contractual claims as assignee of Stepstone pursuant to clause 3 of the Security Assignment which provides as follows:

"3 Assignment

3.1 The assignment contained in this clause 3:

(a) is given to the Security Trustee as trustee for the Finance Parties;

(b) secures the payment and discharge of the Secured Obligations; and

(c) is given with full title guarantee.

3.2 The Assignor assigns absolutely all of the Rights which it now has and all of the Rights which it obtains at any time in the future in the Assigned Property and in any Rights accruing to, derived from or otherwise connected with them (including proceeds, insurances, guarantees and Security)."

84. The defendants accept that a number of those claims (for example for loss caused for breach of the Partnership Deed by Blue Skye GP or claims in tort for procuring breaches of the Partnership Deed) have, at least arguably, been assigned to Fortress but contend that other claims, including those for damages for conspiracy or unlawful interference and under sections 423 to 425 of the Insolvency Act 1986 fall outside the scope of the Security Assignment.
85. What is immediately striking is that, since the defendants are no longer pursuing their application to have Stepstone's Part 20 Claim declared a nullity, the defendants are still going to face the same claims from Stepstone even if they are right that the claims have not been assigned to Fortress. Despite the time and energy devoted by the defendants to this issue in their skeleton arguments and in oral submissions, an obvious question arises as to what point is served in deciding this point now, particularly since the parties directly affected by it, Stepstone and Fortress do not want it decided now, but are content to leave it until trial, if the point is ever a live one. The defendants' contention that they want the point decided so that they know to whom they are liable has a somewhat hollow ring to it. Given that the claims by Fortress and Stepstone are going to be heard at the same time, there is no risk of the defendants being held liable twice over and even if the claims were not to be heard together, there are procedural mechanisms available, such as interpleader, which would eliminate that risk.
86. The position might be different if the defendants could show that the claimants' construction of clause 3.2 was so hopeless that it was bound to fail at trial, in which case the court would strike out the allegedly assigned claims in so far as they are pursued by Fortress, but that is not the present case. The construction for which the claimants contend, that clause 3.2 has assigned all the claims to Fortress, is clearly arguable. In particular, the wide definition of "Rights" in the Security Assignment as including: "any interest or remedy, of any kind, whether it is personal or proprietary" suggests that the words "any Rights accruing to, derived from or otherwise connected with [the Rights] are to be given a wide meaning as amounting to an assignment of all rights and claims.
87. That wide meaning is supported by the use of the words "otherwise connected with". Whilst the recent cases in which the courts have given those words a wide meaning concern arbitration and jurisdiction clauses, in which the principle of "one stop dispute resolution" arises, which does not arise in the present case, the fact remains that, in a modern context, those words have generally been given a wide meaning. In those circumstances it is also arguable that, contrary to the defendants' submissions, the words in brackets: "(including proceeds, insurances, guarantees and Security)" do not have the effect, in the context of this clause, of limiting the rights assigned to matters which are eiusdem generis with the enumerated matters.
88. Accordingly, the claimants' construction of the clause is arguable. It is neither necessary nor appropriate to go further at this stage, not least because the provision should not be considered in a vacuum since it is part of a network of related transactions and there may well be evidence of commercial background or factual matrix at trial which makes it inappropriate to decide an issue of construction at this stage, before disclosure or witness statements.

The objection to the indemnity claims against Stepstone

89. The defendants object to the proposed amendments to the Particulars of Claim whereby the claimants seek to make contractual indemnity claims under the Loan Agreement and Security Assignment against Stepstone. The objection is unusual since Stepstone itself does not object to the proposed amendments, but it is no doubt being pursued because Stepstone seeks to recover in the Part 20 proceedings in respect of its liability to the claimants. The basis for the objection is that the defendants contend that, by virtue of Article 4 of the Insolvency Regulation, the effect of the insolvency of Stepstone is a matter for Luxembourg law and the Luxembourg courts, being the courts before which the insolvency proceedings are taking place.
90. The relevant part of Article 4 provides as follows:

"Article 4

Law applicable

1. Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened, hereafter referred to as the "State of the opening of proceedings".

2. The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. It shall determine in particular…

(f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending;…"

91. The claimants dispute that the issue of whether amendment should be allowed is in any sense dependent upon the position in Luxembourg, relying on Article 15 of the Regulation which provides:

"Article 15

Effects of insolvency proceedings on lawsuits pending

The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending."

92. The claimants submit that Article 4 is concerned only with enforcement or execution proceedings by creditors, which must be brought collectively in the jurisdiction where the insolvency has commenced and, as the closing words of Article 4.2 (f) make clear, the Article is not intended to have any effect on lawsuits pending in other jurisdictions, not to enforce or execute against the insolvent company's assets, but to establish its liability. In all such cases, pursuant to Article 15, it is for the court before which the lawsuit is pending, here the English court, to determine the effect of the insolvency on the proceedings before it, including on any amendments to existing claims. The defendants challenge that conclusion, submitting that an amended claim is not a "lawsuit pending", relying by analogy on the decision of Beatson J (as he then was) in Lloyd's Syndicate 980 v Sinco [2008] EWHC 1842 (Comm) under Article 27 of the Judgments Regulation 44/2001, that proceedings are only pending in respect of an amendment once an order has been made permitting that amendment.
93. In my judgment, the claimants' submission that the determination of the effect of the insolvency of Stepstone on the proposed indemnity claims is a matter for this court applying English law, not for the Luxembourg court applying Luxembourg law, is clearly correct. As the decision of the Court of Appeal in Syska v Vivendi [2009] EWCA Civ 677 makes clear, Article 4 is not somehow primary to Article 15, but each has its own sphere of operation: see per Longmore LJ at [18]. In that case both the judge at first instance, Christopher Clarke J, and the Court of Appeal concluded that the words "lawsuits pending" in articles 4(2)(f) included reference to arbitration, so that the question whether an arbitration should be continued or not in view of insolvency proceedings before the Polish courts was a matter for the law of the state in which the arbitration was pending, namely English law. In his discussion at [19] to [24] Longmore LJ highlights the distinction between proceedings by way of execution and proceedings to establish liability, by reference to the academic commentaries on the Articles. At [21] Longmore LJ quotes from the Virgos-Schmit Report at [142] which analyses that distinction.
94. He then goes on at [23] to cite a passage from Virgos and Garcimartin: The European Insolvency Regulations: Law and Practice at [255] and [256]:

"255. …This exception to the application of the law governing the insolvency proceedings has a twofold explanation: the fact that, as no enforcement action is involved, the principle of collective action inherent in the insolvency proceedings is not impaired; and the close link with the procedural laws of each State resulting from the fact that the lawsuit is already in course. Further explanation. The difference between subjecting individual enforcements to the lex fori concursus and subjecting ordinary processes to the lex fori processus is sufficiently explained if we consider the different consequences of each on the insolvent debtor's estate. In the first case, the creditor satisfies his interest directly. In the second case, he obtains a decision on the merits which does no more than allow him to join the body of creditors with an established claim.

256. The use of the term "solely" is aimed at preventing the cumulative application of different national laws. The meaning of this provision is to refer all questions concerning the possible effect of the opening of insolvency proceedings on lawsuits to the procedural law of the State where litigation is pending (or lex fori processus). This law will decide whether the proceedings are to be suspended or may continue subject to any procedural modification necessary in order to reflect the loss or the restriction of the powers of disposal and administration of the debtor, and the intervention of the liquidator in his place, which all Member States must recognise under Article 16."

95. These passages make clear that the determination of the effect of the insolvency of a company in another member state on any proceedings pending in England in relation to liability, is a matter exclusively for English procedural law. English procedural law permits amendments to claims to be made notwithstanding the insolvency of the defendant and the fact that Luxembourg law might not is wholly irrelevant.
96. I agree with Mr McQuater and Mr Orr that the defendants' reliance on Sinco and Article 27 of the Judgments Regulation is misconceived for a number of reasons. First, Article 27 is concerned with the regulation of competition for jurisdiction between courts in different member state by applying what is in effect a mechanical test of chronological priority in cases which concern the same parties and the same cause of action. In contrast, Article 15 of the Insolvency Regulation is concerned with the issue of what system of law governs the effect of insolvency proceedings on pending proceedings in another member state. I agree with Mr Orr that the Article reflects the natural expectations of businessmen that the procedural law of the state in which the lawsuit is pending will determine that issue.
97. Second, Article 27 concerns proceedings involving the same cause of action and thus involves the question whether a particular cause of action has been raised at the time that proceedings are brought. This question does not arise under Article 15 of the Insolvency Regulation which is concerned with pending lawsuits, i.e. proceedings, not pending causes of action.
98. Third, if any analogy is to be drawn, it is more with Article 28 which is concerned with the pendency of related actions. The distinction between Articles 27 and 28 was highlighted in the decision of the Court of Appeal in FKI Engineering Ltd v Stribog Ltd [2011] EWCA Civ 622; [2011] 1 WLR 3264 which distinguished Sinco and Nordea Bank v Unicredit [2011] EWHC 30 (Comm) a decision of Gloster J which followed Sinco: see in particular per Rix LJ at [129]:

"It is possible that the introduction of entirely new causes of action or parties is to be recognised as the bringing of entirely new proceedings, so that the timing of seisin (the article 30 question) has to be looked at from that point of view, as occurs for the purposes of article 27. Even so, it is not clear to me that in this connection article 27 and article 28 work in the same way: for article 27 is worded in terms of the bringing of actions with the same parties and the same cause of action ("Where proceedings…are brought in the courts…") whereas article 28 is worded in terms of the pendency of related actions ("Where related actions are pending in the courts…") (emphasis added). That emphasises that the article 28 question is asked with relation to pending actions, and not, as the article 27 question is asked, with relation to the bringing of actions. In any event, the judge is in my respectful judgment mistaken to think that any amendment is analogous to the bringing of new causes of action or the addition or substitution of new parties. "

99. Finally, that last point made by Rix LJ is alluding to the possibility that, even under Article 27, the analysis may be different if a new claim has the same object and cause as an existing claim. this is a point made by Briggs and Rees: Civil Jurisdiction and Judgments at [2.204] cited by Beatson J in Sinco at [62]: "If the court were persuaded that the new claim had the same objet and the same cause as the original claim, it may conclude that it was in fact and in law pending as from the issue of the original claim form." In my judgment that is the position here: the proposed indemnity claim arises from the same facts as the existing contractual claims advanced by the claimants against Stepstone for breaches of the various agreements. It is simply an alternative contractual route to the same outcome.
100. However, for the reasons I have given, Article 27 of the Judgments Regulation is not relevant and, for the purposes of Article 15 of the Insolvency Regulation, it is for the English court, applying its own procedural law, to determine whether or not permission to amend the English proceedings should be given. To say the least, there is something very odd about the defendants' suggestion that whether or not the claimants should be permitted to amend their Claim Form and Particulars of Claim in the English Commercial Court to claim an indemnity in the alternative to the existing claim and on the basis of the same facts, should be determined under Luxembourg law by the Luxembourg courts which are not seised of the substantive claim. Clearly that analysis is incorrect and the issue of whether permission to amend should be given is for the English court applying English law. I have no hesitation in concluding that the claimants should have permission to amend.

The defendants' objection to the amendment to introduce paragraph 74A

101. The defendants object to the claimants having permission to amend to plead a new [74A] of the Particulars of Claim. This provides:

"On or about 7 December 2011, as evidenced by a written acknowledgment of that date, the Blue Skye Fund transferred all its assets to Stepstone by way of satisfaction of a request by Stepstone to withdraw from the Blue Skye Fund."

The relevance of this plea is apparent from the consequential amendments to [175A] and [178.2] by which the claimants plead that any right of relief of the Blue Skye Fund under sections 423 to 425 of the Insolvency Act 1986 was transferred to Stepstone and in turn has been assigned to Fortress under the Security Assignment.

102. The background to this allegation is that in December 2011 Stepstone withdrew its interest in the Blue Skye Fund in return for a holding of the Greentea Floating Rate Notes and the shares and CPECs in Benlomond, this being the final phase of the Scheme as alleged by the claimants and Stepstone. The request dated 1 December 2011 to withdraw from the Fund on the basis that Blue Skye GP transferred to Stepstone all the assets held by the Fund is referred to in [238] of the Defence of the RPC defendants, who then plead at [239] that, on 2 December 2011, Blue Skye GP resolved to accede to the request by making a distribution in kind to Stepstone of all the assets of the Fund. The written acknowledgment relied upon at [74A] of the Amended Particulars of Claim is simply an acknowledgment that Stepstone has received those assets which constitute all the assets of the Blue Skye Fund, it being common ground (on the basis of [238] and [239] of the RPC Defence) that this transfer of all the assets was to take place. In the circumstances, the defendants' objection to this amendment is incomprehensible. The claimants are entitled to make the amendment they seek.

Objections to the claims under section 423 to 425 of the Insolvency Act 1986

103. Section 423 of the Insolvency Act 1986 provides so far as relevant as follows:

(1)This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—

…

(c)he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.

(2)Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for—

(a) restoring the position to what it would have been if the transaction had not been entered into, and

(b) protecting the interests of persons who are victims of the transaction.

(3)In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—

(a)of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

(b)of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

(4)In this section "the court" means the High Court or—

(a)if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;

(b)if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.

(5)In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as "the debtor".

104. There are thus four requirements for relief to be granted: (1) a debtor; (2) who enters into a transaction; (3) at an undervalue; (4) with the purpose of putting assets beyond the reach of or prejudicing the interests of a person with an actual or potential claim. The original pleading at [174] of the Particulars of Claim as to the fourth requirement was as follows:

"The purposes of the scheme were inter alia to put the Italian Assets beyond the reach and/or out of the ownership of the Blue Skye Fund, Stepstone, Cypress Way, ZBS and/or Fortress VRF I in the event that they might assert a claim against Blue Skye (Lux) or any of its former subsidiaries to control or dispose of those assets. Alternatively, the purposes were to prejudice the interests of those parties in relation to such a claim."

105. By their original application, the RPC defendants sought to strike out the section 423 claim on the basis that this alleged purpose was incapable of satisfying section 423(3) because, so they contended, none of the specified parties had any actual or potential claim against Blue Skye (Lux) or any of its subsidiaries other than as a result of the transaction complained of, so that the allegation was said to be circular. Whatever the rights or wrongs of that contention, following the issue of the strike out application, the claimants deleted the original [174] and made extensive amendments, setting out various transactions which are said to have had as their purpose to prejudice various claims that certain parties might potentially have had [171-174.3].
106. At the time of the Case Management Conference on 29 November 2012, the RPC defendants were still objecting to these amendments and pursuing their strike out application. However, in correspondence in the week before the hearing of the strike out application, the RPC defendants withdrew their objection to the amendments other than to one paragraph, [174A] but raised a new ground for challenging the amendments, that the claimants had failed to demonstrate sufficient connection with this jurisdiction for the invocation of section 423. It follows that these two objections, to [174A] and that there is insufficient connection with the jurisdiction were the matters the subject of argument at the hearing.
107. [174A] of the Amended Particulars of Claim provides as follows:

"Further or alternatively, the Claimants will contend, insofar as necessary, that, for the purpose of section 423, the rights or abilities of the Claimants to recover the proceeds of the Italian Assets from the Blue Skye Fund (via action against Stepstone) and BenLomond (via Stepstone and the Blue Skye Fund) are claims by the Claimants against the Blue Skye Fund for the purpose of section 423 and that the purpose of the transactions was to put the Italian Assets beyond the reach or control of the Claimants in anticipation of those claims or to prejudice the Claimants' interests in respect of the claims."

108. Mr Lord QC contends that this pleading still does not satisfy the requirements of section 423(3) because it does not identify any actual or potential claim by the claimants against the debtor i.e. the Fund, but only a claim against third parties who might in turn have a claim against the Fund. He submitted that such a remote or indirect claim against the Fund fell outside section 423. I was puzzled by this objection, since it does not seem to me that [174A] adds much to [174.3] to which the defendants do not now object. However, it seems to me that, for a number of reasons, section 423(3) is not restricted in the way in which Mr Lord suggests and includes prejudicing a claim that will be made by indirect means.
109. First, the word "victim" in section 423(5) is not limited to creditors, as David Richards J held in Clydesdale Financial Services v Smailes [2009] EWHC 3190 (Ch); [2010] Lloyd's Rep IR 577 at [73]:

"Section 423(5) defines a victim of a transaction as a person "who is, or is capable of being, prejudiced by it". In choosing the term "victim" and this definition, it is I think clear that it was intended to be a wider category than simply creditors. The words used are ordinary English words with no technical meaning and the correct approach in any given case is to ask whether, on the facts of the case, the claimant is a person who is, or is capable of being, prejudiced by the transaction."

110. Second, in any event, the scope of persons falling within section 423(3), that is to say those who are making or may at some time make a claim is to be given a broad interpretation and is not necessarily limited to "victims" under section 423(5). In Hill v Spread Trustee Ltd [2006] EWCA Civ 542; [2007] 1 WLR 2404, the Court of Appeal rejected the argument that the court had no jurisdiction to make an order under section 423 unless there was a victim as defined by section 423(5). Arden LJ held at [136]:

"In my judgment there is nothing in section 423 which mandates this result. I have already observed that it is a feature of sections 423 to 425 that they are drafted in wide terms, and this is another example of their inbuilt elasticity. It is correct that normally the court would consider that it was not proportionate to hear an application unless it could be shown at that date that there was a person who could benefit by a positive finding under section 423. But there are bound to be cases where that cannot be shown, perhaps because the person who seems to have been prejudiced has to establish his claim in foreign proceedings, or because there are creditors whose claims have not yet matured into present debts….There is as it seems to me a deliberate avoidance of the term "victim" in section 423(1) and (3), which set out the conditions which have to be satisfied before the court can make an order under section 425. On the contrary, all that has to be shown is that the person is making or may at some time make a claim (see section 423(3)(a) and (b))."

111. Third, section 423(3) does not require that the transaction sought to be impugned was entered into in order to prejudice the particular person now bringing the claim. It is enough that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him: see per Sales J in 4 Eng v Harper [2009] EWHC 2633 (Ch) at [22]:

"In the present context, in determining whether a relevant purpose is made out under s. 423(3) it would not matter whether Mr Simpson acted in order to protect his assets from possible claims by Mars or from possible claims by 4Eng. It would be sufficient for 4Eng to establish that he acted for either or both purposes, since it is not a requirement of s. 423(3) that the victim claiming relief in relation to a transaction was the very creditor whose claims the transferor was seeking to defeat – it is sufficient that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him (see the reference in general terms in s. 423(3) to "a person who is making, or may at some time make, a claim against [the transferor]" and Sands v Clitheroe [2006] BPIR 1000)."

112. In my judgment, it follows from those authorities giving a wide scope to the section that, if the claimants' allegations are made out, they are arguably entitled to bring a claim under section 423 on the basis that the Scheme was a transaction which had the purpose of defeating a claim by Stepstone or the Fund and that the plea in [174A] is a sustainable one.
113. The other objection to the section 423 claim recently raised by the defendants is that there is insufficient connection with this jurisdiction, so that the court should effectively strike out the section 423 claim now. This approach is misconceived. It is well-established that section 423 can have extra-territorial effect. The principle was stated by Sir Donald Nicholls V-C in Re Paramount Airways (No 2) [1993] CH 223 at 239-240:

"The court's discretion: a sufficient connection with England

This conclusion is not so unsatisfactory as it might appear at first sight. The matter does not rest there. Parliament is to be taken to have intended that the difficulties such a wide ambit may create will be sufficiently overcome by two safeguards built into the statutory scheme. The first lies in the discretion the court has under the sections as to the order it will make. Section 423(2) provides that the court "may" make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. Sections 238, 239, 339 and 340 provide that the court "shall," on an application under those sections, make such order as it thinks fit for restoring the position. Despite the use of the verb "shall," the phrase "such order as it thinks fit" is apt to confer on the court an overall discretion. The discretion is wide enough to enable the court, if justice so requires, to make no order against the other party to the transaction or the person to whom the preference was given. In particular, if a foreign element is involved the court will need to be satisfied that, in respect of the relief sought against him, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element. This connection might be sufficiently shown by the residence of the defendant. If he is resident in England, or the defendant is an English company, the fact that the transaction concerned movable or even immovable property abroad would by itself be unlikely to carry much weight. Likewise if the defendant carries on business here and the transaction related to that business. Or the connection might be shown by the situation of the property, such as land, in this country. In such a case, the foreign nationality or residence of the defendant would not by itself normally be a weighty factor against the court exercising its jurisdiction under the sections. Conversely, the presence of the defendant in this country, either at the time of the transaction or when proceedings were initiated, will not necessarily mean that he has a sufficient connection with this country in respect of the relief sought against him. His presence might be coincidental and unrelated to the transaction. Or the defendant may be a multinational bank, carrying on business here, but all the dealings in question may have taken place at an overseas branch.

Thus in considering whether there is a sufficient connection with this country the court will look at all the circumstances, including the residence and place of business of the defendant, his connection with the insolvent, the nature and purpose of the transaction being impugned, the nature and locality of the property involved, the circumstances in which the defendant became involved in the transaction or received a benefit from it or acquired the property in question, whether the defendant acted in good faith, and whether under any relevant foreign law the defendant acquired an unimpeachable title free from any claims even if the insolvent had been adjudged bankrupt or wound up locally. The importance to be attached to these factors will vary from case to case. By taking into account and weighing these and any other relevant circumstances, the court will ensure that it does not seek to exercise oppressively or unreasonably the very wide jurisdiction conferred by the sections.

114. As that passage indicates, the question whether there is sufficient connection with England to justify relief under section 423 is a matter which depends upon all the circumstances of the case. This is not a threshold question of jurisdiction, but a question of discretion. Clearly a question of discretion which depends upon a fact-sensitive enquiry is not appropriate for determination on a summary basis at an interlocutory stage, such as when permission to amend is sought. That is borne out by what Evans-Lombe J said in Jyske Bank (Gibraltar) Ltd v Spjeldnaes [1999] 2 BCLC 101 at 122. In that case, at the stage when permission to amend to add a section 423 claim was being sought, he had been invited to decline to exercise the discretion to grant relief. He had not been prepared to decide the point at that stage but considered that he should wait until he had heard full evidence and argument.
115. At the present stage where permission to amend is being sought, all that the claimants have to show is that, if their case is made out, there is a real prospect that they will be entitled to relief under section 423. In my judgment, that requirement is amply made out. The claimants arguably demonstrate a close connection with England on the same grounds as they have an arguable case that there is a manifestly closer connection with England than with Luxembourg for the purposes of Article 4(3) of the Rome II Regulation.
116. In this context, the actual decision of Evans-Lombe J in Jyske Bank is also illuminating. In that case the learned judge granted the claimant bank relief under section 423 against two Irish companies to reverse an assignment of land in Ireland by one company to the other pursuant to a contract governed by Irish law. The learned judge concluded that to grant relief under section 423 would not offend the principle of comity and that it was appropriate to do so against foreign parties properly before the court notwithstanding that, as he recognised at 124, none of the connections with England that the Vice-Chancellor had identified in Re Paramount Airways (No 2) was present, holding that the Vice-Chancellor was not laying down that the court should never grant an order under section 423 in the absence of the sort of connections with England he identified.
117. The approach adopted by Evans-Lombe J in that case was thus that the discretion given to the court as to whether to grant relief under section 423 was untrammelled by the necessity to establish particular types of connection with England. That approach was approved by Tomlinson J in Dornoch Ltd v Westminster International BV [2009] EWHC 1782 (Admlty); [2009] 2 CLC 226 at [134], where he stated:

"I particularly note from the foregoing that Sir Donald Nicholls [in Re Paramount Airways] regarded no one factor as decisive. Each case will turn on its own facts with the weight to be given to connecting factors or their absence dependent on their real significance having regard to the overall situation. In Jyske Bank (Gibraltar) Limited v Spjeldnaes [1999] 2 BCLC 101 Evans-Lombe J, whose experience in this field is very considerable, exercised the jurisdiction even though as he expressly recognised there were present none of the sort of connections with England which the Vice Chancellor had set out."

118. In my judgment, the claimants' claim for relief under section 423 is fully arguable and, in accordance with those authorities, should not be determined now, but at the trial, when the court has heard all the evidence.

Costs of discontinuance

119. The defendants other than Stepstone seek their costs of the various claims which the claimants have now discontinued. The relevant rule under the CPR is 38.6 which provides:

"(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

(2) If proceedings are only partly discontinued –

(a) the claimant is liable under paragraph (1) for costs relating only to the part of the proceedings which he is discontinuing; and

(b) unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings."

120. The presumption this creates is very hard to displace. In Teasdale v HSBC Bank plc [2010] EWHC 612 (QB), HHJ Waksman QC considered the earlier authorities and concluded as follows at [5] to [7]:

"5. In most cases, in order to show good reason, the Claimant will need first to show a change of circumstances since the claim was made. This will demonstrate at least that there is something more than a simple re-evaluation. See Far Out at [3]. But even if circumstances have changed since the commencement of the claim, if they result from the very fact of the claim, for example the Defendant has run out of money because he has spent it all on defending it, the Claimant cannot invoke that. It may be different where the Defendant has rendered the Claimant's claim worthless because of something he has done on his own initiative, for example embarking on some other unsuccessful proceedings which led to his own bankruptcy. See Walker [39] commenting upon the decision in Everton v World Professional Billiards and Snooker Association (13 December 2001). Equally, if the chances of success had reduced in the Claimant's eyes because of what the Defendant produces on disclosure or because of some argument raised in the Defence, it would be very unlikely that this would assist the Claimant on costs if he then discontinues. That is because such changing circumstances are part and parcel of litigation.

6. In truth it is difficult to see how any change of circumstance could amount to good reason unless it is connected with some conduct on the part of the Defendant which deserves to sound in costs against him. Thus [11] of Maini refers to active misconduct. And at p541 of RTZ Potter LJ refers by way of example to the case of a Defendant who perversely encourages a plaintiff into action by concealing the existence of a defence although reasonably invited prior to proceedings to make disclosure. Another example is the unnecessarily aggressive approach and totally unreasonable and unjustified stance taken by the Defendant in relation to negotiations before discontinuance, as found by Lightman J in [53] of RBG. Or the failings by the Defendant accountant in his professional obligations to the liquidator in Doshi. It is to be noted that in the last two cases the result was a percentage reduction in the Defendants' recoverable costs, not an order that they pay any part of the Claimant's.

7. And even if there has been some conduct by a Defendant which has caused a change of circumstances this should not have an adverse impact against him if, having regard to all the circumstances it does not amount to a good reason to disapply the presumption; so a change of circumstances is simply the beginning of the enquiry, not the end of it."

121. In the present case, it is not alleged that the claimants incurred costs they would not otherwise have done because of anything which could be said to amount to active misconduct by the defendants of the kind identified by the learned judge in that case. What was alleged in correspondence was that it was appropriate for Cypress Way to have advanced the claim it did, which has now been withdrawn, for in effect, the Stepstone Fund Damage claimed by Stepstone, because Stepstone had been under the control of the RPC defendants and it had not been clarified whether Stepstone was going to adopt a hostile or a friendly stance towards the claimants. I agree with Mr Lord that even if this was a justification for advancing the claim, the fact is it has now been discontinued and this is not a good reason for the claimants to be excused payment of the costs incurred by the RPC defendants in relation to that discontinued claim.
122. In my judgment, where a claim is discontinued, the liability of the claimants to pay the defendants' costs in the usual way under CPR 38.6 cannot depend upon whether it was a good claim or a bad claim. The claimants have chosen to make a claim which they now seek to withdraw and the normal costs consequences should follow. In the circumstances, it is not necessary to investigate whether the claims now discontinued were good claims or bad claims. However, so far as Cypress Way is concerned, since it was a shareholder in Stepstone, its claims in tort as originally pleaded in [141], [145] and [170] were claims precluded by the rule against the recovery of reflective loss and, hence, bad claims.
123. Mr McQuater's alternative argument that the claimants should not have to pay the costs of the discontinued claims because it may well be that it will turn out that the costs the defendants have incurred would have been incurred anyway defending the other extant claims seems to me to be a point on assessment of costs rather than whether the defendants are entitled to an order for costs in principle. Since, under CPR 38.6(2)(b), the costs will not be assessed until the end of the case, the question of how much the defendants may recover is for another day, but is no reason for not making an order now in the defendants' favour.

Conclusion

124. It follows that, save that (i) the RPC defendants and the sixteenth defendant are entitled to an order that the claimants should pay their costs of the discontinued claims, to be assessed at the conclusion of the proceedings, if not agreed and (ii) the status of the claim under the Actio Pauliana remains to be determined, the applications to strike out and for summary judgment are dismissed. The claimants are entitled to make the amendments to the Particulars of Claim which are not already the subject of [1] of my Order of 29 November 2012, save for the Actio Pauliana still to be determined.