Harbour Fund II L.P. v ORB a.r.l.

JurisdictionJersey
CourtRoyal Court
JudgeJ. A. Clyde-Smith,Jurats Fisher,Blampied,Commr.,Clyde-Smith
Judgment Date28 September 2016
Neutral Citation[2016] JRC 171
Date28 September 2016

[2016] JRC 171

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith, Esq., and Jurats Fisher and Blampied

In the Matter of the Representation of Harbour Fund II LP and in the Matter of an Application to Isue a Letter of Request to the High Court of England and Wales in Respect of Orb A.R.L. for the \Appointment of an Administrator

Between
Harbour Fund II L.P.
Representor
and
ORB a.r.l.
First Respondent

and

Litigation Capital Funding
Second Respondent

Advocate E. B. Drummond for the Representor.

The Viscount was in attendance.

Authorities

ORB a.r.l. & Ors v Ruhan & Ors [2016] EWHC 850 (Comm).

Dessain & Wilkins, Insolvency & Asset Tracking, 5th Ed (2016),.

OT Computers Limited [2002] JLR Note 10, 2002/29.

REO (Powerstation) Limited [2011] JRC 232A.

Representation of Bank of Scotland plc [2012] JRC 080.

Alard Investments Limited [2015] JRC 137.

Insolvency Act 1986.

In re Tambrook (Jersey) Limited [2013] EWHC 866 (Ch).

Siena SARL v Glengall Bridge Holdings Limited [2015] JRC 260.

Letters of Request — application by the representor seeking an administration order with respect to ORB a.r.l.

THE COMMISSIONER:
1

The representor (“Harbour”) applies to the Court for a letter of request to be issued to the English High Court seeking the making of an administration order with respect to ORB a.r.l. (“ORB”).

2

Harbour is an exempted limited partnership registered in the Cayman Islands and which is in the business of providing litigation funding to third parties. ORB is a Jersey registered company, the sole director and shareholder of which is Dr Gail Cochrane, who resides at Steephill, St Saviour's Hill, Jersey where ORB has its registered office.

3

The history is set out in some detail in the interlocutory judgment of Popplewell J dated 15 th April, 2016, ORB a.r.l. & Ors v Ruhan & Ors [2016] EWHC 850 (Comm) and our summary of the background is derived in large part from that judgment as well as from the affidavit evidence before us.

4

Following a corporate reorganisation in August 2002, ORB became the holding company of a group with interests in hotels, commercial and warehouse properties, transport and logistics businesses and venture and private capital.

5

Between August and November 2002, Dr Gerald Martin Smith, the former husband of Dr Cochrane and then the chief executive of ORB, stole approximately £35M from Izodia plc, a company in which ORB held a 29.9% shareholding and misapplied the bulk of those monies for ORB's benefit. As a result of investigations by the Serious Fraud Office, Dr Smith personally faced criminal sanctions, and by early 2003, Izodia had also brought proceedings against ORB and Dr Smith for recovery of the sums transferred from Izodia's bank account. Once the theft had been discovered ORB sold a substantial proportion of its assets to Mr Andrew Joseph Ruhan, and companies associated with and/or controlled by him (“the ORB assets”).

6

In 2004/5, the ORB assets were transferred by Mr Ruhan into a complex structure involving numerous (over 100) companies ultimately owned by the trustee of an Isle of Man settlement (“the Arena Settlement”).

7

In April 2006, Dr Smith pleaded guilty to a number of charges relating to the theft of Izodia's monies and was subsequently sentenced to 8 years in prison. This was not his first conviction; in 1993 he was convicted of fraud in relation to a sum of £2M, and sentenced to 2 years' imprisonment.

8

In 2007, a confiscation order was made in England against Dr Smith in the sum of approximately £41M and two partners of KPMG were appointed enforcement receivers to recover the debt.

9

On 27 th October, 2012, shortly after Dr Smith's release from prison, proceedings were commenced by ORB and two others, whose role appears to have been minor, (together “the Claimants”) in the High Court against Mr Ruhan (“the English proceedings”), alleging that in the sale of the ORB assets to Mr Ruhan, there was an oral agreement, not reflected in the sale documentation, that ORB would share in the assets sold and the profits made from their development by Mr Ruhan. It was asserted that in breach of that oral agreement, Mr Ruhan had sought to conceal the ORB assets in the complex structure of the Arena Settlement, sold them for his own benefit and failed to account for the share of the profits due under the oral agreement.

10

The Claimants agreed with Dr Smith that in return for his cooperation and assistance in the English proceedings, they would transfer to him 50% of the sums recovered up to the amount owing by Dr Smith under the confiscation order. Popplewell J. said there was good reason to believe that he was the driving force behind the prosecution of the English proceedings (paragraph 15 of his judgment).

11

Initial funding for the prosecution of the English proceedings came from the second respondent (“Litigation Capital”), a New York based entity owned, it would seem, by Dr Smith's brother, Mr Anthony Smith.

12

On 10 th July, 2013, Harbour entered into an agreement with the Claimants (“the Funding Agreement”) to provide litigation funding. Under the Funding Agreement, any proceeds from the English proceedings were to be utilised (after payment of certain disbursements):-

  • (i) firstly, in the payment to Harbour of the legal costs it had funded; and

  • (ii) secondly, in paying to Harbour a share of those proceeds calculated by reference to a formula set out in schedule 2.

13

The monies due to Harbour under the Funding Agreement are secured by:-

  • (i) A debenture giving Harbour fixed and floating charges over the whole, or substantially the whole, of ORB's property.

  • (ii) A guarantee by Dr Cochrane which is in turn secured by a security interest agreement over the shares in ORB.

14

Ancillary proceedings were then commenced in the Isle of Man by Dr Cochrane against Mr Simon Cooper and Mr Simon McNally, who had been cited as parties to the English proceedings. They are described by Popplewell J as Mr Ruhan's former solicitors and trusted business advisers who were the discretionary objects under the Arena Settlement.

15

The Isle of Man proceedings were settled by deed dated 17 th December, 2013, entered into between Dr Cochrane, Mr Cooper and Mr McNally (“the Isle of Man Agreement”). The effect of the Isle of Man Agreement was for Mr Cooper and Mr McNally to procure the transfer by the trustee of the Arena Settlement to Dr Cochrane of control of assets held both within the Arena Settlement and outside it. It is noteworthy that under the provisions of the Isle of Man Agreement Dr Cochrane acknowledged having received £10M on 15 th November, 2013, from Mr Cooper and Mr McNally, which she agreed was to be applied towards the settlement consideration payable to her.

16

ORB is expressly written out of any benefit from these arrangements which were undertaken, apparently, without the knowledge of Mr Ruhan. On learning of these arrangements, he counter-claimed in the English proceedings for what he contended was a misappropriation of the assets transferred to Dr Cochrane. In his original defence, when he was seeking to avoid interference in his business affairs, he had said that he had no beneficial interest in the Arena Settlement assets. Once it had emerged that Dr Cochrane had acquired the assets as a result of the Isle of Man Agreement, he asserted that the assets were in reality his.

17

Popplewell J made this comment at paragraph 16 of his judgment:-

“That is to say, rather than awaiting the outcome of the action, the Claimants have taken matters into their own hands and have taken control of such of the Orb Assets and/or their allegedly traceable proceeds as were in the Arena Settlement without waiting for the trial.”

18

Quite how Dr Cochrane was able to achieve this result is not clear to us from the documents we have seen.

19

Popplewell J put the value of the assets transferred to Dr Cochrane under the Isle of Man Agreement as being in excess of £150M; more, he said, than the maximum amount of ORB'S claim in the English proceedings.

20

None of the parties to the English proceedings come out of Popplewell J's judgment with any credit, but he was particularly scathing about the conduct of the Claimants, described by him as the ORB parties. Quoting from paragraph 181:-

“181 This high handed behaviour, and refusal to recognise the authority of the Court's orders, is of a piece with their abusive behaviour in other respects. There is a long history of behaviour by the Orb Parties in these and other proceedings which shows that they are prepared to mislead the Court and abuse the Court's processes for the improper collateral purpose of putting pressure on Mr Ruhan.”

21

On 23 rd October, 2014, Harbour entered into a deed with ORB, Dr Cochrane, Mr Cooper, Mr McNally and others (“the 2014 Agreement”) by which it was agreed that the assets received by Dr Cochrane under the Isle of Man Agreement would be treated as proceeds of the English proceedings, pursuant to the Funding Agreement.

22

By consent order dated 6 th May, 2016, the claims and counter claims in the English proceedings were dismissed.

23

On 24 th June, 2016, Phoenix Group Foundation obtained a freezing injunction up to the value of £145M against Dr Cochrane and on 11 th July, 2016, the liquidators of a number of companies within the Arena Settlement Group obtained a proprietary injunction and world-wide freezing injunction up to £45M against Dr Cochrane (and another). The Court was only referred to the orders granted and not the statement of claim in each case and is unable therefore to give a reliable summary of the basis upon which these claims are being pursued against Dr Cochrane in the High Court.

24

On 3 rd August, 2016, a production order, issued by the Central Criminal Court in London, was served on Andiamo Office Services Limited, (“Andiamo”), formerly Pro Vinci Limited, at its offices in...

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