The heavyweight: comprehensive coverage of banking …€¦ · The heavyweight Comprehensive...
Transcript of The heavyweight: comprehensive coverage of banking …€¦ · The heavyweight Comprehensive...
Table of Contents
Banking ..........................................................................................................................6 Cases ............................................................................................................................................. 6
Investment bank successfully appeals against misrepresentation................................................ 6 (1) Peekay Intermark Ltd (2) Harish Pawani v Australia & New Zealand Banking Group Ltd ... 6
Intellectual property in credit derivative future ........................................................................... 7 Liffe Administration & Management V (1) Pavel Pinkava (2) De Novo Markets Ltd ................ 7
Mortgagee’s duty on sale .......................................................................................................... 9 Bishop v Blake ...................................................................................................................... 9
Attempt to resist disclosure rejected .......................................................................................... 9 Capricorn Financial Investments SA and others v Secretary of State for Trade and Industry... 9
Privity of contract and cheques................................................................................................ 10 Grosvenor Casinos Ltd v National Bank of Abu Dhabi......................................................... 10
Challenge to award of bonus of investment bank trader ......................................................... 12 Keen v Commerzbank AG.................................................................................................. 12
Mortgagee did not rely on misrepresentations......................................................................... 13 Habib Bank Ltd v Nasira Tufail [2006] EWCA Civ 374 ......................................................... 13
Undue influence and mortgages.............................................................................................. 14 Abbey National Bank Plc v (1) Anthony Mario Stringer (2) Rosa Stringer (3) Sidney George Finlay (4) Peter John O'Brien (5) Margaret Ann O'Brien....................................................... 14 [2006] EWCA Civ 338 ........................................................................................................ 14
Costs under guarantee not recoverable by mortgagee............................................................. 15 Kotonou and another v National Westminster Bank plc...................................................... 15
Characterisation of charge....................................................................................................... 16 Fanshaw and another v Amav Industries Ltd and others ..................................................... 16
Legislation .................................................................................................................................. 18 Consumer Credit Act gets Royal Assent................................................................................... 18 UK implementation of EC Transparency Directive .................................................................... 18 The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment) Regulations 2006 No 936 ............................................................... 18 Reminder of new fair value disclosure requirements for derivatives in the Companies Act 1985............................................................................................................................................... 18
Articles........................................................................................................................................ 20 A review of developments in English law during 2005............................................................. 20
Capital Markets .................................................................................................................. 22 Corporate hybrid securities: combining debt and equity .......................................................... 22 From strength to strength: the private equity legal market ...................................................... 22
Company ........................................................................................................................... 22 The long road to reform: a director’s lot under the Company Law Reform Bill ......................... 22
Contract............................................................................................................................. 23 Acquiescence accepting a breach of contract .......................................................................... 23
Consumer Credit ................................................................................................................ 23 Testing times ........................................................................................................................... 23
Environment....................................................................................................................... 23 An opportunity to gain from emissions reduction plan ............................................................ 23
Intellectual Property............................................................................................................ 23 Taking Security over Intellectual Property................................................................................. 23
Marketing .......................................................................................................................... 23 Advertising .............................................................................................................................. 23
Private Equity...................................................................................................................... 24
Private equity placements: comparing the laws in Switzerland, the European Union, the United Kingdom and the United States: Part 1.................................................................................... 24
Project Finance ................................................................................................................... 24 Promise of PPP for US roads..................................................................................................... 24 French PPPs face le crunch....................................................................................................... 24
Registered Land.................................................................................................................. 24 Overreaching in registered land law......................................................................................... 24
Regulatory.......................................................................................................................... 25 The world turned upside down: radical ideas in regulation ...................................................... 25 Ditching their principles ........................................................................................................... 25 Outsourcing under MIFiD......................................................................................................... 25 Principles for principals ............................................................................................................ 25 FIG trends in 2006................................................................................................................... 25 The implementation of Directive 2002/47 on financial collateral arrangements........................ 25 The need for a new look at capital markets regulation post-Enron........................................... 26 Problems with Lamfalussy process ........................................................................................... 26
Risk .................................................................................................................................... 26 A debt shared is a risk reduced................................................................................................ 26 Equitable property ................................................................................................................... 26
Technical..................................................................................................................................... 28 Banking.............................................................................................................................. 28
"Spanish bullfighter" defence: change .................................................................................... 28 Bonds................................................................................................................................. 28
Association of British Insurers .................................................................................................. 28 Company ........................................................................................................................... 28
The dematerialisation of shares and share transfers: a proposal to remove the requirement for paper share certificates and stock transfer forms ..................................................................... 28
ICMA ................................................................................................................................. 28 ICMA Global Master Repurchase Agreement 1995 and 2000 versions Legal Opinions............. 28
ISDA................................................................................................................................... 29 Substantive Issues Working Group........................................................................................... 29 2005 Operations Benchmarking Survey and FpML Use Survey ................................................. 30 Reform of Insurance Contract Law .......................................................................................... 31 Pension Protection Fund and derivatives .................................................................................. 31 Credit Events Guide: Pre-Publication Draft ............................................................................... 31 Revisions to 2005 Barrier Option Supplement .......................................................................... 31 CESR’s Call for evidence on Consolidation of Market Transparency Data................................. 31 ISDA: New Settlement Mechanic for Credit Derivative Transactions ......................................... 32
Financial Reporting............................................................................................................. 33 ASB Issues Amendment on 'Financial Instruments: Measurement' - Recognition and Derecognition.......................................................................................................................... 33
Outsourcing ....................................................................................................................... 33 Standards on outsourcing - revised.......................................................................................... 33
Payment and settlement..................................................................................................... 34 Statistics on payment and settlement systems in selected countries - Figures for 2004............. 34
Regulatory.......................................................................................................................... 34 Guidelines on the implementation, validation and assessment of Advanced Measurement (AMA) and Internal Ratings Based (IRB) Approaches ........................................................................... 34 Macro factors in the term structure of credit spreads............................................................... 34 Dealings in derivatives and options statement by the Code Committee of the Panel following the external consultation processes on control issues in PCP 2005/1 and PCP 2005/3.............. 35
Security .............................................................................................................................. 35 Financial Collateral Arrangements ........................................................................................... 35
Notices ........................................................................................................................................ 36 Ombudsman News .................................................................................................................. 36 LMA – handling non-public information .................................................................................. 36 FSA Seeks views on miscellaneous amendments to the Handbook........................................... 36 AIM Notice 18 - Proposed Changes to the AIM Rules in respect of Third Party Trading Platforms............................................................................................................................................... 36
Notification - AIM Securities Trading on a Third Party Trading Platform.................................... 37 LMA paper: Dealing with confidential and price sensitive information ..................................... 37 ISDA - Credit Derivative Transaction on Asset-Backed Security with Cash or Physical Settlement............................................................................................................................................... 37 LMA paper: Dealing with confidential and price sensitive information ..................................... 38 Commission Expert Group Examines EU Fiscal Compliance Barriers to Cross Border Securities Trading.................................................................................................................................... 38 Single and Dual Pricing for Authorised Collective Investment Schemes. ................................... 38
Insolvency ....................................................................................................................39 Cases ........................................................................................................................................... 39
Bank avoids winding up petition by relying on similar fact evidence......................................... 39 Abbey National plc v JSF Finance & Currency Exchange Co Ltd........................................... 39
Value of Assets on Liquidation................................................................................................. 40 Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd ....................... 40
Breach of fiduciary duty and conspiracy to injure ..................................................................... 41 Simtel Communications Ltd v (1) Peter Daniel Rebak (2) Telec Ltd (3) Chwee Tian Chan (aka Larry Chan)......................................................................................................................... 41 [2006] EWHC 572 (QB) ...................................................................................................... 41
Compulsory Winding Up ......................................................................................................... 43 Portfolios of Distinction Ltd, Re; Re Turning Point Seminars Ltd .......................................... 43
Enforcing worldwide freezing order in foreign jurisdiction ....................................................... 44 Dadourian Group International Inc v Simms & Ors .............................................................. 44 [2006] EWCA Civ 399 CA (Civ Div) (Ward LJ, Arden LJ, Moore-Bick LJ) 11/4/2006 ............. 44
Liability of insolvency practitioners and directors...................................................................... 45 International Championship Management, and Mall Corporate Events Ltd......................... 45
CVA notice of meeting outside E&W ....................................................................................... 46 Re T&N Ltd and other companies ....................................................................................... 47
Were documents with solicitors subject to legal professional privilege? ................................... 48 The TAG Group Litigation; Winterthur Swiss Insurance Company and another v AG (Manchester) Ltd (in liquidation) and others........................................................................ 48
Setting aside judgment in default ............................................................................................ 50 (1) Peter Norman Richmond (2) Alpine Taxis Ltd v (1) David Richard Burgh (2) Praisecover Ltd (3) Elizabeth Ann Burch ...................................................................................................... 50 Ch D (G Bompas QC) 7/4/2006 .......................................................................................... 50
Challenge to arbitration can not be raised in England after being decided in Germany............ 51 (1) Karl Leibinger (2) Franz Leibinger v Stryker Trauma GMBH ........................................... 51
Attempt to resist disclosure rejected ........................................................................................ 52 Capricorn Financial Investments SA and others v Secretary of State for Trade and Industry. 53
Abuse of process against bank ................................................................................................ 53 (1) Dipa Das (2) Sachindra Nath Das v Barclays Bank Plc (2006) .......................................... 53
Jurisdiction on Liquidation of English Bank .............................................................................. 54 In the Matter of AY Bank Ltd (In Liquidation) sub nom Ay Bank (In Liquidation) v Bosnia & Herzegovina & 6 Ors [2006] EWHC 830 (Ch) Ch D (Companies Ct) (Sir Andrew Morritt C) 12/4/2006 .......................................................................................................................... 54
Legislation .................................................................................................................................. 56 UK implementation of the EC Collateral Directive.................................................................... 56 Cross-Border Insolvency Regulations 2006............................................................................... 56 Guidance: Cross Border Insolvency Regulations 2006 .............................................................. 56 The Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006 No 1070............................................................................................................... 56
Articles........................................................................................................................................ 58 Lessen the danger ................................................................................................................... 58 Second Lien Financings: Enforcement of Intercreditor Agreements in Bankruptcy .................... 58 Lessen the danger ................................................................................................................... 58 Binning documents is not the end of the story......................................................................... 59 Communication and co-operation between insolvency courts and personnel .......................... 59 Acquiescence accepting a breach of contract .......................................................................... 59
Communication and co-operation between insolvency courts and personnel .......................... 59 Scope of the arbitration clause ................................................................................................ 59 Serious irregularity - tribunal’s failure to deal with issue........................................................... 60 Public policy and failure to deal with all issues ......................................................................... 60 Enforcement of arbitral awards - enforcement against the assets of sovereign states............... 60 Firm grip on disputes ............................................................................................................... 61 Exchange of fire ...................................................................................................................... 61 What to e-disclose................................................................................................................... 61 Worth the wait? Final JMLSG guidance ................................................................................... 61 Seeking consent ...................................................................................................................... 61 Who is the client? An exploration of legal professional privilege in the corporate context....... 61 Phoenix rising: Corporate Insolvency, Occupational Pensions, Pension Protection Fund, Reconstructions ....................................................................................................................... 62 The valuation of distressed companies..................................................................................... 62 TXU-CVAs v s425 Schemes...................................................................................................... 62 An overview of Canada’s new insolvency regime..................................................................... 62 Identifying creditors for Schemes and CVAs............................................................................. 62 Competition law issues in insolvency and restructuring............................................................ 63 Western banks bankrupt Yukos oil giant ................................................................................. 63 Dana Corporation is latest auto casualty.................................................................................. 63 Refco victory for customers...................................................................................................... 63 Heitkamp on the brink............................................................................................................. 63 How Gate Gourmet escaped bankruptcy ................................................................................. 63 Collins & Aikman sale closes.................................................................................................... 63 Heros cash crunch ................................................................................................................... 63 A changing environment ......................................................................................................... 64 Court hands down judgment on discontinued case ................................................................. 64 Insolvency does not affect final date for payment.................................................................... 64 TUPE Regulations 2006............................................................................................................ 64 The valuation of distressed companies..................................................................................... 65 TXU-CVAs v s425 Schemes...................................................................................................... 65 An overview of Canada’s new insolvency regime..................................................................... 65 Identifying creditors for Schemes and CVAs............................................................................. 65 Competition law issues in insolvency and restructuring............................................................ 65
Technical..................................................................................................................................... 66 TUPE regulations ..................................................................................................................... 66 Financial Collateral Arrangements ........................................................................................... 66 The dematerialisation of shares and share transfers: a proposal to remove the requirement for paper share certificates and stock transfer forms ..................................................................... 66 Choice Gift Vouchers: distributions by administrators .............................................................. 66
Notices ........................................................................................................................................ 68 Resource page on Leyland Daf................................................................................................. 68 SOCA Steps Up Action on Money Laundering. ........................................................................ 68
Banking
Cases Investment bank successfully appeals against misrepresentation (1) Peekay Intermark Ltd (2) Harish Pawani v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386
INVESTMENT BANKS : INVESTMENTS :
MISREPRESENTATION : MISTAKE : RISK CLAUSES :
TERMS AND CONDITIONS : DISCREPANCY
BETWEEN ORIGINAL REPRESENTATIONS AS TO
NATURE OF INVESTMENT AND FINAL TERMS AND
CONDITIONS : FAILURE TO READ TERMS AND
CONDITIONS
An investor could not argue that he had been
induced into entering a contract to make an
investment by a misrepresentation as to the nature
of that investment when the true nature of the
transaction had been communicated to him in the
final terms and conditions of the contract, which he
had signed without actually reading.
The appellant bank (B) appealed against a
decision giving judgment for the first
respondent company (P) on P's claim for
damages for misrepresentation. P was a
company used as an investment vehicle by
its shareholders, who included the second
respondent (X). X regularly invested on P's
behalf in emerging market instruments by
liaising with one of B's regional managers
(R). R had informed X of an opportunity to
invest in bonds, known as GKOs, issued by
the Russian government. X, on behalf of P,
agreed to invest $250,000 in the product.
R did not tell X that the product was a
financial derivative in the form of a
structured deposit linked to a GKO or that
in the event of default by the Russian
government investors would have no
control over the manner in which the
investment was liquidated. However, X
was subsequently sent a document
containing final terms and conditions,
which explained the true nature of the
investment. X did not read the terms and
conditions, but signed and returned that
document, along with a risk disclosure
statement which he had signed. The
Russian government subsequently
defaulted and P lost virtually the whole of
its investment. It was X's case that he had
been led to believe that P would obtain an
interest in the GKO itself, and that he
would not have made the investment on
P's behalf if he had realised that it would
obtain no interest in the underlying GKO.
The judge below had found that R had
misrepresented the nature of the
investment by giving X the impression that
P would obtain a proprietary interest of
some kind in a GKO and that he had been
induced by that misrepresentation to make
the investment. B submitted that whatever
R had said to X about the investment in
the course of earlier conversations, any
misrepresentation was dispelled by the
final terms and conditions of which X must
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have been taken to be aware, whether he
had actually read them or not.
Accordingly, P could not argue that it had
been induced to enter into the contract by
any representations made in previous
conversations. B argued, in the alternative,
that in the light of X's signature of the risk
disclosure statement P was precluded as a
matter of contract from contending that it
did not understand the true nature of the
investment.
HELD:
(1) The judge's conclusion that X had
understood from what R had said that P
would be acquiring an interest in a
GKO was one with which the instant
court would be very slow to interfere.
However, X was an experienced
investor, and the terms in which R had
described the investment to him were
not such as to enable him to obtain a
very clear understanding of the precise
nature of the investment. However, if X
had read the final terms and conditions
he would have been alerted to the fact
that the documents related to an
investment in a derivative, which was
something fundamentally different
from what he had been expecting.
Whether a person had been induced by
any misrepresentation to enter into a
contract was a question of fact. It was
open to the defendant to show that the
claimant was aware of the true facts
and therefore was not induced by the
misrepresentation to act as he did.
However, it was not enough to show
that the claimant could have discovered
the truth, but that he did in fact
discover the truth, Redgrave v Hurd
(1881-82) LR 20 Ch D 1, Assicurazioni
Generali SpA v Arab Insurance Group
(BSC) (2002) EWCA Civ 1642 , (2003) 1
WLR 577 and Spencer Flack v (1) Jeffrey
Pattinson (2) Queensgate Industries Ltd (2002) EWCA Civ 1820 applied.
However, in the instant case the true
position appeared clearly on the face of
the documents containing the terms of
the contract. The judge's finding that X
was induced to enter into the contract
by the statements previously made by R
could not be sustained. The only
conclusion open to the judge was that
X was induced to sign the documents
not by what R had told him, but by his
own assumption that the investment
product to which they related
corresponded to the description he had
previously been given.
(2) (Obiter) X had confirmed, by
signing the risk disclosure statement,
that he had understood it. It was not
open to P to say that it did not
understand the nature of the
transaction described in the final terms
and conditions, therefore it could not
assert that it was induced to enter into
the contract by a misunderstanding of
the nature of the investment derived
from what R had said about the
product previously.
Intellectual property in credit derivative future Liffe Administration & Management V (1) Pavel Pinkava (2) De Novo Markets Ltd [2006] EWHC 595 (Pat) Ch D (Patents Ct) (Kitchin J) 24/3/2006
An employee's invention of a system that permitted
the trading on an electronic exchange of certain
types of financial instruments had belonged to his
April 2006 7
employer because the invention had been made in
the course of his specifically assigned duties and the
circumstances were such that an invention might
reasonably have been expected to result from the
carrying out by him of his duties.
The claimant (L) sought declarations that it
was the owner of certain United States
patent applications filed by the first
defendant (P), and P sought an order that
he was the owner of the inventions
embodied in those patent applications. L
operated the London futures exchange. P
had been employed by L as a product
manager in the interest rate team of the
marketing and product management
department. L had requested P to
investigate and develop a credit derivative
future to be traded on an electronic
exchange. In fact, P devised a system and
related inventions that permitted the
trading on exchange of certain types of
swaps, which was conceptually different to
anything previously traded by L. P
considered that his inventions did not
belong to L and applied to patent them in
the US as they were not patentable in
Europe. L submitted that under the Patents
Act 1977 s.39(1)(a) it had a right to the
inventions made by P because they were
made in the normal course of his duties to
develop ideas for various aspects of L's
business, and that his contract of
employment made clear that he was to be
flexible in his approach to work and was
responsible for developing new interest
rate products. Further, L argued that
s.39(1)(a) applied because P had been
specifically assigned the duty to develop a
new futures product and in the course of
doing that he had made his inventions. P
argued that his inventions fell outside
s.39(1)(a) because it could not reasonably
have been expected that an invention
might result from the carrying out of his
duties.
HELD:
(1) The inventions in issue were not
made in the course of P's normal
duties. The system devised by P had
permitted the trading on exchange of
financial instruments that had
previously been thought impossible and
were not products normally dealt with
by his department.
(2) P had been specifically assigned to
develop a new future, which term had
been used to describe the kind of
transaction that L had previously
conducted on its exchange and also in a
broader sense to describe other
products that could be traded on
electronic exchanges. P had made his
inventions in the course of performing
that task and therefore in the course of
his assigned duties. All of the inventions
were part of the same assignment.
(3) The requirement in s.39(1)(a) that
an invention might reasonably be
expected to result from the carrying out
of an employees duties could not be
satisfied merely by showing that the
circumstances were such that any
invention at all might reasonably be
expected to result from the activities of
the employee, Harris' Patent (1985) RPC 19 considered. The circumstances were
such that an invention might reasonably
be expected to result from the carrying
out by P of his duties. Although L had
no history of filing for patent protection
it could not be said that it had no
interest in new developments. P's
normal duties did include an obligation
April 2006 8
to develop new products. There was no
obvious solution to the task P had been
set and accordingly it was likely that
any solution would be innovative. The
fact that his invention was ground
breaking did not affect the application
of s.39(1).
Judgment for claimant.
Mortgagee’s duty on sale Bishop v Blake [2006] All ER (D) 200 (Apr), [2006] EWHC 831 (Ch)
Mortgage – Sale – Standard of duty in exercising
power of sale – Duty to take reasonable care to
obtain price equal to market value – Claimant
alleging sale of property by mortgagee at
undervalue – Whether defendant in breach of duty
as mortgagee.
The claimant entered into a contract with
the defendant by which she agreed to
purchase a property, owned by the
defendant, at a price of £290,000, of
which £140,000 was to be left
outstanding, secured by a first legal charge
over the property which was duly granted
to the defendant. The claimant
complained that she had not received
good title to the property and declined to
pay the outstanding sum due under the
contract when the legal charge became
payable. The claimant purported to
exercise her power of sale as mortgagee
by selling the property to a third party, G.
The claimant alleged that the sale was
improper on the grounds that, inter alia,
the sale was at a serious undervalue. She
commenced proceedings against the
defendant, seeking various relief including
damages for the wrongful exercise of the
defendant’s power of sale as mortgagee.
HELD: On the evidence, the defendant’s
power of sale as mortgagee became
exercisable in the circumstances of the
case but that she had acted in breach of
her duty as mortgagee in exercising it, in
that she had failed to take care to obtain
the proper market price for the property at
the date of the sale to G.
Accordingly, she was liable to account to
the claimant for the proceeds of sale on
the basis that she was to be treated as
having received not the price paid by G
but the proper market price of the
property.
Attempt to resist disclosure rejected Capricorn Financial Investments SA and others v Secretary of State for Trade and Industry [2006] All ER (D) 134 (Apr) Chancery Division Hart J 10 April 2006
Disclosure and inspection of documents - Production
of documents - Inspection - Specific disclosure -
Claimants seeking specific disclosure of certain
documents obtained by Secretary of State in course
of investigation - Whether grounds existing to order
disclosure - Companies act 1985, s 447.
The claimants were required by an
investigator acting on behalf of the
Secretary of State to produce certain
documents, pursuant to s 447 of the
Companies Act 1985, in relation to an
investigation following the collapse of a
company with which the claimants were
associated. They commenced proceedings
against the Secretary of State, alleging
that, as none of them was incorporated in
Great Britain, none were proper subjects
for investigation and that it was not open
April 2006 9
to the Secretary of State to require them
to produce documents which, they
alleged, were confidential. They applied
for an order for specific disclosure in
respect of certain documents.
HELD: The application would be dismissed.
The claimants had failed to make out their
contentions. There was no accessible basis
on which to order the disclosure sought.
Privity of contract and cheques Grosvenor Casinos Ltd v National Bank of Abu Dhabi [2006] EWHC 784 (Comm)
Bank – Cheque – Collection – Cheque provided to
casino by client – Cheque being passed by casino via
agent to defendant bank – Credit given to client
allegedly on basis of representation by defendant –
Cheques not being honest – Casino bringing action
to recover alleged losses – Whether claim having
reasonable prospect of success – Gaming Act 1968,
s 16.
Section 16 of the Gaming Act 1968
provides, so far as material: ‘(1) Subject to
[subsections [(2) to (2A)] of this section],
where gaming to which this Part of this
Act applies takes place on premises in
respect of which a licence under this Act is
for the time being in force, neither the
holder of the licence nor any person acting
on his behalf or under any arrangement
with him shall make any loan or otherwise
provide or allow to any person any credit
…— (a) for enabling any person to take
part in the gaming, or (b) in respect of any
losses incurred by any person in the
gaming. (2) Neither the holder of the
licence nor any person acting on his behalf
or under any arrangement with him shall
accept a cheque and give in exchange for
it cash or tokens for enabling any person
to take part in the gaming unless the
following conditions are fulfilled, that is to
say—(a) the cheque is not a post-dated
cheque, and (b) it is exchanged for cash to
an amount equal to the amount for which
it is drawn, or is exchanged for tokens at
the same rate as would apply if cash, to
the amount for which the cheque is
drawn, were given in exchange for them;
but, where those conditions are fulfilled,
the giving of cash or tokens in exchange
for a cheque shall not be taken to
contravene subsection (1) of this section’
The claimant owned a casino in London. A
member of the club in the years 1999 to
2000, R, engaged in gaming activities on
its premises, and over the 18 month period
staked sums in excess of £150m. At the
time R was a customer of the defendant
bank and had an account at its Ajman
branch. The proceedings arose out of the
claimant granting R gaming facilities and
cheque cashing facilities said to be in
accordance with s 16 of the Gaming Act
1968. Those facilities involved, on the
claimant’s account, R tendering cheques
which would be sent to the defendant by
the claimant’s agent, Natwest, and the
defendant confirming by telephone
whether the cheque had been or was to
be paid. If such confirmation was not
given, the claimant would not permit R to
engage in gaming at its premises or
advance any funds to R. If confirmation
was given, it would be recorded by
Natwest as a ‘verbal paid answer’. In that
case, Natwest would inform the claimant
and R would be allowed to engage in
gaming and/or would be granted further
funds or other facilities by reference to the
relevant cheque. Two cheques of February
April 2006 10
2000 formed the basis of the proceedings:
cheque A for approximately £3m and
cheque B for approximately £3.6m. It was
alleged that the defendant had given
verbal advice confirming the cheque,
which led the claimant to grant R access to
its facilities. In the event the cheques were
not honoured, leading to a loss for the
claimant caused by the defendant’s breach
of contract. The defendant applied to
strike out the action as having no real
prospect of success. The claimant applied
to add two new grounds for the action: (i)
that the collection instructions were made
subject to the Uniform Rules for Collection
of the International Chamber of
Commerce (the URC point), giving rise to a
tripartite agreement to which each of the
claimant, Natwest and the defendant were
parties, or alternatively a direct contractual
arrangement between the claimant and
defendant. The incorporation of URC 1995
included a requirement of good faith
which had been breached by the
defendant. Ground (ii) which the claimant
sought to introduce was a claim in deceit,
contending that the representations made
by the defendant that the cheques had
been received and paid were untrue to the
knowledge of the relevant employee of
the defendant, or were made recklessly as
to their truth. The claimant had relied on
those representations by granting R access
to gaming facilities.
The defendant contended that because
the claimant could not sue on the cheques
themselves, as they had never been
accepted by the defendant, it could only
sue on the separate contract it relied upon,
which would have been an illegal contract
because the defendant would be under an
arrangement with the claimant to make a
loan on R’s behalf to enable R to gamble.
Thus the original claim was bound to fail.
As to the URC point, the defendant
claimed not to have been a party to
collection within art 3 of the rules, but a
mere drawee. As to the claim in deceit, it
contended again that the contract had
been illegal and losses sustained under it
could not be recovered.
HELD: There was no reasonable prospect
of the claimant succeeding in establishing
privity of contract at common law with the
defendant. Whereas there could
apparently be established on the evidence
a repeated system whereby the defendant
would inform Natwest when a cheque had
been paid by R by a verbal paid answer,
that system of notification would not,
without more, give rise to privity of
contract between the claimant and the
defendant, so as to displace the firmly
established common law principle that the
collecting banker had privity of contract
with and only with the remitting banker
and not with the customer.
As to the URC point, however, it was far
from fanciful to suggest that the
defendant could be both collecting bank
and drawee for the purposes of URC art 3.
The defendant had received and, as
alleged, acted upon collection instructions
expressly incorporating URC. It would be
inappropriate on a summary application to
amend to determine the point
conclusively. The claimant would therefore
have permission to amend the particulars
of claim to raise the point. The deceit point
was also arguable although the pleading
as drafted was insufficiently explicit.
The claimant would be ordered to prepare
a fresh draft of its particulars of claim
April 2006 11
more coherently expressing the URC and
deceit points.
Challenge to award of bonus of investment bank trader Keen v Commerzbank AG [2006] EWHC 785 (Comm)
Employment – Contract of service – Implied term –
Trader working for investment bank – Contract
providing for bonus – Implied term bank not to act
irrationally in awarding bonus – Claimant
contending bonuses so inadequate as to be
irrational – Bank applying for summary judgment –
Whether claim having real prospect of success.
The claimant was employed as the
manager of a proprietary trading desk in
the defendant bank’s investment banking
division. His annual salary was £120,000,
but as with other trading desks the major
portion of his remuneration was in the
form of an annual bonus. He reported to
the London head of brokerage, M. There
was no dispute that the claimant was
successful at his position and that his team
earned substantial profits for the bank. He
brought proceedings, contending that the
bonuses which he had been awarded were
so low in the circumstances as to be
irrational and/or perverse. His contract of
employment provided that ‘[t]he decision
as to whether or not to award a bonus,
the amount of any award and the timing
and form of the award are at the
discretion of the Bank’. It then listed
factors to be taken into account, including
the performance of the bank, the
performance of the claimant’s business
area and of the claimant individually, the
strategic objectives of the bank and
whether the claimant would be remaining
in the bank’s employment. The
proceedings concerned the bonus for
three calendar years. In the first, 2003, the
desk accrued a profit of approximately
€40m. Although M recommended a bonus
pool for the desk of about 15% and 18%
of that figure, the bank decided on a pool
of around 10%. The second claim
concerned 2004, when the desk made a
€57.5m profit, M had recommended for a
bonus 17.5% of the profit and the bank
had decided on a pool of slightly less than
10%. The third claim concerned the bonus
which the claimant had earned between 1
January 2005 and the effective date of
termination of his employment, 12 May
2005. According to the claimant, the desk
had made a €46.5m profit in that period
yet he had received nothing, whereas a
rational employer would have decided on
a bonus pool of 17.5%. The bank applied
for summary judgment in relation to the
claim.
The bank contended that it had not been
under any obligation to pay bonuses at all,
and that it was entitled but not obliged to
take into account the claimant’s individual
performance. It accepted that it was
required not to exercise any discretion in
relation to the claimant’s bonus award
irrationally or perversely, but contended
that the claims had no reasonable prospect
of success. It submitted that the claimant
had been one of the highest paid
employees in the bank in 2003 and 2004,
receiving bonuses totalling €2,800,000 for
the first year and €2,950,000 for the
second (including shares in both cases). As
to 2005, the bank relied on what it said
was an express term of the contract that
no bonus would be paid to the claimant if
he was not employed on the payment
date. The claimant contended that there
April 2006 12
was no evidence at the instant stage
concerning how the bank had exercised its
discretion, and the fact that some bonus
had been paid did not mean that the
decision was not capable of being
challenged. Further, there would in any
event have to be a trial concerning liability
for shares, which the bank had only
admitted in part. As to the 2005 year, he
contended that if the contract precluded
any bonus it would fall foul of the Unfair
Contract Terms Act 1977, since it would
render a contractual performance
substantially different from that which was
reasonably expected of it or to render no
performance at all of its obligation to
allow the claimant to participate in its
discretionary bonus scheme.
HELD: The claim should proceed to a trial.
In relation to the bonus claim for 2003 and
2004 the bank had not adduced any
compelling case as to the making of the
bonus decisions for each year. It was not
entirely clear who had made the decision
and on what basis. The case in favour of
the matter proceeding to trial was
enhanced by the fact that there was to be
a trial anyway. As to the 2005 bonus, even
if the court were to decide the
construction of the bonus provisions and
whether the statement that no bonus
would be paid if an employee left before
bonus payments that day was inconsistent
with the 1977 Act, there would still be
arguments as to whether the bank would
be irrational were it to decide that the
claimant should receive no bonus for
2005.
The bank’s application for summary
judgment would be dismissed.
Mortgagee did not rely on misrepresentations Habib Bank Ltd v Nasira Tufail [2006] EWCA Civ 374
Although the respondent mortgagor had affirmed a
mortgage procured by misrepresentation, it would
not be inequitable to allow her to assert her right to
have the mortgage transaction set aside as it had
not been shown on the evidence that the
mortgagee had been led to act differently and to its
detriment in reliance on representations made by
the mortgagor.
The appellant bank (H) appealed against
an order granting relief to the respondent
(T) on her Part 20 claim. T had executed a
mortgage over a property in H's favour,
which had been given as security for the
debts of a company. H also had other
securities for the indebtedness, including a
personal guarantee from the director of
the company. H had demanded payment
from the company of its overdraft. T had
then, through her legal advisers, sent a
letter informing H of her wish to sell the
property with a view to discharging the
liability as secured by the charge over the
property. After further communication, H
brought proceedings to enforce the
mortgage. T claimed a declaration that the
mortgage be set aside as it had been
procured by misrepresentation. H pleaded
that T had acknowledged the debt and the
mortgage and had made offers, through
her legal advisers, to sell the property in
order to clear the acknowledged debt
under the mortgage, and that therefore T
could not seek to set aside the mortgage.
The judge held that, although T had
affirmed the mortgage with knowledge of
the relevant facts, it would not be
inequitable to allow T to assert her right to
April 2006 13
have the transaction set aside as H had not
acted to its detriment by relying on T's
conduct. The issue was whether H altered
its position to its disadvantage in reliance
on the representations made on T's behalf.
HELD: If the letter informing H of T's wish
to sell the property and discharge liability
had not been sent, H would have
considered the enforcement of its rights
under the guarantee. But even if assuming
H would have had an unanswerable claim
on the guarantee and would, if it had
been able to serve proceedings, have
obtained a summary judgment, the judge
had been right to reject H's reliance on
acquiescence because it could not show
that it had altered its position to its
disadvantage by showing that, but for the
letter and subsequent communication, it
would in fact have been able to do
anything effective by way of enforcement
of the guarantee liability at a time earlier
than it considered doing so. It was plain
that H's first focus would have been on
the mortgaged property and it would not
have considered doing anything about the
guarantee before the moment at which it
discovered that there might be a problem
about enforcing the mortgage, and by
then, on the evidence, it may well have
already left it too late to pursue the
guarantor. Accordingly, apart from the
lack of any evidence of any assets against
which H could have proceeded, the judge
had been right to hold that H had not
shown that it had been led to act
differently and to its detriment by the
letter and subsequent communication.
Appeal dismissed.
Undue influence and mortgages
Abbey National Bank Plc v (1) Anthony Mario Stringer (2) Rosa Stringer (3) Sidney George Finlay (4) Peter John O'Brien (5) Margaret Ann O'Brien
[2006] EWCA Civ 338
AGREEMENTS : BENEFICIAL OWNERSHIP : FAMILIES
: LEGAL CHARGES : REBUTTABLE PRESUMPTIONS :
SIGNATURES : UNDUE INFLUENCE : INFERENCE OF
AGREEMENT FROM CIRCUMSTANCES
Although there was no evidence of express
discussions between a mother and son about the
beneficial interests they were to have in a property,
it had been entirely legitimate for the judge to infer
from the circumstances that there must have been
discussions that resulted in an agreement or
understanding that the beneficial interest was to
belong wholly to the mother. By obtaining her
signature to a second charge over the property the
son had taken advantage by way of exploitation of
his vulnerable mother and the legal charge was
unenforceable against her for undue influence.
The appellant lender (X) appealed against
an order dismissing its claim to enforce
against the respondent (R) a mortgage
over a property jointly owned by R and her
son (S). The property had been purchased
in joint names in order to assist R, who
was 50 years old at the time, to obtain a
mortgage. Six years later the second
mortgage with X was obtained to raise
finance for a business venture in which S
was involved. R had signed the legal
charge at S's request but was unable to
read English and the document was not
read or explained to her. S subsequently
defaulted on mortgage payments and X
commenced possession proceedings. The
judge held that R's execution of the legal
charge had been procured by undue
April 2006 14
influence from S, either actual or
presumed, and that it was not enforceable
against R. The judge also held that there
had been no intention that S should share
in the beneficial interest and that the
whole beneficial interest in the property
was vested in R, so that S had no
beneficial interest against which X could
assert an equitable mortgage. X argued
that (1) there was no evidence of any
discussion between R and S that R was to
be the sole beneficial owner and it had not
been open to the judge to proceed on the
basis of an agreement, arrangement or
understanding about beneficial ownership;
(2) there was no evidence that R had
placed trust and confidence in S, nor
evidence of an actual misrepresentation or
other positive impropriety by S in
procuring R's signature to the legal charge
so that there was no actual undue
influence, and the transaction was
explicable according to the ordinary
motives of a mother's generosity to her
son so that undue influence could not be
presumed.
HELD: (1) It had been possible and entirely
legitimate for the judge to have inferred
from the circumstances that there must
have been discussions between R and S on
the basis of which it was clear that S's
involvement was purely nominal and that
he was neither expected to bear any
financial burden nor intended to acquire
any financial benefit, Lloyds Bank Plc v
Rosset (1991) 1 AC 107 applied. The
evidence fully justified the judge's finding
that there was an agreement or
understanding that the beneficial interest
was to belong wholly to R. If necessary the
transfer could have been rectified, but it
was legitimate for the judge to declare the
trusts affecting the property, Wilson v
Wilson (1969) 1 WLR 1470 considered. (2)
An inability to explain the transaction by
reference to the normal motives by which
people acted might raise an evidential
presumption requiring evidence to rebut it
to the effect that the transaction was fully
understood and intended, Royal Bank of
Scotland Plc v Etridge (No 2) (2001) UKHL
44 , (2001) 3 WLR 1021 applied. The
judge had been correct to regard the
relationship between R and S as capable of
giving rise to the presumption of undue
influence. R was plainly vulnerable, due to
her age, her inability to read and her
limited understanding of English, and she
was particularly vulnerable towards her
son and open to exploitation on his part.
She had depended and relied on S to assist
her with any kind of documentation or
financial matter and had placed trust and
confidence in him. It was very clear that S
had taken advantage of R by way of
exploitation. The judge had correctly found
that the transaction was utterly
disadvantageous to her. R would not have
agreed to sign the legal charge if she had
understood what she was being asked to
do.
Appeal dismissed.
Costs under guarantee not recoverable by mortgagee
Kotonou and another v National Westminster Bank plc [2006] All ER (D) 198 (Apr)
Mortgage – Action to recover loan secured by
mortgage – Guarantor – Interest on loan – Bank
April 2006 15
contending interest running from date earlier than
that accepted by guarantor – Whether interest and
bank costs running from earlier date.
Pursuant to a loan agreement between the
guarantor and the bank, the guarantor
agreed to guarantee the amount of a loan
to a company of which he was a director.
On 13 July 2001, the guarantor and his
wife entered into a mortgage agreement
with the bank as a means of securing the
guarantor’s obligation. Liability under the
guarantee and the mortgage was capped
at £425,000, however, that figure
excluded interest accrued from the date
repayment of the loan was demanded and
the bank’s costs and expenses incurred in
enforcing the guarantee or mortgage.
Following a default by the first claimant,
the bank demanded repayment of the loan
on 13 February 2002. The guarantor made
no repayment, and the bank issued
proceedings to recover the amount of the
loan, interest and costs.
It was common ground that the bank had
sent a letter to the guarantor and his wife
on 3 August 2005 demanding repayment.
However, the bank contended that by a
letter dated 30 October 2002, or
alternatively, by a letter dated 18 March
2003, it had demanded repayment of the
loan, starting the period for which interest
and costs would run. The bank further
contended that costs it had run up in its
proceedings under the guarantee could be
secured against the mortgage.
HELD: Neither the October 2002 letter nor
the March 2003 letter demanded
repayment under the mortgage
agreement. Accordingly interest did not
accrue until after service of the August
2005 letter. In the circumstances the
mortgage did not secure the costs and
expenses incurred by the bank in its
proceedings under the guarantee.
Parker-Tweedale v Dunbar Bank plc (No 2)
[1990] 2 All ER 588 considered.
Characterisation of charge Fanshaw and another v Amav Industries Ltd and others [2006] All ER (D) 246 (Feb)
Company - Debenture - Priority - Respondents
granting company debenture - Debenture creating
charges over company's assets - Whether charges
fixed or floating charges - Whether moneys held in
suspense account subject to fixed or floating
charges - Effect of characterisation of charges on
priority of payment to company's creditors.
In March 2001, the first to fourth
respondents advanced £ 600,000 to the
company on the terms of a loan
agreement (the agreement) to enable the
company to acquire the assets of BT Ltd.
In May 2001, the company entered into an
invoice discounting agreement with UPS
Ltd (UPS), pursuant to which UPS was also
granted a debenture by the company.
Thereafter, the second respondent opened
a bank account with a bank (the blocked
account), into which moneys received from
UPS were paid. The company could not
draw any money out of the account
without the agreement of the second
respondent as the sole signatory. The
second respondent subsequently wrote to
the company demanding repayment of the
moneys outstanding under the loan
agreement pursuant. The fifth respondent
instructed solicitors to treat the moneys in
the blocked account as being held in a
suspense account pursuant to cl 11.5 of
the agreement until the sums owing under
April 2006 16
the loan agreement or debenture were
paid in full. On 8 October 2001,
administrative receivers (the applicants)
were appointed over the company, and on
the same day they disposed of the
business and certain of the company's
assets to AT Ltd. The company was later
put into compulsory liquidation and a
liquidator was appointed. The applicants
applied pursuant to s 35 of the Insolvency
Act 1986 for directions as to:
(i) whether and if so which of the items
of plant and machinery sold to AT Ltd
were subject to the charge created by cl
3.1(b) and, to that extent, whether such
a charge was fixed in nature (as cl
3.1(b) stated), or floating in nature, (as
the applicants contended),
(ii) whether the charge over book
debts created by cl 3.1(e) of the
debenture was a fixed or floating
charge, and
(iii) whether the moneys standing to
the credit of the suspense account were
subject to a fixed, floating or any
charge.
The court's directions was sought on those
matters on the basis that if and to the
extent that those moneys were to be
treated as subject to any charges which, as
created, were floating charges, pursuant
to s 40 of the Act they would be available
to meet the claims of the company's
preferential creditors in priority to the
respondents' claims for principal and
interest under the debenture.
HELD:In the light of established authority,
where there was a purported fixed charge
over book debts and a floating charge over
proceeds, the fixed charge would be
treated as a floating charge because a
right in the borrower to freely use the
proceeds was inconsistent with a fixed
charge over book debts.
In the instant case, the debenture had
been granted to secure the £ 600,000 loan
facility and the facility had been ex-pressed
to be for the purpose of the acquisition by
the company of certain business assets
from BT Ltd. Accordingly, although the
charge conferred by cl 3.1(b) was
expressed to be fixed, it was floating in
nature and should be so under-stood and
construed. The security created by the
debenture over the company's book and
other debts was floating in nature on the
basis that free use of the proceeds was
inconsistent with the charge holder having
the degree of control that was requisite for
a fixed charge. Having considered the
terms of the loan agreement, the moneys
in the blocked account belonged to the
company notwithstanding that the
account could only be operated by the
second respondent. Given that
conclusion, the fact that the company was
restricted from having free use of those
proceeds could not have the effect of
converting a charge over them which, as
created, had priority over the company's
preferential creditors. Section 40 of the
Act did not permit that.
Re Yorkshire Woolcombers Association Ltd
[1903] 2 Ch 284, Re Brightlife Ltd [1986] 3 All
ER 673, and Agnew v Inland Revenue
Commissioners [2001] All ER (D) 21 (Jun), Re
Spectrum Plus [2005] 4 All ER 209 applied.
April 2006 17
Legislation Consumer Credit Act gets Royal Assent Royal Assent was granted to the
Consumer Credit Act on 30 March 2006.
Under the new Act consumers will be
entitled to:
take their complaints about lenders to
the FOS;
challenge unfair credit agreements in
court;
receive more information about the
state of their account to help identify
potential problems before it is too late
and
the OFT will be given more effective
powers to tackle issues with lenders
quickly, and in proportion to the scale
of the actual problem.
UK implementation of EC Transparency Directive (2004/109/EC)
This consultation on how the UK proposes
to implement this EC Directive closed in
June 2005. The Directive relates to
financial reporting by listed companies to
markets and also increases the
transparency of ownership of listed
companies. A consultation feedback
statement is expected to be issued shortly,
and the FSA will be publishing a
consultation paper on the implementation.
The primary legislative vehicle for
implementation will be the Company Law
Reform Bill.
The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) (Amendment) Regulations 2006 No 936 These Regulations correct a drafting error
in the Loan Relationships and Derivative
Contracts (Disregard and Bringing into
Account of Profits and Losses) Regulations
2006 (S.I. 2006/843), and provide for a
new regulation 5 to be substituted.
Regulation 5 provides that the amount of
a loss arising on certain derivative
contracts is not to be recognised in
determining a company's profit or loss for
any period. Authority for the retrospective
effect of these Regulations is conferred by
paragraph 54(2A) of Schedule 26 to the
Finance Act 2002 (c. 23). These
Regulations impose no new costs on
business. The Regulations are available at
http://www.opsi.gov.uk/si/si2006/2006093
6.htm
(Date in force, 29.3.06)
Reminder of new fair value disclosure requirements for derivatives in the Companies Act 1985 There is a new requirement in paragraph
45B of section D in Schedule 4 to the
Companies Act 1985 to disclose
information on derivatives that have not
been fair valued. A similar requirement has
been included in paragraph 58B in
Schedule 9 and in paragraph 65B in
April 2006 18
Schedule 9A. These disclosures should be
made by most companies, irrespective of
whether the entity is applying FRS 26 or
the fair value rules in the Companies Act,
for both the current and comparative
period ends.
https://pwcinform.pwcglobal.com/pwcinfo
rm/SetIndexLayout?action=innerview&zid=
979385000.xml
April 2006 19
Articles A review of developments in English law during 2005 A two part article covering respectively
banking and insolvency developments.
Part 1 - Banking and Finance
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The Trustee’s Discretions in a Bond
Issue and the Effect of an Invalid
Declaration of Default
Analysis of Concord Trust v Law Debenture Trust Corp Plc
Events of Default (1)
Analysis of Law Debenture Trust Corp Plc v Elecktrim Finance
Events of Default (2)
Analysis of BNP Paribas SA v Yukos Oil Co
Sprectrum Plus: the House of Lords
decides
Analysis of National Westminster
Bank v Spectrum Plus Ltd
On-demand Bonds vs Secondary
Guarantees
Analysis of Marubeni Hong Kong &
South China Ltd v Mongolian Government
Guarantees: Variation or Amendment
of the Underlying Obligation
Analysis of Triodos Bank NV v
Dobbs
Failure to Present a Cheque for
Payment
Analysis of Fusion Interactive
Communication Solutions Ltd v
Venture Investment Placement Ltd
Loan Transfers and Assignments
Analysis of Argo Fund v Essar Steel
Ltd
Transfers of Mortgages Over Land
Analysis of Paragon Finance Plc v
Pender
A Lenders Discretion to Vary Interest
Rates
Analysis of Paragon Finance Plc v Nash & Staunton
Performance Bonds: Accounting for an
Excess Payment
Analysis of Tradigrain SA v State of
Trading Corp of India
Guarantees and No Set-off Clauses
Analysis of Governor & Co of the
Bank of Scotland v Singh
Damages for Breach of Contract,
Remoteness and Assessment
Analysis of Jackson v Royal Bank of
Scotland Plc
Allocation of Claims in a Mixed Find
Analysis of Commerzbank AG v IMB
Morgan Plc
Money Laundering: a bank freezing a
customer’s account
Part 7 of the Proceeds of Crime Act
2002
April 2006 20
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Analysis of Squirrell Ltd v National
Westminster Bank Plc
Investment Product: Misrepresentation
by the Selling Bank
Analysis of Peekay Intermark Ltd v
Australia & New Zealand Banking Group Ltd
The Breadth of Decisions by The
Financial Ombudsman Service
Analysis of R (on the application of
IFG Financial Services Ltd) v Financial
Ombudsman Services Ltd
The New UK Prospectus, Listing and
Disclosure Rules
The Reform of Company law: Financial
Assistance
The Construction and Interpretation of
Contracts and Commercial Instruments
Analysis of Sirius International
Insurance Co (Publ) v FAI General
Insurance Ltd
Contractual Interpretation: “Subject to
Contract” wording, pre-contract
negotiation and the subjective intention
of the parties
Analysis of Rugby Group Ltd v
ProForce Recruit Ltd
Part 2 - Insolvency
EC Insolvency Regulation: jurisdiction
and a debtor’s centre of main interests
Analysis of Eurofoods (the AG’s
opinion); Shierson v Vlieland-Boddy,
Cross-border insolvencies and the role
of English proceedings concerning a
foreign company
Analysis of HIH Casualty v McGrath
Administrative receivership: the
permitted exceptions to the prohibition
on appointment
Analysis of Feetum v Levy
Insolvency set-off
Amendments to rr 4.90
Insolvency Act 1986, s 213 – the
liability of a corporate third party for
fraudulent trading by a company in
liquidation
Analysis of Bank of India v Morris;
Part 2 Conflict of laws
The doctrine of forum non conveniens
Exclusive jurisdiction clauses in favour
of foreign proceedings
Analysis of Konkola Copper Mines v
Coromin
Parallel and related proceedings in
different EU member states
Analysis of JP Morgan v Primacom
Letters of credit and Article 4 of the
Rome Convention
Analysis of PT Pan Indonesia Bank v Marconi
Central banks and sovereign immunity
Analysis of AIG v ABN Amro
Part 2 Arbitration
Arbitration at the option of one of the
parties
Analysis of NB Three Shipping v
Harebell
Enforcement of arbitral awards made
against foreign defendants including
foreign states
Analysis of Svenska v Lithuania
April 2006 21
Arbitration under an international
bilateral investment treaty
Analysis of Occidental v Ecuador
(A McKnight, C2006 J4, JIBLR, 176)
Capital Markets
Corporate hybrid securities: combining debt and equity In February 2006, French construction
group Vinci became one of the latest
entrants to the growing corporate hybrid
securities market. This substantial article
explains why companies are starting to use
hybrids, ie. securities that combine
characteristics of debt and equity and how
they work in practice.
The article outlines:
Why corporate issuers are starting to
use hybrids.
Why they are attractive to investors.
How hybrids work in practice, taking
the Vinci and Allianz issues as examples.
Likely future developments in this area.
http://crossborder.practicallaw.com/0-202-
1152?item=0-202-1152
Sara Catley, PLC Cross-border 13 April
2006
From strength to strength: the private equity legal market 2005 was a record year for the private
equity industry. This article considers how
this is affecting the dynamics of the legal
market on both sides of the Atlantic and
reveals the results of the first PLC Which
lawyer? Global Private Equity Super
League.
Derek Bedlow, and Helen Bryson, PLC
Cross-border 13 April 2006
Recent derivatives litigation part 2: Misrepresentation and suitability Peekay v ANZ
This article looks in particular at the first
instance decision of the misrepresentation
case Peekay v ANZ which has attracted a lot
of attention. It shows how important it is
for bank staff to understand how the
structured finance products they offer
actually work.
Since the article was written, the decision
was overturned on appeal. Thus, the
investor was unable to claim damages for
the misrepresentation of the bank official.
It should be noted that the investor in this
case was highly sophisticated and banks
should remain vigilant in training their staff
to understand the products they are
selling.
(2006) 04 JIBFL [page 153]
Company
The long road to reform: a director’s lot under the Company Law Reform Bill The Company Law Reform Bill is likely to
receive Royal Assent later this year.
Among other changes it will codify UK
company director’s duties and the
circumstances in which shareholders can
bring so-called “derivative claims” against
them. This article considers these two key
areas of change in this fast developing
area of law.
Neil Fagan and Catherine Bates (2006) 04
JIBFL [page 160]
April 2006 22
Contract
Acquiescence accepting a breach of contract In what circumstances will you be taken to
acquiesce to another’s breach of contract?
What practical issues does this legal point
raise? The defence of acquiescence was
the main issue considered by Richards J in
Bradmount Investments Ltd v Williams de
Broe Pic and others.
IHL, 3.06, 35 (06.14.008)
The law applicable to contracts - uncertainty on the horizon? The United Kingdom is a party to the 1980
Rome Convention on the law applicable to
contractual obligations, and has given
effect to that Convention by enacting the
Contracts (Applicable Law) Act 1990. The
EC has recently adopted and published a
proposal to replace the Rome Convention
with a European legislative instrument.
This article critically examines the proposed
regulation commonly referred to as the
Rome 1 Regulation.
A Dickinson (2006) 04 JIBFL [page 171]
Consumer Credit
Testing times Article: Examines the "unfair credit
relationship test" introduced under the
Consumer Credit Act 2006 ss.19 to 22,
which replaces the "extortionate credit
bargain" test established by the Consumer
Credit Act 1974 ss.137 to 140, and the
reasons for the reform.
Assesses the meaning of the word
"unfair" and considers the possibility that
the lack of guidance will undermine the
test's effectiveness and lead to legal
uncertainty. Comments on the risk of
conflict between UK and EC law on
consumer credit agreements, an alternate
solution to extortionate credit based on
interest rate capping and the importance
of education to change consumers'
attitude to debt.
New Law Journal N.L.J. (2006) Vol.156
No.7221 Pages 662-663 21/4/2006 Lorna
Cromar
Environment
An opportunity to gain from emissions reduction plan Carbon emissions trading may not seem
an obvious market for banks to tap, but
growing numbers are doing so. And, far
from being a ‘fad’, emissions trading
appears to fit well into banks’ wider
businesses, writes author.
N. de Feran; Banker, 04.06, 40
(06.16.047)
Intellectual Property
Taking Security over Intellectual Property A look at what is meant by Intellectual
Property, both registered and unregistered,
and how security should be taken over it.
Virtually every company will own IP which
is something prospective secured creditors
should always take into account.
Vanya Bromfield (2006) 04 JIBFL [page
182]
Marketing
Advertising Overview of key legal issues that need to
be considered when designing an
advertising campaign.
April 2006 23
Country-specific information for France, Germany, Italy, UK and US.
Susan Barty, CMS Cameron McKenna LLP
and PLC Corporate 13 April 2006
Private Equity
Private equity placements: comparing the laws in Switzerland, the European Union, the United Kingdom and the United States: Part 1 This article is Part I of a two-part series on
the legal aspects of private equity
placements in Switzerland with a
comparative analysis of the relevant legal
regimes in the European Union, the United
Kingdom and the United States. Part I
focuses on the Swiss and the EU legal
framework, and Part II on the laws of the
United Kingdom and the United States.
Whilst the Swiss law regulates private
placements with only two provisions, the
paper examines: (i) where the law-makers
in the four regimes draw the line between
a public and a private placement; (ii) which
type of approach (i.e. participant-based
regulation, transaction-based approach, or
a combination of both) they follow; and
finally (iii) which of these concepts might
be most useful in improving Switzerland’s
primary market regulatory framework in
anticipation of the forthcoming revision of
its Code of Obligations 1911.
B.D. Speck & J. Tanegaj [2006] 4, JIBLR,
213 (06.16.04)
Project Finance
Promise of PPP for US roads
As traditional public funding for new roads
tightens, traffic congestion continues to
expand on US highways.
D Irani: PFI, 5.4.06, 44 (06.16.059)
French PPPs face le crunch The French public-private partnership (PPP)
sector has entered a ‘turning point’ senior
market observers have claimed, with the
country attempting to stamp its own
distinct identity on the model despite some
concerns arising from the private sector.
A Collins: PFI, 5.4.06, 48 (06.16.060)
Registered Land
Overreaching in registered land law Beneficial interests under a trust were not
intended to be overriding interests under
section 70(1)(g) of the Land Registration
Act 1925. The position was altered by
Williams & Glyn’s Bank Ltd v Boland, which
determined that an interest under a trust
for sale would bind a purchaser if the
beneficiary were in actual occupation. The
decision raised the question whether such
interests could be overreached once the
beneficiary was in occupation of the trust
property. City of London Building Society v
Flegg held that the relevant beneficial
interest had been overreached. Both
decisions assume that overreaching in
registered conveyancing takes effect as it
does in unregistered land. Yet there is
considerable evidence that the Land
Registration Act contains its own over-
reaching machinery. The House of Lords
applied the wrong overreaching provisions
in Boland and Flegg and there is no legal
basis on which to recognise that trust
April 2006 24
interests can override a subsequent
disposition under section 70(1)(g).
(N Jackson: MLR, 3.06, 214) 06.13.101
Regulatory
The world turned upside down: radical ideas in regulation Analysis of the effect of the ideas and
reforms proposed and supported by
Charlie McCreevy as European
Commissioner for Internal Market and
Services. Looks at principcles-based
regulation, MiFID implementation ,
supervisory convergence, the future of EU
regulation and challenges and global
implications.
(2006) 04 JIBFL [page 147]
Ditching their principles The FSA’s proposal to slash the size of its
rule book would hugely benefit venture
firms. However, its latest policy statement
highlights the limits of its enthusiasm for
the principles-based approach.
Real Deals, 23.3.06, 37, D Stewart
(06.14.051)
Outsourcing under MIFiD MIFiD is set to have a significant impact on
the way that investment firms structure
and manage outsourcing of a board
variety of investment and business process
functions as the authors explain.
J Storer and R Halpin; CM, 03.06, 8
(06.16.027)
Principles for principals Financial services compliance - it’s all about
senior managers now. It was always
supposed to be of course but the
momentum seems at last to be gathering
with FSA’s loudly trumpeted advance into
principles-based regulation. Evidence was
present in the attendee list for the
Securities & Investment Institute’s (SII)
Senior Management Responsibilities 2006
conference, which featured, for the first
time, more than a smattering of business
executives as well as compliance
professionals. The author reports on some
encouraging signs.
T Molloy: CM, 03.06, 1 (06.16.026)
FIG trends in 2006 2006 promises to be a stellar year for FIG
M&A and capital raising will be strong in
emerging markets as banks reorganise
their balance sheets to comply with Basel
II. The Banker’s roundtable explores these
and other issues.
Banker, 04.06, 30 (06.16.048)
The implementation of Directive 2002/47 on financial collateral arrangements Directive 2002/47 on financial collateral
arrangements (“Collateral Directive”)
demonstrates the European Union’s
commitment to creating a clear, uniform
pan-EU legal framework for the use of
collateral and to contributing to the
greater integration and cost-efficiency of
EU financial markets. Although the
implementation process was slow and
marked by sometimes heated debates, by
the end of 2005 all of the 25 EU countries
had finally implemented the Collateral
Directive. This will significantly assimilate
and simplify the legal framework for
April 2006 25
collateral transactions in Member States
covered by the respective national
transpositions of the Collateral Directive.
However, the sometimes diverging scope
of the national implementation measures
will require attention to the applicable
legal regime’s details, as is shown in this
article.
K. Lober and E. Klimaj [2006] 4, JIBLR, 203
(06.16.050)
The need for a new look at capital markets regulation post-Enron The Enron scandal and the scandals that
followed it, together with losses incurred
by investors from the burst of the dot.com
bubble, triggered a revolution in the
regulation of the US capital markets
beginning in 2000. Over five years later, it
is time to re-examine the revolution’s
effects. The centrepiece of the revolution,
the Sarbanes-Oxley Act of 2002, focused
principally on the problems of corporate
governance in public companies. There
were many other important changes - the
required separation of research analysts
from investment banking, restrictions on
initial public offering (“IPO”) allocations,
prohibitions on financial institutions
“aiding and abetting” companies in
structured finance transactions that misled
investors, prohibitions on market timing in
mutual funds, the requirement for hedge
fund registration, and market structure
regulation in the equities trading markets,
for example the trade-through rule.
M.S. Scott; [2006] 4, JIBLR, 169
(06.16.052)
Problems with Lamfalussy process
An article in Complinet has reported on
problems identified by the European
Union's Inter-Institutional Monitoring
Group with the Lamfalussy legislative
process.
The issues include the level of detail
respectively that should be included at
levels one and two; gold plating directives;
sunset clauses; defective implementing
measures; over-ambitious and unrealistic
timeframes and problems with level three
committees.
Complinet Mar 27 2006 Jonathan
Goodliffe
Risk
A debt shared is a risk reduced Explains how organisations with strong
covenant strength can take advantage of
tailored leasing to reduce risk and lower
borrowing costs with the aid of mortgage
securitisation. Identifies three types of
modified leaseback lease which aim to
maintain tenant covenant strength and
reduce rental payment risk, focusing on
triple net leases.
Estates Gazette E.G. (2006) No.0614 Pages
126,128, Graham Lloyd-Brunt (Berwin
Leighton Paisner LLP)
Equitable property This article first attempts to analyse the
case law, especially a much neglected -
indeed, virtually forgotten - line of
authority, so as to ascertain exactly what is
meant when a beneficiary’s interest under
a trust is described as “proprietary”. It
then draws on that understanding of a
positive law in an effort to establish the
April 2006 26
consequent implications for legal doctrine
and theory more broadly.
RC Nolan: LQR, 4.06, 232 (06.16.068)
April 2006 27
Technical Banking
"Spanish bullfighter" defence: change There will be a change in the operation of
the Serious Organised Crime and Police
Act 2005: The Proceeds of Crime Act 2002
(Money Laundering: Exceptions to
Overseas Conduct Defence) Order 2006
This will provide for a defence against a
charge arising from funds deriving from
activities which are legal in the country of
origin but illegal in the UK, in those cases
where the UK offence would carry a
penalty not exceeding twelve months. The
Home Office have provided a background
note and a few worked examples which
suggest that the days of the Spanish
bullfighter problem may be numbered.
Order Number SI 2006/1070 will come
into force on 15 May. A separate Order
will commence section 102 of the Serious
Organised Crime and Police Act 2005
(defence where overseas conduct is legal
under local law) on the same date.
Bonds
Association of British Insurers Announces that investors, issuers and
intermediaries in European bond markets
have agreed a series of steps which could
help improve the way the market
functions. Their proposals focus on ways
of ensuring more timely distribution of
prospectus material, an education drive to
improve understanding of the terms used
in bond market documentation, and a
possible contribution from credit rating
agencies in flagging key features of bond
issues.
http://www.abi.org.uk/Members/circulars/v
iewAttachment.asp?EID=13501&DID=129
01
ABI Issue Date: 6 April 2006
Company
The dematerialisation of shares and share transfers: a proposal to remove the requirement for paper share certificates and stock transfer forms This ICSA consultation paper sets out
proposals to introduce an electronic
system to replace paper share certificates
and stock transfer forms throughout the
United Kingdom. This process is generally
known as ‘dematerialisation’. In order to
obtain the greatest efficiencies and
economies of scale the proposal also
suggests that this change be made
mandatory across the securities industry.
The consultation closes 30 June 2006 and
is available at
<http://www.icsa.org.uk/demat/pdf/Condo
c-process-FinalDraft1.pdf>
(ICSA, April 2006)
ICMA
ICMA Global Master Repurchase Agreement 1995 and 2000 versions Legal Opinions
April 2006 28
ICMA has added and updated legal
opinions on its site.
ISDA
Substantive Issues Working Group A note of the meeting on 31 March
2005 ISDA Commodity Definitions (“Definitions”) Update
ISDA plans to update the Annex portion of
the Definitions on an annual basis to keep
it current, beginning with an update at the
end of this year. In addition to including
new Commodity Reference Prices and new
confirmation templates (as discussed
below), ISDA plans to incorporate any new
commodities documentation that is
completed by ISDA this year. For example,
ISDA recently published a new Part to the
ISDA Master Agreement for physically
settled EU emissions allowances which will
be incorporated into the Definitions
towards the end of 2006. Additional
weather confirmations have been drafted
by the Weather Risk Management
Association (WRMA) to address certain
types of Critical Heating and Cooling
Degree Days as well as Critical and Total
Precipitation Days. We will circulate the
WRMA versions for your review under
separate cover. Finally, once the ISDA
Coal Annex is completed, it too will be
brought under the Definitions.
Common Pricing
An oral summary was provided of the
process by which the Substantive Issues
Working Group drafted the definition of
common pricing in Section 6.2(b) of the
Definitions. (Where Common Pricing is
selected as applicable in the Confirmation,
no date will be a Pricing Date unless that
date was a day on which all Commodity
Reference Prices were scheduled to be
published / announced as determined on
the Trade Date at the time of execution of
the trade.) This definition is intended to
reflect the expectation of the parties (that
certain days in the calendar will be good
days) at the time of trading. In particular,
the interaction of common pricing and
Market Disruption Events was discussed. If
an event occurs during the life of the trade
that makes a previously good day not
good, parties would look to the Market
Disruption Events and related Disruption
Fallbacks. As noted below and in the
meeting, the Substantive Issues Working
Group reached consensus on this
definition during the drafting of the
Commodity Definitions and ISDA has
encouraged the use of this term since
publication.
1. Current Definition
Certain firms on the conference call
agreed with the original intent of the
Substantive Issues Working Group (parties
look back to the Trade Date to determine
whether a Pricing Date is good). These
firms prefer that the definition of common
pricing remain as published in the
Definitions. The view was expressed that
firms should be given more time to
implement and use the Definitions before
changing one of the substantive
provisions. Others felt that the current
definition has inadequacies that should be
addressed and that the "historical" Trade
Date view imbedded in the current
definition might require parties to have to
maintain separate calendars for similar
trades done at different times.
2. Alternative Definition
April 2006 29
An alternative proposal was made in which
a good common pricing day would be any
day that was intended by all relevant Price
Sources to be a good day (that is, a day on
which the appropriate Exchange will be
open or in respect of which the relevant
other Price Source will publish a price), as
determined by reference to each Price
Source's calendar as of the Settlement
Date or Calculation Date of the trade.
Firms supporting this proposal were
concerned about future changes in Price
Source calendars (e.g. NYMEX, ICE, Platts)
and prefer that parties take a dynamic
view of the calendar instead of a static
view. Changes to calendar days would
include additional trading days, newly
announced holidays (with adequate
notice), as distinct from emergency
changes. Certain firms proposing the
alternative definition asked the group to
take note of the important effect of even a
small calendar mismatch on a firm’s
hedging. The group discussed the concept
of adequate “notice” of a change to a
calendar, but did not agree on what would
be the appropriate minimum time period.
3. Choice of Definition
One firm suggested that a choice of two
versions of common pricing be included in
the Definitions. Other firms thought that
this would be confusing and that the
Definitions should reflect the definition
deemed to capture the correct market
practice.
The group was asked if they have
experienced disagreements about Pricing
Dates for common pricing trades. Firms
that responded to the question are not
seeing disagreements and reported that
parties are agreeing to the 2005 ISDA
Commodity Definitions unamended.
Ultimately, the group did not reach
consensus on the call about revising the
definition of common pricing in the
Definitions. Unless members indicate a
view to the contrary, at this time ISDA will
not change the definition of common
pricing. Should the need arise, ISDA will
reopen this issue for discussion with the
group.
New Confirmation Templates
As a result of member feedback, ISDA
plans to draft new confirmation templates
for total return swaps on composite
commodity indices and for swaps and
options on baskets of commodities. We
have received sample templates from some
members and would ask others to please
send your templates to ISDA on a
confidential basis.
2005 Operations Benchmarking Survey and FpML Use Survey This survey has been referred to a few
times in the press recently. It identifies
and tracks trends in over-the-counter
(OTC) derivatives. The results provide
individual firms with a benchmark against
which to measure the promptness and
accuracy of their trade data capture,
confirmation procedures, and settlement.
The results of this survey show the
increasing growth of derivatives. It was
published at the beginning of the year but
as it is hard to find, the link is provided for
reference below – made possible by
Hannah’s ingenuity.
http://www.isda.org/c_and_a/pdf/ISDA-
OBS-FpML-2005.pdf
April 2006 30
Reform of Insurance Contract Law ISDA have circulated a draft comment
letter addressed to the UK Law
Commission, responding to its scoping
paper of January 2006 on Insurance
Contract Law. The letter says the
Commission should approach the topic
with care, in light of the market's reliance
on the 1997 "Potts" opinion on credit
derivatives and insurance business.
The Law Commission's scoping paper is
available at:
http://www.lawcom.gov.uk/docs/ins_scopi
ng.pdf
Pension Protection Fund and derivatives The Pension Protection Fund has signalled
its willingness to discuss in detail how it
may be possible to recognise credit
derivatives within its risk-based levy
regime, alongside other forms of credit risk
mitigation. Its major remaining concern,
however, is the ability of a pension scheme
to buy 'evergreen' protection.
Credit Events Guide: Pre-Publication Draft ISDA have circulated a pre-publication
draft of a Net Settlement Agreement,
which has been developed and reviewed
by the Credit Events Guide Working
Group.
Revisions to 2005 Barrier Option Supplement ISDA have informed us the FXC, ISDA and
EMTA, Inc. are proposing two technical
revisions to the 2005 Barrier Option
Supplement (“2005 Supplement”) to the
1998 FX and Currency Option Definitions
(“1998 Definitions”).
The first revision suggests how to
incorporate into a Barrier or Binary Option
Transaction the terms of the 2005
Supplement. The relevant Confirmation of
the Barrier or Binary Option Transaction
should state that “the 1998 FX and
Currency Option Definitions, as amended
by the 2005 Barrier Option Supplement, as
published by the International Swaps and
Derivatives Association, Inc.; EMTA, Inc.;
and the Foreign Exchange Committee, are
incorporated into this Confirmation.” For
purposes of clarity, this provision have
been added to Exhibits I and II to the 2005
Supplement, which illustrate how Barrier
and Binary Options may be confirmed
under the terms of the 2005 Supplement
and the 1998 Definitions.
The second revision further describes the
approach taken to the conventions for the
statement of Currency Pairs in the
Currency Pair Matrix published with the
2005 Supplement. The Matrix is provided
as a best practice to facilitate the use of
standard market convention when
specifying the exchange rates relating to
certain terms in a Confirmation of a Barrier
or Binary Option Transaction that
incorporates the provisions of the 2005
Supplement. The introductory statement
to the Matrix has been revised to highlight
that its conventions for stating currency
pairs may be different from trading
conventions. No changes have been made
to the Matrix itself, just to the introductory
text.
CESR’s Call for evidence on Consolidation of Market Transparency Data
April 2006 31
ISDA have replied to the Committee of
European Securities Regulators’ call for
evidence on the consolidation of market
transparency data.
CESR has suggested there is a risk of “data
fragmentation” after the MiFID has come
into force. This may have “negative
repercussions on price discovery” and on
the quality of orders execution. ISDA
notes that CESR associates the risk with
the ending of the concentration rule in
Article 14.3 of the Investment Services
Directive.
ISDA does not believe that there is a
correlation between fragmentation of
trading and a lower quality of execution
nor that fragmentation of data will result
from the end of the concentration rule.
ISDA says:”As a result of the best
execution regime introduced by the MiFID,
market intermediaries will need to collect
the trading data necessary for them to
identify the best trading opportunities on
the market. At the same time, trading
venues will need to advertise the terms at
which they are willing to enter into
transactions so as to be included in the
execution policies of as many executing
firms as possible. It is also not true that
best execution would work as a market
incentive only for new comers …
Additionally because of the obligation on
executing firms to route their clients’
orders to the appropriate venues on an
order-by-order basis and to monitor and
update the quality of their execution
policies, trading venues which have
consolidated their position as market
leaders in one or more listed shares will
continue to have incentives to advertise
their business.”
(March 2006, CESR/O6-134).
ISDA: New Settlement Mechanic for Credit Derivative Transactions ISDA convened a meeting on March 2 to
discuss the draft Net Physical Settlement
Supplement to the 2003 ISDA Credit
Derivatives Definitions. In the weeks
following this meeting, a number of
institutions provided feedback on the
proposal. As a result of that feedback,
ISDA is preparing a draft protocol that
reflects the current views of the
membership. The protocol will be used on
an interim basis for any credit events that
occur globally, as discussed more fully
below.
The proposed protocol and auction
methodology will be structurally identical
to the past three North American credit
derivative index protocols. The notable
difference is that single name trades will
be covered going forward, rather than just
index trades as in the past protocols. The
proposed protocol will permit entities that
desire physical settlement to submit
market orders. In addition, the proposed
protocol will allow any entity that desires
cash settlement to cash settle their trades
at the Final Price generated by the auction.
This approach is different than that under
net physical settlement where an entity
could request cash settlement, but was not
guaranteed to receive it unless its position
was less than $1MM.
Once the membership has had an
opportunity to review and comment on
the proposed protocol, it will be utilized
for at least one or two credit events to
determine how the inclusion of single
April 2006 32
name trades impacts the calculation of the
Open Interest, settlement in general and
other related issues. Following this,
members will be asked to indicate whether
they felt that the approach worked and if
so, ISDA will then convert this approach
into either a Supplement to the 2003 ISDA
Credit Derivatives Definitions or will
proceed to revise the 2003 ISDA Credit
Derivatives Definitions in order to produce
a new definitions booklet. Obviously, it
will be difficult to predict the timing
associated with these related initiatives.
ISDA will circulate the proposed protocol
to this Committee in mid-May and
schedule a conference call to follow the
distribution.
Financial Reporting
ASB Issues Amendment on 'Financial Instruments: Measurement' - Recognition and Derecognition The Accounting Standards Board has
issued an “Amendment to Financial
Reporting Standard (FRS) 26 (IAS 39)
‘Financial Instruments: Measurement’ –
Recognition and Derecognition”. This
amendment will implement the
recognition and derecognition material as
included in the international financial
reporting standard IAS 39 ‘Financial
Instruments: Recognition and
Measurement’.
Entities within the scope of FRS 26 also
need to comply with the disclosure
requirements to financial assets and
liabilities of FRS 25 (IAS 32) ‘Financial
Instruments: Disclosure and Presentation’.
The existing requirements of FRS 5
‘Reporting the Substance of Transactions’
would be superseded for transactions that
fall within the scope of the IAS 39
requirements , but FRS 5 would continue
to apply to transactions in non-financial
assets and liabilities.
In the exposure draft setting out these
proposals the Board had also proposed to
extend the scope of FRS 26 to all entities,
excluding those applying the FRSSE, in the
UK. The Board agreed to defer a decision
on the extension of the scope until it had
reached conclusions on the wider issue of
convergence of UK standards with
International Financial Reporting Standards
(IFRS).
The amendments are effective for
accounting periods commencing on or
after 1 January 2007, with earlier adoption
permitted. Transitional provisions are also
set out for initial adoption of the
amendments.
Accounting Standards Board Press Notice
287 25 April 2006
Outsourcing
Standards on outsourcing - revised CEBS presents a revised consultation
version of its Standards on Outsourcing.
The proposed standards are based on
current practices and also take into
account international, such as the Joint
Forum, and European initiatives in the field
of outsourcing. The revised consultation
document is available at
<http://www.c-ebs.org/pdfs/CP02rev.pdf>
April 2006 33
(Committee of Banking Supervisors, April
2006)
Payment and settlement
Statistics on payment and settlement systems in selected countries - Figures for 2004 This is an annual publication by the
Committee on Payment and Settlement
Systems that provides data on payments
and payment systems in the CPSS
countries. This version of the statistical
update contains data for 2004 and earlier
years. There are detailed tables for each
individual country as well as a number of
comparative tables. The preliminary
version, published in January 2006, did not
include some provisional data for 2004, as
it was not yet available. The full
publication is available at
http://www.bis.org/publ/cpss74.pdf and
comparative tables only at
http://www.bis.org/publ/cpss74p2.pdf
(CPSS Publications No. 74: Bank for
International Settlements, March 2006)
Regulatory
Guidelines on the implementation, validation and assessment of Advanced Measurement (AMA) and Internal Ratings Based (IRB) Approaches CEBS has published guidelines on the
implementation, validation and assessment
of the risk management and risk
measurement systems used by credit
institutions and investment firms for the
calculation of their capital requirements.
The Guidelines are available at
http://www.c-ebs.org/pdfs/GL10.pdf
(CEBS, April 2006)
Macro factors in the term structure of credit spreads The authors estimate arbitrage-free term
structure models of US Treasury yields and
spreads on BBB and B-rated corporate
bonds in a doubly-stochastic intensity-
based framework. A novel feature of their
analysis is the inclusion of macroeconomic
variables – indicators of real activity,
inflation and financial conditions – as well
as latent factors, as drivers of term
structure dynamics. Our results point to
three key roles played by macro factors in
the term structure of spreads: they have a
significant impact on the level, and
particularly the slope, of the curves; they
are largely responsible for variation in the
prices of systematic risk; and speculative
grade spreads exhibit greater sensitivity to
macro shocks than high grade spreads. In
addition to estimating risk-neutral default
intensities, we provide estimates of
physical default intensities using data on
Moody's KMV EDFs™ as a forward–
looking proxy for default risk. They find
that the real and financial activity
indicators, along with filtered estimates of
the latent factors from our term structure
model, explain a large portion of the
variation in EDFs™ across time.
Furthermore, measures of the price of
default event risk implied by estimates of
physical and risk-neutral intensities indicate
that compensation for default event risk is
countercyclical, varies widely across the
cycle, and is higher on average and more
variable for higher-rated bonds. The paper
April 2006 34
is available at
http://www.bis.org/publ/work203.pdf
(BIS Working Paper No 203, February
2006)
Dealings in derivatives and options statement by the Code Committee of the Panel following the external consultation processes on control issues in PCP 2005/1 and PCP 2005/3 On 21 April 2006 the Code Committee
published Response Statement 2005/3,
setting out its response to the consultation
on the issues raised in PCPs 2005/3 and
2005/1. The final rules are substantially as
proposed, however minor and clarificatory
amendments have been made. The
Response Statement is available at
<http://www.thetakeoverpanel.org.uk/new
/consultation/DATA//RS200503.pdf>
RS 2005/3: Panel on Takeovers and
Mergers, 21 April 2006
Security
Financial Collateral Arrangements There is some discussion of amendments
to the UK regulations this summer. Her
Majesty’s Treasury are said (by the
Insolvency Service) to be considering
whether to disapply more sections of the
Insolvency Act (ss 40 and 175) relating to
the priority of preferential debts. The City
of London Law Society Financial Law
Commission are writing to suggest areas
for reform. One suggested is that each
Member State be allowed to do away with
the attempt to define “control” to avoid
problems with re-characterisation. It is
suggested a Member State should be free
to provide that any floating charge over
cash or financial instruments is a security
financial collateral arrangement, without
the need to satisfy any control or
possession test.
April 2006 35
Notices Ombudsman News Includes item powers of attorney on
bank accounts.
Financial Ombudsman Service 12 April
2006 Issue 52
LMA – handling non-public information The LMA have released a paper on
handling non-public information which
you will find on all of the PS Notice
Boards and on the LMA website at
Documentation/Non-Public Information
Papers, UserID Cameron McKenna
password Katie1234
https://www.loan-market-
assoc.com/Private/FramePass.asp?Screen
=&Main=Docs
FSA Seeks views on miscellaneous amendments to the Handbook It proposes amendments:
- to the Glossary of definitions in
respect of Exchange Traded Funds;
- to the General Provisions, the
Conduct of Business sourcebook, the
Insurance: Conduct of Business
sourcebook and the Mortgages:
Conduct of Business sourcebook
following the registration of the FSA’s
keyfacts logo;
- to the Integrated Prudential
sourcebook, the Interim Prudential
sourcebook for Investment Businesses
and the Supervision manual in respect
of a proposed extension of audit
exemption in the Companies Act
1985 to small authorised firms and
appointed representatives and
consequential changes in the capital
resources requirements for small
authorised firms;
- to the Conduct of Business
sourcebook in respect of the sale of
traded life policies and of third party
processors;
- to the Mortgages: Conduct of
Business sourcebook in order to make
some existing waivers permanent and
to provide for certain technical
changes;
- to the Complaints against the FSA
sourcebook in respect of one of the
qualifications applying to the
Complaints Commissioner and other
minor amendments; and
- to the New Collective Investment
Schemes sourcebook.
Consultation ends on 6 June 2006
AIM Notice 18 - Proposed Changes to the AIM Rules in respect of Third Party Trading Platforms The proposed amendments include:
changes to guidance on rules to provide
that the AIM company must ensure that
no delay in disclosure occurs as a result
of any discussions with the operator of
the platform; an AIM company must
inform LSE without delay of the
April 2006 36
admission, suspension or cancellation of
its AIM securities on the platform; an
AIM company must without delay
provide LSE with a written summary of
all regulatory communication it has with
the operator of the platform; and the
nominated adviser to an AIM company
must inform LSE without delay of any
unusual trading activity on the platform
in the AIM securities of that company.
LSE also proposes to extend nominated
advisers' general obligations under AIM
Rule 39 to be available at all times to
include instances where it is liaising with
the Exchange.
http://www.londonstockexchange.com/N
R/rdonlyres/8504309B-1FAB-43C3-8F12-
1932EC50AD9E/0/AIMNotice18FINALwit
hschedule.pdf
Notification - AIM Securities Trading on a Third Party Trading Platform The Exchange is introducing new market
sectors for AIM securities trading on a
third party trading platform. This Notice
should be read in conjunction with Stock
Exchange AIM Notice AIM18 and Service
Announcement 14/06. The Attachment
to this Notice sets out minor
amendments to the Exchange’s rules and
associated guidance. The Rules and
associated guidance will come into effect
on 24 April 2006. Rule update pages
reflecting these changes will be available
on this date on the Exchange’s website.
This notice is available at
<http://www.londonstockexchange.com/
NR/rdonlyres/8386E850-24D9-4FFA-
8000-3408784FDD0B/0/N1706.pdf> and
the attachment is available at
<http://www.londonstockexchange.com/
NR/rdonlyres/9DDE9C3C-D4A9-4942-
A75A-
E07B3EF94BDB/0/Attachment1toN1706.
pdf>
(Stock Exchange Notice N17/06: London
Stock Exchange, April 2006)
LMA paper: Dealing with confidential and price sensitive information Members of the LMA regularly come into
possession of information that is
confidential and/or price sensitive in their
capacity as lenders. This note describes
why this leads to legal and other
concerns and the types of steps that
members may wish to consider to reduce
the associated risks. The LMA notes that
confidentiality and price sensitivity are
two quite separate concepts - although a
single piece of information may be both
confidential and price sensitive.
The full note is on the LMA website,
Members/Documentation.
ISDA - Credit Derivative Transaction on Asset-Backed Security with Cash or Physical Settlement ISDA have circulated a pre-publication
draft template for a Credit Derivative
Transaction on Asset-Backed Security
with Cash or Physical Settlement. This
template incorporates an optional
synthetic delivery mechanism and if
published on or after 18 April will
supersede the June 13, 2005 CDS on
ABS Cash or Physical Settlement
publication.
See DOCS no 21719175
April 2006 37
LMA paper: Dealing with confidential and price sensitive information Members of the LMA regularly come into
possession of information that is
confidential and/or price sensitive in their
capacity as lenders. This note describes
why this leads to legal and other
concerns and the types of steps that
members may wish to consider to reduce
the associated risks. The LMA notes that
confidentiality and price sensitivity are
two quite separate concepts - although a
single piece of information may be both
confidential and price sensitive.
The full note is on the LMA website,
Members/Documentation.
Commission Expert Group Examines EU Fiscal Compliance Barriers to Cross Border Securities Trading. The European Commission announces
that the Clearing and Settlement Fiscal
Compliance expert group (FISCO) has
issued a Fact Finding Study examining EU
Member States' fiscal compliance
procedures for clearing and settlement of
cross-border securities transactions.
The study analyses how these procedures
hinder the functioning of capital markets
and increase the cost of cross-border
settlement, particularly in relation to
withholding and transaction taxes. The
FISCO group will issue a further report
proposing solutions by early 2007.
European Commission 19 April 2006.
Single and Dual Pricing for Authorised Collective Investment Schemes. The FSA is seeking views on proposals for
amending FSA rules and guidance on
how authorised collective investment
schemes are to be valued and priced.
The two types of scheme that can be
authorised in the UK are authorised unit
trusts (AUTs) and investment companies
with variable capital (ICVCs).
Under current rules, ICVCs are required
to calculate a single price at which
investors can buy and sell units. Single
pricing has been mandatory for ICVCs
since they were introduced in the UK in
1997.
The paper examines the options available
and sets out the reasons for the FSA’s
preferred option. It also describes the
changes they propose to make to the
Handbook. Consultation ends on 21 July
2006.
Financial Services Authority 20 April
2006.
April 2006 38
Insolvency
Cases Bank avoids winding up petition by relying on similar fact evidence Abbey National plc v JSF Finance & Currency Exchange Co Ltd EWCA Civ 328 CA (Civ Div) (Sir Andrew Morritt C, Jacob LJ, Moore-Bick LJ) 31/3/2006
The appellant bank had been entitled to rely upon
similar fact evidence to show that it had substantial
grounds to dispute a claim by the respondent so as
to justify the imposition of an injunction restraining
the presentation of a winding up petition against
the bank based on an alleged unpaid debt.
The appellant bank (N) appealed against a
decision dismissing its application for an
injunction to restrain the respondent
bureau de change (J) from presenting a
winding up petition against it on the basis
of an unpaid debt. J's managing director
(M) had exchanged 40,700 Euros for a
counter cheque issued by N and payable to
J for £30,000. The individual with whom
M had made the exchange had carried out
a similar transaction with J earlier the same
month. The first counter cheque was paid
on presentation, but the second was not.
N claimed that the individual who
procured the counter cheque was an
impostor and maintained that its
customers whose account had been
debited had instructed N not to pay on the
counter cheque. J refuted those allegations
and gave notice that unless the sum was
paid a winding up petition would be
presented against N. While N obtained a
without notice injunction restraining J
from presenting a petition, its application
for a final injunction was dismissed. N's
case was that J at least wilfully shut its
eyes to the possibility of fraud in relation
to the counter cheque, and that J knew, or
must have known, of a fraud. N had
sought to rely upon a number of previous
transactions in which actual or attempted
fraudulent transactions had taken place, all
of which were cases of identity theft in
which an impostor had obtained a cheque
or transfer of funds from another bank
and exchanged them for foreign currency
with J. The judge held that although N
disputed the debt bone fide, it had failed
to demonstrate that it did so on
substantial grounds since N had failed to
identify a single matter of fact in relation
to the transaction that should have put J
on notice of suspicion as to its fraudulent
nature, and there was no evidence that J
took a deliberate decision to avoid
obtaining confirmation of the facts of
which it had suspicion. N argued that
there was sufficient evidence that J's claim
was disputed on substantial grounds, since
there was evidence that J had the requisite
knowledge as all the previous transactions
were proved to have been fraudulent and
if it was shown that M knew that they
were fraudulent it was open to a court to
April 2006 39
infer that the transaction at issue was
fraudulent too, and that at the very least
M suspected fraud but deliberately
abstained from enquiring.
HELD: It was accepted that M did not
know that the counter cheque was
obtained by fraud and therefore N had to
demonstrate "blind-eye" knowledge to
justify refusing to pay. However, to obtain
the injunction sought, N had to do no
more than satisfy the judge that there was
a serious basis for arguing that M had such
knowledge. Whilst the judge considered
the circumstances in which the cheque
had come into M's hands and the steps he
had taken to verify its validity, he failed to
take into account the wider circumstances
in which the transaction had taken place.
Those circumstances included a number of
transactions spread over a period of about
two years, each of which had involved the
sale of a large quantity of Euros in cash to
a purchaser who had given a questionable
explanation of the purposes for which they
were required, and which eventually
proved to have been financed with funds
obtained by fraud. There came a time
when the circumstances began to speak
for themselves and there was enough
evidence to make it at least arguable that
M must have known that each of these
cases, apart from one, involved a fraud by
the impersonation of the customer from
whose account the money had been
drawn. If an experienced banker knew that
a series of transactions involving the
purchase of large amounts of Euros were
all fraudulent, and he was asked to
participate in another one, then he had to
investigate the propriety of the
transaction. If the enquires made
previously had failed to uncover the fact
that the transaction was fraudulent, then
he had to consider what other enquiries he
needed to make. Enquiry of the paying
bank might or might not suffice. It was
clear that a winding up petition was not
the appropriate procedure by which to
resolve such disputes; mutual disclosure
and cross examination of the relevant
witnesses were essential. N was entitled to
rely on similar fact evidence if it could
prove the facts on which it relied and
demonstrated that they were indeed
similar to those of the transaction in
question, O'Brien v Chief Constable of South
Wales Police (2005) UKHL 26 , (2005) 2 AC
534. Unless it could be inferred that N did
not have available evidential material with
which to do so, in which case the dispute
was not bone fide, the liability of N to J
was disputed on substantial grounds.
Accordingly the injunction sought was
granted.
Appeal allowed.
Value of Assets on Liquidation Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd [2006] EWHC 718 (Comm)
Contracts – Contractual term – Construction –
Forward sales transactions – Claimant going into
liquidation – Requirement of defendant to account
to claimant under agreement – Whether defendant
free to dispose of assets on chosen basis – Whether
assets should be valued as at date of liquidation.
The parties were both banks. In November
1996, they entered into an umbrella
agreement which governed the making
and performance of forward sales
transactions between the claimant as
April 2006 40
buyer and the defendant as seller of
emerging market assets at set further
dates and set prices. The emerging market
assets were Latin American debt
instruments of one kind or another and
the individual transactions were effected
orally but evidenced by documentary trade
confirmations as defined in the agreement.
Clause 14 was headed ‘Events of Default’.
One event of default was insolvency, and
another was non-payment of any amount
due under the agreement. Clause 14 also
set out the obligation on the defendant to
sell the designated assets. In March 1998,
the claimant went into liquidation. The
liquidator brought a claim contending,
inter alia, that the defendant should
account to the claimant under cl 14 of the
agreement for the sum of approximately
$US13.8m incurred in transactions after it
entered liquidation on 3 March and the
concomitant termination of the agreement
on 5 March 1998, when notice was given
to the defendant. The court ordered the
trial of a preliminary issue concerning the
true construction of the agreement. The
defendant contended that it had a
complete discretion to sell the designated
assets as and when it liked, and to use the
actual sale proceeds from sale whenever
achieved. It was held that the defendant
had to elect to liquidate (ie sell to third
parties) or to retain for itself the assets on
the termination date or as soon as
practicable thereafter. It was further held
that the valuation had to be carried out as
at the date of termination, and had
actually to be done on that date, and that
the defendant had to bring into account
the value so assessed as a credit against
the amounts payable to it under the
agreement and trade confirmations. The
whole point of the exercise was to
crystallise the position as at the date of
termination by reference to value as at
that date. It followed that the defendant
was not entitled to bring into account the
actual proceeds of sale of those
designated assets for the purpose of its
continuing obligations (see [2004] All ER
(D) 68 (Jul)). The present hearing was
concerned with issues in relation to the
valuation exercise.
HELD: The claimant was entitled to an
account or damages under cl 14 for the
valuations of the designated assets, to be
brought into account against an unpaid
amount of $US20,382,063.24. The court
valued each disputed asset on the facts.
Breach of fiduciary duty and conspiracy to injure Simtel Communications Ltd v (1) Peter Daniel Rebak (2) Telec Ltd (3) Chwee Tian Chan (aka Larry Chan)
[2006] EWHC 572 (QB)
ADMINISTRATIVE RECEIVERSHIP : BREACH OF
CONTRACT : DIRECTORS POWERS AND DUTIES :
FIDUCIARY DUTY : UNLAWFUL MEANS
CONSPIRACY : DIRECTOR'S FIDUCIARY DUTIES TO
COMPANY IN ADMINISTRATIVE RECEIVERSHIP :
REASONABLE SKILL AND CARE
The defendant former director of a company had
breached his fiduciary duty to the company and had
committed wrongful acts of an unlawful conspiracy
to injure.
The claimant company (S) and its financial
backer (D) brought claims against the
defendants (R, T and C). S's business was
the international wholesale of mobile
phones. R and D were the directors of S. D
April 2006 41
was also the sole director and shareholder
of another company (M), which provided
financial backing for S. M had entered into
two facility agreements with S, secured by
a debenture. When D experienced
problems with R's management of S, he
decided that M should call in its loans.
Administrative receivers were appointed
the following day. T was a company set up
by R and C, a former trader with S, to
carry on S's business where it left off. It
had been set up whilst R had still been
working for S. D and M brought the
instant proceedings in S's name pursuant
to the terms of a shareholder's agreement
or the debenture or both. S contended
that (1) there had been a failure to recover
certain debts; (2) a mobile phone deal had
been financially mismanaged where R had
committed S to a high value order without
having secured ongoing sales, and misled
D so as to get authorisation to pay the
deposit; (3) R had removed petty cash
without authorisation; (4) R had issued an
unauthorised company cheque to pay for
private car repairs; (5) R was personally
liable in respect of a van he had agreed to
buy from S on behalf of a football club of
which he was the chairman and a
member; (6) R had conspired with C and
others to set up a business in direct
competition with S. S argued that R had
breached his fiduciary duty and had
committed wrongful acts of an unlawful
conspiracy to injure S, namely: "diverting"
two mobile phone deals negotiated by S
that were in the process of going through;
unlawfully conspiring with C and T to
remove and/or destroy significant parts of
S's trading computer data and paper files;
releasing stock held on S's behalf in
Nigeria notwithstanding no payment had
been received by S.
HELD: (1) In four transactions over a period
of two years and six months, R had failed
to ensure that goods were not shipped or
released to customers until payment had
been received in cleared funds. However,
there was no specific and clear-cut
company policy on that issue and R's
failure did not amount to a breach of his
fiduciary duties as a director nor of his
implied contractual duties. (2) In entering
into a deal where there was a high degree
of risk and in misrepresenting the position
to D, R had acted in breach of his fiduciary
duty as director and also of his implied
duty as an employee to carry out his duties
with reasonable skill and care. (3) R had
breached his fiduciary duty and implied
duty as an employee only to the extent
that he was unable to provide appropriate
vouchers or otherwise account for sums of
petty cash that he had used but had not
repaid. (4) In issuing an unauthorised
company cheque to pay for private car
repairs, R had misappropriated S's funds
and acted in breach of his fiduciary duty as
director and implied duty as an employee.
(5) R had purported to buy the van for the
football club. He did not have authority to
contract on behalf of the club to buy the
van. However, he could not use his own
lack of authority as a defence to breach of
a contract, which he clearly purported to
make on behalf of the club. Alternatively,
he was liable for breach of warranty of
authority. (6) R and C had embarked upon
a plan to set up a company that would
directly compete with S. D had had no
idea of the real level of R's involvement in
the new company. R and C had both acted
in breach of their duties to S. While the
April 2006 42
setting up of T did not cause S any loss
until the events of the receivership, it was
part of a course of conduct by R and C
that continued after the receivership.
During the receivership, R had diverted
two deals from S to T. That was a breach
of his fiduciary duties to S. Both C and T
were jointly liable having jointly
participated in that breach of trust. R and
C had deleted a substantial amount of
data from S's server in order to cover their
tracks and prevent competition with T.
Furthermore, in releasing stock held on S's
behalf in Nigeria notwithstanding no
payment had been received by S, R had
acted in breach of his duty to act bona fide
in the interests of S. He was also in breach
of his contractual duty to carry out his
services with reasonable skill and care. The
elements of unlawful means conspiracy
had been established.
Compulsory Winding Up Portfolios of Distinction Ltd, Re; Re Turning Point Seminars Ltd [2006] All ER (D) 398 (Mar)
COMPULSORY WINDING UP : MISSELLING : PUBLIC
INTEREST : PROPERTY INVESTMENT COMPANY
ACCUSED OF MISSELLING : PROPERTY INVESTMENT
: MISREPRESENTATION : REFORMS : s.124A
INSOLVENCY ACT 1986
The secretary of state had not established that it was
expedient in the public interest that two companies
whose business involved the offering to clients of
opportunities to invest in property should be wound
up.
The secretary of state presented petitions
against the respondent companies (P and
T) seeking an order for their compulsory
winding-up under the Insolvency Act 1986
s.124A. P and T were run by the same two
individuals. The business of both
companies was the offering to clients of
opportunities to invest in property. The
secretary of state argued that (1) P had
induced members of the public to
participate in a scheme for an annual fee
of some £50,000 on the basis of a
deliberately false representation that the
client would acquire a portfolio of property
worth £1 million within 12 months; (2) P
and T were so closely connected with C, a
company whose business had been
conducted fraudulently, that C's
wrongdoing had tainted them; (3) T had
diverted its clients to P and to C, knowing
the nature of the business of those
companies.
HELD: (1) The secretary of state had not
made out a case of mis-selling against P.
While P could be legitimately criticised for
providing insufficient information to
investors as to the risk that they might not
acquire a £1 million portfolio, that did not
constitute a deliberate misstatement or
omission of the significance necessary for
the severe sanction of a compulsory
winding-up. Once it was accepted that P's
role was to offer properties for purchase, it
was impossible, on the available evidence,
to say whether the reasons for the investor
not attaining a £1 million portfolio were
his own personal difficulties or
unwillingness or some wrongdoing on P's
part. (2) P and T had, through their
officers, been closely involved with C and
should not have encouraged investors into
C. C had been wound up, but because it
was a different business run by a different
company, there was not the same
imperative to wind up P or T. If there had
been impropriety in C's affairs, the
April 2006 43
liquidator could bring the necessary
proceedings and could refer the conduct
of directors and shadow directors to the
secretary of state with a view to
disqualification proceedings being
brought. If the officers of P and T had
acted as shadow directors of C, there was
already an appropriate means for dealing
with any misconduct on their part. In those
circumstances, the "taint" of C was not
sufficient to justify the making of a
winding-up order against P and T. (3) The
success of the petition in respect of T was
dependent on the success of the petition
relating to P. As the latter petition had
failed, the former should as well. (4)
Further, P had made significant reforms.
Those reforms had not been implemented
with a view to staving off a petition
brought by the secretary of state. They
were consistent with a desire to run a
properly conducted business and lent
further support for the view that winding-
up was not appropriate.
Enforcing worldwide freezing order in foreign jurisdiction Dadourian Group International Inc v Simms & Ors
[2006] EWCA Civ 399 CA (Civ Div) (Ward LJ, Arden LJ, Moore-Bick LJ) 11/4/2006
ENFORCEMENT : EXTRATERRITORIALITY : FOREIGN
JURISDICTIONS : FREEZING INJUNCTIONS :
VARIATION : ENFORCEMENT OF WORLDWIDE
FREEZING ORDER IN FOREIGN JURISDICTION :
GUIDELINES : DISSIPATION OF ASSETS :
APPLICATIONS WITHOUT NOTICE
The Court of Appeal set out guidelines to apply
when an application was made for permission to
enforce a worldwide freezing order in a foreign
jurisdiction.
The appellants (S) appealed against the
decision ((2005) EWHC 268 (Ch), (2005) 2
All ER 651) not to set aside an order giving
the respondents (D) permission to enforce
in Switzerland a worldwide freezing order
that D had obtained against S. D had
obtained an arbitration order in its favour
in the sum of $4.5 million and brought
English proceedings alleging that S were
bound by the award and liable for
misrepresentation and conspiracy. D
obtained a worldwide freezing order
preventing the disposal by S of their assets
up to $5.5 million. The freezing order was
based on the form stipulated in the CPR
and contained an undertaking that D
would not seek to enforce the order in
another jurisdiction without the court's
permission. D had identified the possibility
that some of S had assets in Switzerland
and wished to enforce the order against a
Swiss bank and trust. D sought and
obtained the court's permission to enforce
the order in Switzerland. The judge
refused to set aside the order (the Swiss
variation order) granting permission to
enforce the worldwide freezing order
against S in Switzerland. S submitted that
(1) the court should order the joinder to
the English proceedings of a third party
alleged to be holding any assets within the
scope of the worldwide freezing order but
located in the foreign jurisdiction and
extend the order to that third party; (2) the
judge should have applied the test of a
good arguable case to the existence of
relevant assets in the foreign jurisdiction.
April 2006 44
HELD: (1) Where the need to enforce a
worldwide freezing order abroad was
shown, the court could control the
proliferation of foreign proceedings by the
terms on which it granted its permission.
There was no need for the court to have as
its preferred option that the court should
not grant permission, where there was or
was likely to be a dispute as to who
owned the asset, unless it considered that
the dispute could not be resolved in the
English proceedings. It did not follow that
the third party had to be joined to the
English proceedings to have the dispute
resolved. (2) The claimant did not have to
show that assets were likely to exist only
that there was a real prospect that they
existed. (3) There were matters that the
judge had failed to consider and the
exercise of his discretion to refuse to set
aside the Swiss variation order had to be
set aside and the discretion exercised
afresh. (4) The fact that further evidence as
to Swiss law needed to be filed did not
mean that it would be a wrong exercise of
discretion to refuse to discharge the Swiss
variation order and there was no other
consideration that would have caused the
court to discharge the Swiss variation
order. (5) The major consideration
supporting the grant of relief was the fact
that some of S had clearly sought to
hinder D in their pursuit of assets within
the scope of the worldwide freezing order.
(6) D had discharged the onus of showing
that there was a real prospect that S had
assets in Switzerland and that it was
reasonable and proportionate for them to
seek to enforce the worldwide freezing
order in Switzerland. (7) The court set out
the following eight guidelines to apply
when an application was made for
permission to enforce a worldwide
freezing order in a foreign jurisdiction: the
grant of permission should be just and
convenient; all the relevant circumstances
and options needed to be considered; the
interests of the applicant should be
balanced against the interests of the other
parties; permission should not normally be
given in terms that would enable the
applicant to obtain relief in the foreign
proceedings that was superior to the relief
given by the worldwide freezing order; the
evidence in support of the application for
permission should be all the information
necessary for the judge to reach an
informed decision; the standard of proof
as to the existence of assets was a real
prospect; there must be evidence of a risk
of dissipation of the assets in question;
and normally the application should be
made on notice to the respondent.
Liability of insolvency practitioners and directors International Championship Management, and Mall Corporate Events Ltd In The Matter Of International Championship Management Ltd Sub Nom Malcolm Cohen (Applicant) v (1) Mathew John Davis (2) Michael Canty (3) William Thomas Dubey (4) Terence Frank Shepherd (Respondents) & (1) Mathew John Davis (2) Michael Canty (3) Terence Frank Shepherd (Part 20 Claimants) V Ks Tan & Co (A Firm) (Part 20 Defendant)
In The Matter Of Mall Corporate Events Ltd Sub Nom Malcolm Cohen (Applicant) V (1) William Thomas Dubey (2) Terence Frank Shepherd (Respondents) & Terence Frank Shepherd (Part 20 Claimant) V Ks Tan & Co (A Firm) (Part 20 Defendant) (2006) [2006] EWHC 768 (Ch) Ch D (Companies Ct) (Richard Sheldon QC) 6/4/2006
Company directors' claims for contribution under
the Civil Liability (Contribution) Act 1978 s.1 against
April 2006 45
an insolvency practitioner as a result of the
practitioner's alleged breach of duty in advising the
companies to continue to trade were bound to fail
as the insolvency practitioner could not be under a
common liability with the directors in respect of
claims brought against the directors under the
Insolvency Act 1986 s.214, s.238 and s.239.
The Part 20 defendant insolvency
practitioner (T) applied to strike out Part 20
claims for contribution brought by
directors of two companies. The directors
had retained T to advise on the
implications of continuing to trade in view
of supply problems. T had initially advised
that the companies should continue to
trade but a few weeks later advised that
they should cease trading after receiving
information from the directors that the
supply problems could not be resolved.
Resolutions for voluntary liquidation of the
companies were then passed and T and
another liquidator (L) were appointed as
joint liquidators of the two companies. L
issued applications against the directors for
wrongful trading under the Insolvency Act
1986 s.214 and for misfeasance under
s.212. L also sought repayment of certain
amounts on the basis that the payments
represented transactions at an undervalue
under s.238 or constituted preferences
under s.239. The directors then issued Part
20 proceedings against T claiming a
contribution under the Civil Liability
(Contribution) Act 1978 s.1 on the basis
that T was in breach of duty when advising
the companies to continue to trade. T
submitted that (1) in respect of the claims
under ss.214, 238 and 239 the Part 20
claims for contribution were misconceived
because L's claims could not be treated as
claims by the companies for loss for which
the directors and T had a common liability;
(2) in respect of the claim under s.212 T
was not a director and could not be liable
for the alleged misfeasance, and in any
event, the directors could not claim a
contribution because a claim by the
companies would not be a claim for the
same damage as caused by the directors.
HELD: (1) The claims brought by L under
ss.214, 238 and 239 could not be treated
as claims brought by the companies. T
could not be under a common liability with
the directors to L. A wrongful trading
claim under s.214 could only be brought
by a liquidator against directors and there
was no suggestion that T would fall into
that category of persons. Similarly, in
respect of the s.238 claim T had not
entered into transactions with one of the
companies and in relation to the s.239
claim T was not a creditor of one of the
companies. The contribution claims in
respect of L's claims under ss.214, 238 and
239 were therefore bound to fail, Oasis
Merchandising Services Ltd (In Liquidation),
Re (1998) Ch 170 considered. (2) In
respect of the claims under s.212, the
directors' contribution claims had not been
sufficiently pleaded but those claims
should not be struck out without giving
the directors the opportunity of applying
for permission to amend. In any event, T
could not be held responsible, whether
directly or indirectly, for the commission of
acts that took place before his involvement
in the affairs of the companies.
Counsel: Susan Brown (Part 20 claimants), Elizabeth Weaver (Part 20 defendants)
Solicitors: Bernard Clarke (Part 20 claimants), Henmans (part 20 defendants)
CVA notice of meeting outside E&W
April 2006 46
Re T&N Ltd and other companies [2006] All ER (D) 202 (Apr), [2006] EWHC 842 (Ch)
Company – Meeting – Notice of meeting – Service –
Company voluntary arrangements – Applicability of r
12.12 – Insolvency Rules 1986, SI 1986/1925.
The administrators of T&N Ltd and those
most closely involved in the proceedings in
the United States under Ch 11 of the US
Bankruptcy Code entered into a settlement
agreement. The court gave directions that
the administrators be at liberty to propose
voluntary arrangements and /or schemes
of arrangement in respect of such
companies as they considered appropriate
in accordance with the terms of the
settlement agreement. The administrators
applied for directions in relation to the
proposed voluntary arrangements (CVAs).
Issues arose in connection with convening
the proposed meetings. Section 3 of the
Insolvency Act 1986 made provision for
meetings of creditors to be summoned. In
summoning meetings, the administrators
were required to give notice to all the
creditors of whose claims and address they
were aware. The notice had to be in
writing and accompanied by certain
documents and a form of proxy. The
notice might be sent by post, and any
form of post might be used. Posting of the
notices might be proved by a certificate.
Rule 12.10 of the Insolvency Rules 1986, SI
1986/1925 provided for service by post.
Rule 12.11 contained general provisions
for service. Rule 12.12 provided for service
out of the jurisdiction.
The administrators submitted that r 12.12
of the Rules did not apply to notices of
meetings for CVAs, or indeed of any
meetings. The US plan proponents
supported that submission. Their
submissions were put on two broad
grounds. First, none of rr 12.10 to 12.12
applied to notices of meetings and the
assumptions and decisions in certain cases
were wrong. Secondly, in any event the
terms of r 12.12 were such that it did not
apply to notices of meetings.
HELD: Rules 12.10 and 12.11 were
applicable to notices of meetings but r
12.12 did not apply to notices of
meetings.
The argument that ‘service’ was apt to
describe only the service of documents in
court proceedings was too narrow a view
as best illustrated by s 7 of the
Interpretation Act 1978. Contrary to the
submissions made there needed to be
some provision for deeming the date on
which notice was given of a meeting when
the notice was sent by post. Although the
reference in r 12.11 to the ‘giving of
notice’ was not easily explained away, an
analysis of the provisions in which the
expression was used showed that it was
not necessarily restricted to court
proceedings. If rr 12.10 and 12.11 were
restricted to service of documents in court
proceedings, they would more naturally be
included in Pt 7 of the Rules which dealt
with court procedure and practice. The
incorporation of CPR Pt 6 could properly
be seen as introducing a desirable degree
of flexibility. It permitted service by
document exchange, fax or other means
of electronic communication, subject to
the relevant practice direction. Accordingly
the court did not accept the general
submission that rr 12.10 and 12.11 were
not applicable to notices of meetings. It
did not follow that r 12.12 applied to
April 2006 47
notices of meetings. It did not do so for
the following reasons. First, provision was
made in the CPR for the permission of the
court to be required for service of
documents in court proceedings out of the
jurisdiction, because at common law the
court had no jurisdiction over a party who
was not served within England and Wales
or did not submit to the jurisdiction of the
court and because service abroad involved
an interference with the sovereignty of
other countries. The giving of notice of a
meeting, even if the meeting was
convened under a statutory provision,
involved no such considerations. Secondly,
s 3(3) of the 1986 Act and other provisions
in that Act dealing with meetings required
notice to be given to all creditors known to
those convening the meeting. Those
provisions clearly applied as much to
foreign creditors as to domestic creditors.
What point, therefore, would be served by
an application to the court for leave to
serve the notice: the court could not refuse
leave. Thirdly, the very idea that giving
notice of meetings should require the prior
leave of the court, given on an application
supported by an affidavit, was absurd.
Fourthly, the terms of r 12.12
contemplated court proceedings.
Accordingly the court was satisfied that
there was no requirement for an
application to the court, or for the
permission of the court, in order for notice
of the CVA meetings to be given to
creditors outside England and Wales.
Re a Debtor (No 64 of 1992) [1994] 2 All ER
177, Re Beverley Group plc v McClue [1995] 2
BCLC 407 and Skipton Building Society v
Collins [1998] BPIR 267 followed.
Were documents with solicitors subject to legal professional privilege? The TAG Group Litigation; Winterthur Swiss Insurance Company and another v AG (Manchester) Ltd (in liquidation) and others [2006] EWHC 839 (Comm), [2006] All ER (D) 196 (Apr)
Privilege – Legal professional privilege – Solicitor and
client – Insurer underwriting no win no fee funding
scheme for litigation – Scheme subject to vetting
process – Insurer seeking to bring proceedings
against solicitors involved in vetting process –
Whether documents with solicitors subject to legal
professional privilege – Whether first claimant
entitled to access documents as second claimant’s
assignee.
The first claimant was the assignee of the
second claimant. The second claimant
underwrote after the event legal expenses
insurance policies for a ‘no win, no fee’
litigation funding scheme operated by its
agent, the first defendant. The scheme
included a vetting process, the purpose of
which was to ensure that only claims with
a greater than 50% chance of recovering
at least £1,500 were accepted. The
potential claim was assessed first by the
first defendant, secondly by an associated
company, AIL, thirdly by the second
defendants and then finally by one of a
panel of solicitors such as the third
defendant. Upon completion of that
process, a panel solicitor would be treated
as retained, subject to the litigant’s
instructions. Condition 6 of the policy
provided that ‘in relation to any case or
loss paid or payable under the policy, [the
second claimant] shall be subrogated to
April 2006 48
the Assured’s rights of recovery’, and
expressly required the assured to co-
operate with the second claimant ‘for the
purpose of enforcing any rights and
remedies or of obtaining relief or
indemnity from other parties to which [the
second claimant] shall be or would
become entitled or subrogated upon their
paying for any case or loss under the policy
… ’. The failure rate for claims was much
greater than anticipated and the claimants
brought proceedings against the second
defendant and the majority of its panel of
solicitors.
Preliminary issues arose, inter alia, as to
whether documents prepared pre- and
post- inception of a policy of insurance
were privileged from disclosure to the
second claimant, and the extent to which
the first claimant, as assignee, was entitled
to access post-policy documents.
Although the claimants accepted that
documents created after the inception of a
policy of insurance would be subject to
litigation privilege belonging to the
litigant, they relied on, inter alia, condition
6 to establish that the second claimant a
right of access. Alternatively, they
contended that the second claimant could
assert a ‘common interest’ privilege in
them. The group two panel defendants
submitted that there could only be a
community of interest between the second
claimant and the litigants that gave rise to
the right to use common interest privilege
as a sword to access those documents if
that interest existed at the present time,
and that there had never been a
community of interest because there was
always a tension between a litigant and his
insurer. They also contended that
documents subject to common interest
privilege could only be used for the
purposes for which they were originally
intended, namely the advancement of the
litigant’s claim. In relation to the first
claimant, the group two panel defendants
submitted, inter alia, that it had to take
the assignment of the second claimant’s
causes of action with all its benefits and
burdens, including any common interest
privilege in documents.
HELD:
(1) At least in cases of ‘common interest as
a sword’, once a communication was
subject to common interest privilege, then
it would always remain so. Moreover,
although documents obtained in the
exercise of common interest privilege
obviously could not be used for any
purpose, they could, applying settled
principles, be used in litigation between
the two parties who, at an earlier stage,
had had a common interest.
No legal professional privilege existed in
the pre-policy documents, which were not
prepared for the dominant purpose of
litigation. In relation to post-policy
documents, the second claimant was, by
condition 6, subrogated to the litigant’s
‘rights of recovery’. The litigant might well
have ‘rights of recovery’ against his own
solicitor or others for damages incurred as
a result of a breach of duty. In those
circumstances, the second claimant’s
claims were to recover sums for which it
had agreed to grant an indemnity to
litigants. It followed that the pre- and
post-policy documents were, in principle,
documents that could legitimately be
required by the second claimant to pursue
its claims under the duty to co-operate in
condition 6. Accordingly, litigation
April 2006 49
privilege could not be asserted to prevent
the second claimant using his contractual
right of access to the documents.
Furthermore, it could rely on ‘common
interest privilege as a sword’ to have
access to the pre-and post policy
documents that would otherwise be
subject to the litigant’s privilege. There
was not necessarily a tension between the
two sides; the contract of insurance was
one of utmost good faith, the more
successful the claim, the less likely the
insurer would have to pay an indemnity
under the policy, and it was plain from the
documents that an insured had to allow
the insurer to see his documents for the
purposes of pursuing the former’s claim.
Having regard to previous authority, it was
legitimate to allow use of documents in
litigation between one of the two parties
that had a common interest at the time
the document was created, A and B, and a
third party, where B was under an express
contractual obligation to A in the wide
terms of condition 6.
Cia Barca v Wimpey and Commercial
Union v Mander applied.
(2) The rule that legal privilege held jointly
could not be waived by one person alone
applied equally to common interest
privilege as much as to joint privilege.
However, the wording of condition 6 was
effectively an automatic waiver of privilege
by the litigant provided that it was
necessary or required for the purposes
defined in that clause. Accordingly, the
first claimant was entitled to access the
post-policy documents as between it and
the second claimant.
Setting aside judgment in default
(1) Peter Norman Richmond (2) Alpine Taxis Ltd v (1) David Richard Burgh (2) Praisecover Ltd (3) Elizabeth Ann Burch
Ch D (G Bompas QC) 7/4/2006
COSTS : DEFAULT JUDGMENTS : DELAY :
INJUNCTIONS : JURISDICTION : PAYMENT INTO
COURT : SETTING ASIDE : SETTING ASIDE
JUDGMENT IN DEFAULT : VARIATION OR
DISCHARGE OF INJUNCTION : COSTS ORDERS :
r.13.3(1)(b) CIVIL PROCEDURE RULES 1998
A master had not had jurisdiction to set aside an
order giving judgment in default, since in so doing
he had varied or discharged an injunction, which
under the CPR Practice Direction 2b para.2.2. he
was not permitted to do.
The appellants (R and X) appealed against
an order setting aside a judgment in
default of acknowledgement of service in
proceedings brought by R against the
respondents (B and P). R and B were
shareholders in and directors of X, a taxi
company. P was another taxi company,
owned by B and his wife. R brought
proceedings against B and P alleging that
B had sought to damage X's business and
further the business of P. R obtained
interim injunctive relief. No substantive
hearing ever took place, and R
subsequently applied for judgment in
default of acknowledgement of service
against B and P. Judgment was given, and
an order was made that the injunctive
relief granted previously would be made
final. R then made an application for
directions in relation to the assessment of
damages. B and P applied to have the
default judgment set aside and were
successful. R contended that (1) the master
did not have jurisdiction to set aside the
order giving judgment in default, since in
April 2006 50
so doing he was varying or discharging an
injunction; (2) the order should not have
been set aside, or if it was to be set aside
that should have been made conditional
on a payment into court by B and P; (3)
the costs orders made by the master were
wrong.
HELD: (1) The master's order had
discharged the injunction without
expressly reinstating any injunction in its
place. Even if that was wrong, his order
had varied or changed a final injunction by
making temporary that which was
previously permanent. Under the CPR
Practice Direction 2b para.2.2 he had no
power to do that. The setting aside of the
order lay outside the master's jurisdiction
because of the change it made to what
had been ordered by the previous judge in
relation to the injunction. (2) B and P had
met the threshold condition in the CPR
r.13.3(1)(b) there were good reasons why
the order giving judgment for R should be
set aside. B and P had some prospect of
successfully defending the action. There
were issues between the parties that still
needed to be resolved. In relation to the
assessment of damages, there was a
question of causation that had not been
determined. Although over a year had
passed between the default judgment and
the application to set aside, the lapse of
time was not conclusive in favour of the
appellants, and the appellants could not
point to any real prejudice caused to them
by the delay. The consequences of not
setting aside the order giving judgment for
R were potentially serious for B and P. The
better course was to allow B and P to
defend the action. It was not appropriate
to make the setting aside conditional upon
B and P making a payment into court. (3)
The master's costs order was varied. B and
P should pay the costs of R's application
for judgment in default. B and P should
also pay the costs of R's application in
relation to the assessment of damages and
the costs of the set aside application to the
master.
Appeal allowed in part.
For related proceedings see Richmond v Burch (2004)
Challenge to arbitration can not be raised in England after being decided in Germany (1) Karl Leibinger (2) Franz Leibinger v Stryker Trauma GMBH [2006] EWHC 690 (Comm) QBD (Comm) (Cooke J) 31/3/2006
Where two grounds of challenge to the jurisdiction
and constitution of the arbitral tribunal had already
been decided by a German court of competent
jurisdiction, it was an abuse of process for them to
be raised again in a challenge to the arbitrators
jurisdiction in the English court. An application for
an extension of time for the filing and serving of
further detailed particulars of the grounds of
challenge to the arbitrators' partial award on
jurisdiction, and of evidence relating to those
grounds, was refused where there was no adequate
reason why the matters and evidence sought to be
relied on had not been included in the claim form.
The applicants (L) applied for an extension
of time for the filing and serving of further
detailed particulars of the grounds of
challenge to an arbitration award and of
evidence relating to those grounds, and
the respondent (S) applied to strike out L's
statement of case in its entirety. L had sold
to S the issued share capital of a company
under a share purchase agreement. The
April 2006 51
agreement was governed by German law.
The agreement provided for arbitration of
any disputes in accordance with a separate
arbitration agreement between the parties.
After the sale S commenced arbitration
proceedings against L seeking damages. L
objected to the jurisdiction and
constitution of the arbitral tribunal and
issued proceedings in Germany. The
arbitration continued in the meantime. The
German court dismissed L's challenge to
the jurisdiction and constitution of the
arbitral tribunal. The tribunal then issued a
partial award rejecting L's challenge to the
jurisdiction and constitution of the
tribunal. L then issued English proceedings
challenging that award under the
Arbitration Act 1996 s.67 and obtained
permission to serve the claim form on S
out of the jurisdiction. Details of claim
attached to the arbitration claim form
were put in short form in order to facilitate
compliance with the 28 day time limit
under s.70(3) of the 1996 Act and L later
sought permission to put in more detailed
grounds of challenge and evidence in
support. S submitted that two of the
jurisdictional challenges that L sought to
make had already been determined in
favour of S by the judgment of the
German court, and that the statement of
case disclosed no reasonable grounds for
bringing the claim, which had no
reasonable prospect of success.
HELD: (1) Applying the principles of issue
estoppel to a foreign judgment, there was
no doubt that the decision of the German
court on the two points it did decide was a
decision by a court of competent
jurisdiction that was final and conclusive
and was a decision on the merits of the
issues that it did decide, Carl Zeiss v Rayner
& Keeler Ltd (No.2) (1967) AC 853 and
DSW Silon Und Verwaltungsgsellschaft
MBH v Owners of the Sennar (No2) (1985) 2 Lloyd's Rep 521 applied. The German
court had decided both that S did not have
to pursue the claim jointly with its parent
company and that the power to appoint
the arbitrator did not reside in the parent
alone, and was competent to do so under
its own jurisdictional rules. As those
matters had already been decided by the
German court, it was an abuse of process
for them to be raised again in any
challenge to the arbitrators¿ jurisdiction in
the English court. (2) There had been
serious non-disclosure on the application
for permission to serve out of the
jurisdiction by reason of the failure to
mention the German proceedings and
therefore the permission was set aside. (3)
L sought to undermine and circumvent the
statutory time limits provided by s.70(3) of
the 1996 Act by issuing a claim form
without detailed particulars and without
evidence and then making an application
to file and serve detailed particulars and
written evidence 72 days after the
statutory deadline, after serving those
particulars and evidence some eight weeks
after that deadline. There was no
adequate reason why the matters and
evidence sought to be relied on had not
been included in the claim form and no
sufficient reason for granting an extension
under s.80(5) of the Act. (4) In any event
the grounds raised by L were doomed to
fail and had no realistic prospect of
success.
Judgment accordingly.
Attempt to resist disclosure rejected
April 2006 52
Capricorn Financial Investments SA and others v Secretary of State for Trade and Industry [2006] All ER (D) 134 (Apr) Chancery Division Hart J 10 April 2006
Disclosure and inspection of documents - Production
of documents - Inspection - Specific disclosure -
Claimants seeking specific disclosure of certain
documents obtained by Secretary of State in course
of investigation - Whether grounds existing to order
disclosure - Companies act 1985, s 447.
The claimants were required by an
investigator acting on behalf of the
Secretary of State to produce certain
documents, pursuant to s 447 of the
Companies Act 1985, in relation to an
investigation following the collapse of a
company with which the claimants were
associated. They commenced proceedings
against the Secretary of State, alleging
that, as none of them was incorporated in
Great Britain, none were proper subjects
for investigation and that it was not open
to the Secretary of State to require them
to produce documents which, they
alleged, were confidential. They applied
for an order for specific disclosure in
respect of certain documents.
HELD: The application would be dismissed.
The claimants had failed to make out their
contentions. There was no accessible basis
on which to order the disclosure sought.
Abuse of process against bank (1) Dipa Das (2) Sachindra Nath Das v Barclays Bank Plc (2006) [2006] EWHC 817 (QB) QBD (Calvert-Smith J) 11/4/2006
ABUSE OF PROCESS : LIMITATION PERIODS :
STRIKING OUT : TWO ACTIONS ISSUED AGAINST
BANK
Proceedings issued against a bank were an attempt
to relitigate matters raised in earlier proceedings and
should be struck out as an abuse of process.
The applicant bank (B) applied to strike
out proceedings brought by the first
respondent (D). Between 1991 and 1993,
more than £130,000 was withdrawn from
a bank account of the second respondent
(S) at B's bank. In 1997, S issued
proceedings against B claiming that it had
allowed the withdrawals in breach of duty.
Those proceedings were struck out in
2000 on the ground of S's failure to
comply with an unless order. In December
2002, D issued the instant proceedings
against B, and S was named as the second
claimant in 2004. B argued that the
second proceedings amounted to an
attempt to relitigate the first proceedings.
HELD: The withdrawals the subject of the
second proceedings were the same
withdrawals as in the first proceedings,
and the failures alleged against B were the
same in both sets of proceedings. New
allegations of defamation were without
any evidential foundation and could in any
event have been pleaded in the first
proceedings. Allowances should be made
for the fact that D was unrepresented.
Nevertheless, the second proceedings were
an attempt to relitigate the first
proceedings. The alleged differences
between the two claims were cosmetic
and were designed to justify what was in
effect a disguised appeal against the order
which had brought the first proceedings to
an end, Johnson v Gore Wood & Co (A
Firm) (2001) 2 WLR 72 applied. Further,
April 2006 53
the conduct of S in both proceedings had
been marked by continued procrastination.
If D had an interest in the account, she
could have been joined in the first
proceedings. If she did have such an
interest, she would have been a
beneficiary under a trust with S acting as
trustee; as a beneficiary, she could not
relitigate matters already litigated by S as
trustee, Meretz Investments NV v ACP Ltd
(2006) EWHC 74 (Ch) , (2006) 6 EG 170
(CS) considered. In any event, as a demand
for repayment had been made by S in
February 1996, the second proceedings
had been issued outside the six-year
limitation period. In the circumstances, it
would be appropriate to strike out the
instant proceedings as an abuse of
process.
Application granted.
Jurisdiction on Liquidation of English Bank In the Matter of AY Bank Ltd (In Liquidation) sub nom Ay Bank (In Liquidation) v Bosnia & Herzegovina & 6 Ors [2006] EWHC 830 (Ch) Ch D (Companies Ct) (Sir Andrew Morritt C) 12/4/2006
Issues between the five successor states to the
former Yugoslavia, regarding the amounts provable
as debts in the liquidation of an English bank that
held a credit balance owing to the National Bank of
Yugoslavia, were justiciable in the United Kingdom.
The applicant Serbia and Montenegro
applied for an order that issues arising
from an application by the respondent
liquidators in connection with the
liquidation of an English bank (Y) were
non-justiciable. Y had been incorporated
to encourage trade with the former
Yugoslavia and had received substantial
deposits on behalf of the National Bank of
Yugoslavia. Following the break-up of
Yugoslavia, the Agreement on Succession
Issues 2001 was enacted, which was
binding on the five successor states. UN
Security Council Resolution 1022,
November 22, 1995 provided that all
nations should "make provision under
their national law for addressing
competing interests of States". Pursuant to
the 2001 Agreement, it was agreed that
each successor state would submit a
statement of claim to Y in connection with
the outstanding balance to the credit of
the National Bank. A dispute arose
between the five successor states as to the
entitlement of Y to set off debts against
sums deposited at the bank and the
amount of the balance available for
distribution. The liquidators had asked the
court to permit them
(i) to admit the proofs from the five
successor states on the basis that each
of the states was entitled to prove for
that percentage of the total debt owed
by Y as prescribed in Annex C Art.5(2)
of the 2001 agreement, and
(ii) to reject the proofs in excess of
those amounts. Serbia and Montenegro
argued that the 2001 agreement was a
treaty made between foreign sovereign
states, it had not been incorporated
into English domestic law, and the
issues that arose in the liquidation of
April 2006 54
the bank necessarily involved the
interpretation and enforcement of the
2001 agreement on which the courts in
England were not entitled to
adjudicate.
HELD: The courts in England had no power
to interpret or enforce treaties between
foreign sovereign states that had not been
incorporated into the domestic law of
England. Such a treaty was governed by
public international law, which alone
determined its validity, interpretation and
enforcement, Buttes Gas and Oil Co v
Hammer (1982) AC 888, JH Rayner
(Mincing Lane) Ltd v Department of Trade and Industry (1989) 3 WLR 969, Westland
Helicopters Ltd v Arab Organisation for
Industrialisation (1995) 2 WLR 126 and R. (on the application of Campaign for
Nuclear Disarmament) v Prime Minister
(2002) EWHC 2777 applied. Nevertheless,
the UN Resolution in the instant case was
a clear invitation to the domestic courts of
all states to make provision under their
domestic law for resolving competing
claims between states arising from the
break-up of the former Yugoslavia. The
2001 agreement could not have been
intended to have effect only on the plane
of international law, since Art.5 was an
essential element in a successor state's
proof of title in domestic law to the
percentage of a foreign account in the
name of the National Bank, Occidental
Exploration and Production Co v Ecuador
(2005) EWCA Civ 1116 , (2006) 2 WLR 70
applied. The domestic courts should not be
hampered in their ability to deal with
disputes arising out of the proofs of debt.
The issues that affected the amount of the
debt due by the bank to the former
National Bank were issues of private law
because they affected the rights of the
Bank and other unsecured creditors. The
other issues did not involve the
interpretation or enforcement of the 2001
agreement or interference with the dispute
resolution procedure set up by the
agreement, but the application of rules of
English law including where appropriate
principles of private international law. It
did not matter whether the issue for
determination was described as an
exception to the general principal of non-
justiciability or as an example of an area
into which the principle did not extend.
Either way, the nature of the issues arising
in the liquidation and the evident intention
behind both the agreement and the UN
Resolution showed that such issues were
justiciable.
Application refused.
April 2006 55
Legislation UK implementation of the EC Collateral Directive (2002/47/EC)
A consultation proposing to alter the way
the EC Directive is implemented in the UK
should be issued in the next two months.
Relatively minor proposed changes relate
to the priority given to financial collateral
compared to other classes of creditor in
cases of insolvency.
Cross-Border Insolvency Regulations 2006 SI 2006/1030 gives effect to the model law
adopted by the United Nations
Commission on International Trade Law
(UNCITRAL) on cross-border insolvency in
Great Britain. The model law was
approved by a resolution of the United
Nations General Assembly on 15
December 1997. Disapply the Insolvency
Act 1986, s 338
The regulations are now available on:
http://www.opsi.gov.uk/si/si2006/2006103
0.htm
Guidance: Cross Border Insolvency Regulations 2006 Companies House sets out guidance on
the new Cross Border Insolvency
Regulations. The regulations give effect to
the United Nations International Trade Law
model law in Great Britain and came into
force on 4 April 2006.
http://www.companieshouse.gov.uk/about
/gbhtml/gbw1.shtml#seven
The Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006 No 1070 This Order sets out exceptions to the
defences in sections 327(2A), 328(3) and
329(2A) of the Proceeds of Crime Act
2002, as inserted by section 102 of the
Serious Organised Crime and Police Act
2005. Sections 327(1), 328(1) and 329(1)
of that Act create offences relating to
"criminal property". That expression is
defined by section 340(3) by reference to
benefit from "criminal conduct". The
definition of "criminal conduct" includes
conduct that would constitute an offence
in any part of the United Kingdom if it
occurred there (see section 340(2)).
Sections 327(2A), 328(3) and 329(2A)
create defences in respect of the offences
in sections 327(1), 328(1) and 329(1)
(respectively) if the person who would
otherwise commit such an offence knows,
or believes on reasonable grounds, that
the "relevant criminal conduct" occurred
in a particular country or territory outside
the United Kingdom and was not, at the
time it occurred, unlawful under the
criminal law then applying in that country
or territory. "Relevant criminal conduct" is
defined in sections 327(2B), 328(4) and
329(2B) (respectively) as the criminal
conduct by reference to which the
property concerned is criminal property.
By virtue of sections 327(2A)(b)(ii),
328(3)(b)(ii) and 329(2A)(b)(ii), this defence
does not apply in respect of relevant
April 2006 56
criminal conduct of a description
prescribed in an order. Article 2(2) of this
Order prescribes conduct which would be
an offence punishable by imprisonment for
a maximum term in excess of 12 months in
any part of the United Kingdom (subject to
the exceptions set out in article 2(2)). This
Order is available at
http://www.opsi.gov.uk/si/si2006/2006107
0.htm Date in force, 15.5.06
April 2006 57
Articles Lessen the danger Explores the ways in which the strength of
tenant covenants can be intentionally
diluted and explains the options available
to landlords to reduce the danger of being
left with empty premises. Considers:
(1) assignment of the lease to
companies of lesser financial strength;
and
(2) asset stripping of existing tenant
companies.
Looks at the remedies available to
landlords and outlines the factors to be
taken into account by landlords who wish
to fund a liquidator to bring their claim.
Includes a table listing the types of
transaction against which a landlord may
bring a claim under the Insolvency Act
1986 and the steps that should be taken in
each situation.
Estates Gazette E.G. (2006) No.0613 Pages
132-134 1/4/2006 Jane Fox-Edwards and
Tom Withyman (Lawrence Graham)
Second Lien Financings: Enforcement of Intercreditor Agreements in Bankruptcy Bankruptcy court decisions made in the
early days of chapter 11 cases, when many
of the intercreditor agreement provisions
have their applicability, seldom resulted in
written opinions. Further, the impact of
the uncertainty regarding enforcement of
the bankruptcy provisions in intercreditor
agreements often results in a negotiated
resolution between the first and second
lien holders entered into prior to the
bankruptcy case.
Part I of this article discusses the
"disconnect" that currently exists between
those negotiating the provisions
concerning bankruptcy in the intercreditor
agreement and any understanding as to
how those provisions will play out should a
bankruptcy filing take place. Rather than
provide practice points or clear answers,
the article highlights some of the questions
or possible "mine fields" in this area that
are subject to interpretation and future
adjudication. (Docs number: 21708812)
Part II of this article identifies a sampling of
those cases and describes the ways that
the bankruptcy provisions in the
intercreditor agreement applicable to each
case had an impact (if at all) on the
ultimate outcome. (Docs number:
21708816)
Hannah can provide a copy of the articles
if required.
INSOL electronic newsletter Issue 6
Lessen the danger Explores the ways in which the strength of
tenant covenants can be intentionally
diluted and explains the options available
to landlords to reduce the danger of being
left with empty premises. Considers:
(1) assignment of the lease to
companies of lesser financial strength;
and
(2) asset stripping of existing tenant
companies.
April 2006 58
Looks at the remedies available to
landlords and outlines the factors to be
taken into account by landlords who wish
to fund a liquidator to bring their claim.
Includes a table listing the types of
transaction against which a landlord may
bring a claim under the Insolvency Act
1986 and the steps that should be taken in
each situation.
Estates Gazette E.G. (2006) No.0613 Pages
132-134 1/4/2006 Jane Fox-Edwards and
Tom Withyman (Lawrence Graham)
Binning documents is not the end of the story Deleted e-mails are governed by the
Freedom of Information Act, report the
authors.
Law Society Gazette, 16.3.06, page 22
Wilding & A Riem (06.14.019)
Communication and co-operation between insolvency courts and personnel The phenomenon of cross-border
insolvency has seen a focus in international
tests on promoting the ideals of co-
operation and communication. This article
investigates some of these texts and other
soft-law initiatives to reveal the available
paradigms guiding insolvency practitioners
and courts as to the attitude to take in
international cases.
ICCLR, 4.06, 120, P Omar (06.14.035)
Acquiescence accepting a breach of contract In what circumstances will you be taken to
acquiesce to another’s breach of contract?
What practical issues does this legal point
raise? The defence of acquiescence was
the main issue considered by Richards J in
Bradmount Investments Ltd v Williams de Broe Pic and others.
IHL, 3.06, 35 (06.14.008)
Communication and co-operation between insolvency courts and personnel The phenomenon of cross-border
insolvency has seen a focus in international
tests on promoting the ideals of co-
operation and communication. This article
investigates some of these texts and other
soft-law initiatives to reveal the available
paradigms guiding insolvency practitioners
and courts as to the attitude to take in
international cases.
ICCLR, 4.06, 120, P Omar (06.14.035)
Scope of the arbitration clause A common issue that can arise in respect
of an arbitration clause is whether the
various claims which are made fall within
its terms. The English courts have now all
but accepted that if judicial proceedings
are brought in England and it is alleged by
the defendant that the claims fill within
the scope of the arbitration clause so that
a stay should be granted, the English court
should itself construe the clause and
determine its ambit rather than leave the
jurisdictional dispute to the arbitrators. In
ET Plus SA and others v Welter and others
[2005] EWHC 2115 (Comm) this approach
was adopted, and the question considered
by the Court was whether the wording of
the clause encompassed tortious claims as
well as breach of contract.
April 2006 59
(Arb LM, 4.06, 1) (06.14.001)
Serious irregularity - tribunal’s failure to deal with issue Section 68 of the Arbitration Act 1996
provides that an arbitration award made in
England and Wales may be challenged on
the grounds that a serious irregularity has
occurred, causing substantial injustice to
the applicant and affecting either the
tribunal, the proceedings or the award.
Section 68 is designed as a `long stop’ to
deal with those extreme cases where, for
one reason or another, something has
gone seriously wrong with the arbitral
process. The section is a mandatory
provision, so the parties cannot contract
out of the right to challenge awards on
one or more of the nine grounds laid
down in the section. One such irregularity
is the tribunal’s failure to deal with all the
issues that were put to it (s68(2)(d)). This
particular ground reflects the previous
common law position that an award which
does not deal with all the issues referred to
the arbitrators may be remitted to the
arbitrators with a direction to remedy the
deficiency. It has been considered in some
detail in several recent cases, most recently
by Colman J in World “Trade Corp v
Czarnikow Sugar [2005] 1 Lloyd’s Rep
422. The provision came once again
before the Commercial Court in the
decision of Morison J in Fidelity
Management SA and others v Myriad
International Holdings BV [2005] EWHC
1193 (Comm), a case arising out of a
series of contracts relating to pay-TV
services in Greece.
(Arb LM, 4.06, 3) Louis Flannery of
Howes Percival (06.14.002)
Public policy and failure to deal with all issues Langley J in Protech Projects Construction
(Pry) Ltd v Al-Kharafi & Sons [2005] EWHC
2165 (Comm) was faced with two
challenges under s68 of the Arbitration
Act 1996 to a series of awards arising out
of a construction dispute. The first
challenge asserted that the successful
party had withheld material facts at the
arbitration, and that this amounted to a
serious irregularity. The second challenge
was to the award of costs. Both
challenges were dismissed, Langley J
emphasising the exceptional nature of s68,
the need to show serious prejudice and
the importance of the court being vigilant
to ensure that s68 was not used to
challenge an award on its merits on what
was in reality an error of law.
(Arb LM, 4.06, 6) (06.14.003)
Enforcement of arbitral awards - enforcement against the assets of sovereign states The State Immunity Act 1978 confers
various immunities on sovereign states and
central banks, both as regards being sued
in the English courts and having judgments
against them being enforced in the English
courts. In AIG Capital Partners and others
v The Republic of Kazakhstan [2005]
EWHC 2239 (Comm) the claimants sought
to enforce in the English courts an award
obtained against the defendant issued by
an ICSID Tribunal under a bilateral
investment treaty. The relevant assets
against which enforcement was sought
were held in England on behalf of the
defendants central bank. After a lengthy
April 2006 60
analysis of the 1978 Act, Aikens J
concluded that the award could not be
enforced against those assets.
(Arb LM, 4.06, 8) (06.14.004)
Firm grip on disputes London is in the forefront of providing
international arbitration. So how are city
law firms responding to the increase in
demand? The author reports.
Law Society Gazette, 16.3.06, page 18, C
Timmis (06.14.017)
Exchange of fire How can lawyers control the disclosure of
electronic documents in litigation? Big
business can help, says the author.
Law Society Gazette, 16.3.06, page 20, R
White (06.14.018)
What to e-disclose The authors report on electronic disclosure
of documents in commercial litigation.
Solicitors Journal SJ, 17.3.06, page 318 A
Rien & C Wilkinson (06.14.021)
Worth the wait? Final JMLSG guidance As the dictionary man Samuel Johnson
wrote, “No mind is much employed upon
the present; recollection and anticipation
fill up almost all of our moments.” I trust
that your moments on the last day of
January were as breathless as mine, writes
the author as she checked obsessively the
Joint Money Laundering Steering Group
(JMLSG) website for the arrival of the
finalised Guidance Notes. More correctly
titled “Prevention of Money
Laundering/Combating the Financing of
Terrorism: Guidance for the UK Financial
Sector” (but henceforth referred to as the
GN), they appeared in mid-morning and I
put my poor printer to work on their 295
pages. I then placed the finalised edition
alongside the consultative version
published in March 2005, and this article
focuses on the differences between the
two.
Money Laundering Bulletin, 03.06, page
10, S Grossey (06.14.032)
Seeking consent The decision last year in the case of
Squirrell Limited-v- National Westminster
Bank and HM Revenue and Customs [2005] WEHC 664 brought into sharp
focus the tension that exists between the
civil and criminal law when issues of
money laundering arise, the author, who
worked on the case, highlights the current
dilemma that firms in the UK financial
sector have to contend with and considers
the appropriate steps that a firm should
take when seeking consent to undertake a
transaction which it suspects may involve it
dealing in criminal property.
Money Laundering Bulletin, 03.06, page
15, D Allen (06.14.034)
Who is the client? An exploration of legal professional privilege in the corporate context This article concerns the extent to which
communications, made between a
company and its legal advisers, may be
subject to “legal professional privilege”.
More specifically, it is concerned with the
extent to which legal professional privilege
does, and should, attach both to
communications via which internal organs,
April 2006 61
officers or employees of a company
provide information to the company’s legal
advisers (in order that the legal advisers
can provide the company with effective
legal advice) and to communications via
which legal advice obtained by a company
is dissesiminated, as appropriate, to its
internal organs, officers or employees (in
order that the advice received can
effectively be implemented within the
company). The position in relation to
partnerships and limited liability
partnerships is also considered.
M Stockdale 8, R Mitchell: Co Law, 4.06,
110 (06.14.044)
Phoenix rising: Corporate Insolvency, Occupational Pensions, Pension Protection Fund, Reconstructions Looks at the emergence of compromise
deals whereby, instead of winding up a
company and putting its pensions scheme
into the hands of the pension protection
fund (PPF), the business is restructured and
the PPF takes a stake in the new company
in exchange for its pension debts. Notes
that such agreement took the place of
Bradstock agreements used to prevent
insolvency by writing off the pension
deficit. Refers to the case of Heath
Lambert. Considers criticism of such deals.
Pensions World Pen. World (2006) Vol.35
No.4 Pages 42-43, Gary Cullen (Maclay
Murray & Spens)
The valuation of distressed companies A conceptual framework part 1
It is crucial to assess the value of a
distressed company. This article in its first
part identifies the bases on which a
company’s business might be valued. It
draws on economic theory, empirical
evidence and principles evolved by the US
courts. It explains why you might adopt
one of these bases rather than another. It
distinguishes between the structural and
the strategic factors giving rise to
problems.
M Crystal and R Mokal International
Corporate Rescue Vol 3 Issue 2 2006 page
63
TXU-CVAs v s425 Schemes In the insolvency of the TXU group, the
distribution and exit procedure chosen to
conclude the administrations and
liquidation of the holding Companies was
the CVA. Some creditors challenged the
Holding Company CVAs - why were CVAs
chosen and was this a misuse of the office-
holders discretion on exit procedures?
P Wallace and S Berwick International
Corporate Rescue Vol 3 Issue 2 2006 page
69
An overview of Canada’s new insolvency regime G Moffat International Corporate Rescue
Vol 3 Issue 2 2006 page 74
Identifying creditors for Schemes and CVAs In recent years, the unusual characteristics
of asbestos related diseases have given rise
to a number of difficult legal issues: the
role of causation in the assessment of
culpability, the significance of minimal
damage in tort, and the meaning of the
word “creditor” in s 425 CA 85 and Part 1
of the IA 1986.
April 2006 62
S Robins International Corporate Rescue
Vol 3 Issue 2 2006 page 78
Competition law issues in insolvency and restructuring
In an increasing number of cases, business
rescue and turnaround professionals are
having to consider competition and anti-
trust issues when conducting rescues,
workouts and restructurings. Such issues
have potential to arise in any restructuring,
especially those involving a debt-equity
swap or where a business of the troubled
company is sold to a competitor. Part 1 of
this article reviews some typical situations
in which competition provisions become
important to rescue professionals before
examining merger control and the failing
firm defence in Part 2.
P Taylor International Corporate Rescue
Vol 3 Issue 2 2006 page 90
Articles from Global Turnaround April 2006
Western banks bankrupt Yukos oil giant The beleaguered Yukos oil company went
into bankruptcy in Moscow at the end of
March after a group of 14 Western banks
petitioned for its insolvency and then sold
their debt to Rosneft, a state-controlled
rival. Page 1
Dana Corporation is latest auto casualty A short piece on another American Tier
One supplier of auto parts succumbing to
Chapter 11. Page 2
Refco victory for customers The customers of the insolvent securities
broker will benefit from an imposed
settlement by the court unless other
creditors reach a consensual agreement to
deadline. Page 2
Heitkamp on the brink A very short stop-press on the imminent
bankruptcy of one of Germany’s biggest
construction and mining companies. Page
3
How Gate Gourmet escaped bankruptcy The rescue from near certain bankruptcy
of Gate Gourmet, one of the biggest
airline catering companies, has been a
talking point across the industry in the last
year. The company which prepares
530,000 airline meals a day and employs
22,000 people across 29 countries in five
continents suffered from two historic
legacies: high wage costs relative to the
market and an expensive contract with BA,
its main customer in the UK.
Two views of the turnaround are
presented here: one from the advisers to
the mezzanine investors and the other
from counsel for the company. Page 6.
Collins & Aikman sale closes C&A became Europe’s biggest-ever COMI
filing last July when the US auto-parts
maker’s European subsidiaries entered a
single England-based insolvency covering
ten countries. This March, the
administrators sold most of the European
companies to Wilbur L Ross, the New
York-based investor who is helping to lead
the consolidation of America’s auto parts
industry. Page 8
Heros cash crunch The largest cash transportation company in
Germany went into “preliminary
April 2006 63
insolvency administration” at the end of
February after police raided offices
following a fraud tip-off. The insolvency
affects Commerzbank and Deutsche Bank.
Page 10
A changing environment The pre-action protocols introduced by the
CPR aim to persuade litigants to settle
disputes outside the court arena. This not
only saves time and money but also helps
to focus minds. The author outlines the
trends.
P Marco: EG, 11.3.06, 147 (06.15.009)
Court hands down judgment on discontinued case Law Now 13 April 2006
Three Rivers District Council and others v Bank of England
[2006] All ER (D) 175 (Apr), [2006] EWHC 816 (Comm)
An unusual court ruling handed down on
12 April 2006 has cast a new light on
what the worst outcome can be when you
begin litigation. Once litigation is started,
it will not be in your sole control to finish it
by merely discontinuing the action and
paying the costs of the other side.
For the first time, the court has given
judgment even though the trial had not
run its full course. Litigants should be
aware that this may give rise to results
they had not previously anticipated,
particularly if their case raises issues of
reputational risk.
In this case, the liquidators of BCCI had
already discontinued the 256-day trial
against the Bank of England and agreed to
pay the Bank’s legal costs on an indemnity
basis (the highest level available). A
claimant might have been forgiven for
believing that this was the worst outcome
it could achieve. However, the liquidators
had made serious allegations of dishonesty
against 42 senior officials of the Bank but
did not apologise or withdraw their
allegations. The allegations had been so
serious that the Bank asked the court to
explain in a formal ruling why it was
entitled to costs on an indemnity basis.
The court went into detail in criticising the
legal case and the way the litigation had
been conducted and ruled that the grave
allegations made against 42 named
officials of the Bank were unfounded.
http://www.law-now.com/law-
now/2006/discon2006.htm
Ruth Pedley, Duncan Aldred, Rita Lowe
Insolvency does not affect final date for payment The author reports on a decision of the
Scottish Court of Session which overturns
an earlier Commercial Court decision
concerning payment and determination
under the JCT 98 standard form, and the
Construction Act. Employers’ rights to
withhold money from insolvent contractors
is called into question. Melville Limited (In
Receivership) v George Wimpey UK Limited and Norwich Union Insurance Limited
S Frame: Cons Law, 3.06, 23 (06.16.019)
TUPE Regulations 2006 After much delay, new Regulations
revising and replacing the Transfer of
Undertakings (Protection of Employment)
Regulations 1981 have finally been
April 2006 64
published. This guidance note sets out the
resultant changes to the law on the
transfer of undertakings and examines the
reasons behind them.
(Dr J McMullen: IRLB, 03.06.5) 06.15.025
The valuation of distressed companies A conceptual framework part 1
It is crucial to assess the value of a
distressed company. This article in its first
part identifies the bases on which a
company’s business might be valued. It
draws on economic theory, empirical
evidence and principles evolved by the US
courts. It explains why you might adopt
one of these bases rather than another. It
distinguishes between the structural and
the strategic factors giving rise to
problems.
M Crystal and R Mokal International
Corporate Rescue Vol 3 Issue 2 2006 page
63
TXU-CVAs v s425 Schemes In the insolvency of the TXU group, the
distribution and exit procedure chosen to
conclude the administrations and
liquidation of the holding Companies was
the CVA. Some creditors challenged the
Holding Company CVAs - why were CVAs
chosen and was this a misuse of the office-
holders discretion on exit procedures?
P Wallace and S Berwick International
Corporate Rescue Vol 3 Issue 2 2006 page
69
An overview of Canada’s new insolvency regime G Moffat International Corporate Rescue
Vol 3 Issue 2 2006 page 74
Identifying creditors for Schemes and CVAs In recent years, the unusual characteristics
of asbestos related diseases have given rise
to a number of difficult legal issues: the
role of causation in the assessment of
culpability, the significance of minimal
damage in tort, and the meaning of the
word “creditor” in s 425 CA 85 and Part 1
of the IA 1986.
S Robins International Corporate Rescue
Vol 3 Issue 2 2006 page 78
Competition law issues in insolvency and restructuring
In an increasing number of cases, business
rescue and turnaround professionals are
having to consider competition and anti-
trust issues when conducting rescues,
workouts and restructurings. Such issues
have potential to arise in any restructuring,
especially those involving a debt-equity
swap or where a business of the troubled
company is sold to a competitor. Part 1 of
this article reviews some typical situations
in which competition provisions become
important to rescue professionals before
examining merger control and the failing
firm defence in Part 2.
P Taylor International Corporate Rescue
Vol 3 Issue 2 2006 page 90
April 2006 65
Technical TUPE regulations A debate started by R3 on the probable
confusion that will be caused by the new
TUPE regulations is being canvassed
amongst Insolvency Law Association
members. If you would like to see the R3
arguments against the drafting of the
regulations, see doc 21708878.
Financial Collateral Arrangements There is some discussion of amendments
to the UK regulations this summer. Her
Majesty’s Treasury are said (by the
Insolvency Service) to be considering
whether to disapply more sections of the
Insolvency Act (ss 40 and 175) relating to
the priority of preferential debts. The City
of London Law Society Financial Law
Commission are writing to suggest areas
for reform. One suggested is that each
Member State be allowed to do away with
the attempt to define “control” to avoid
problems with re-characterisation. It is
suggested a Member State should be free
to provide that any floating charge over
cash or financial instruments is a security
financial collateral arrangement, without
the need to satisfy any control or
possession test.
The dematerialisation of shares and share transfers: a proposal to remove the requirement for paper share certificates and stock transfer forms
This ICSA consultation paper sets out
proposals to introduce an electronic
system to replace paper share certificates
and stock transfer forms throughout the
United Kingdom. This process is generally
known as ‘dematerialisation’. In order to
obtain the greatest efficiencies and
economies of scale the proposal also
suggests that this change be made
mandatory across the securities industry.
The consultation closes 30 June 2006 and
is available at
<http://www.icsa.org.uk/demat/pdf/Condo
c-process-FinalDraft1.pdf> (ICSA, April
2006)
Choice Gift Vouchers: distributions by administrators In a recent application by the
administrators of Choice Gift Vouchers
Limited (10 March 2006, unreported), Patten J granted permission to make a
distribution to unsecured creditors under
paragraph 65(3).
The Judge considered Re GHE Realisations
Limited (2006) 1 WLR 287, in which Rimer
J stated that, upon applications for
permission under paragraph 65(3), the
court should have regard to the following:
1.the sufficiency of funds to make the
proposed distribution;
2. whether the administrator proposes
an exit from administration into
voluntary liquidation under paragraph
83;
April 2006 66
3. whether the administrators'
proposals, as approved by creditors,
had included a proposal to make a
distribution to unsecured creditors; and
4.whether the proposed distribution
was consistent with the functions and
duties of the administrator and any
proposals made by him.
In Re GHE Realisations Limited Rimer J was
also mindful of the objective of the
administration in question of "achieving a
better result for the company's creditors as
a whole than would be likely if the
company were wound up (without first
being in administration)" and of the
administrator's duty to perform his
functions in the interests of the company's
creditors as a whole (paragraph 3(2)).
Patten J approved the making of an
interim distribution of 50 pence in the
pound on the grounds that:
the administrators had sufficient funds
to make the distribution;
the creditors had approved the
proposed distribution;
most of the unsecured creditors had
been identified; and
the administrators had made a prudent
provision for unidentified creditors.
However, upon reviewing paragraph 65(3)
of Schedule B1 to the Insolvency Act, the
Judge was of the view that permission
ought properly to be limited to the
proposed interim payment, but not for
general distributions, as the court ought to
retain a degree of control as to the
distribution process.
This was an unusual application in that it
was made within 6 weeks of the
commencement of the administration.
Hence, the exit route consideration raised
in Re GHE Realisations Limited was not as
significant as would be likely in a later
stage application. It is also worth
reminding members that this was a first
instance, ex tempore decision. However, it
is interesting to see the distinction drawn
between authority to make a payment as
distinct from a general authority to make
distributions.
ILA Technical Bulletin:
Administrations...early payments and early
terminations 18 April 2006
67
Notices Resource page on Leyland Daf The Insolvency Lawyers’ Association has
created a section on the ILA website for
materials on the Leyland Daf issue.
It contains:
1. Clause 868 of the Company Law
Reform Bill, proposing to insert section
174A into the IA 1986;
2. "Liquidation Expenses and Floating
Charges - The Separate Funds Fallacy",
a paper delivered by Rizwaan Mokal at
the ILA Conference, 18 March 2006;
3. "Reversing Buchler v Talbot - the
Doctrinal Dimension of Liquidation
Expenses Priority", Look Chan Ho,
Butterworths Journal of International
Banking and Financial Law, March
2006;
4. A paper from the Insolvency Law
Committee of the City of London Law
Society ("CLLS"), dated 13 March 2006;
and
5. A letter from the Financial Law
Committee of the CLLS to The
Insolvency Service, dated 5 January
2006.
All these documents have been mentioned in the Bite in earlier weeks. I have the password to the site.
http://www.ilauk.org/members/bulletins/Ap
ril06_03.htm
SOCA Steps Up Action on Money Laundering.
The Serious Organised Crime Agency have
announced a review of the way in which
Suspicious Activity Reports (SARs) are
handled. The review's key recommendation
is that SOCA should take overall
responsibility for the effective functioning
of the SARs regime.
Suspicious Activity Reports (SARs) are
submitted by banks, estate agents,
accountants and lawyers when they
suspect money laundering or terrorist
financing have been or may be taking
place.
The review makes 24 recommendations to
improve the system, primarily focusing on
the role of SOCA as the regime's Financial
Intelligence Unit (FIU) responsible for
ensuring the effective functioning of the
regime. These recommendations include
improving the underpinning IT, improving
the training and guidance provided by the
FIU and facilitating better dialogue
between the regime's participants.
The review also recommends that SOCA
should establish comprehensive
governance and performance management
frameworks and commit to submitting a
publicly available annual report of the
regime to Ministers.
Serious Organised Crime Agency 19 April
2006.
68
Editor: Ruth Pedley, Professional Support Lawyer, Banking and Corporate Recovery Teams, CMS Cameron McKenna LLP.
Please contact Ruth for further information or feedback on this bulletin: [email protected]
020 7367 2098
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