The heavyweight

Comprehensive coverage of this month’s banking and insolvency law

April 2006

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

April 2006 6

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: Ruth.Pedley@cms-cmck.com

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