In a judgment handed down on 20 January 2023 in Phoenix Group Foundation v Harbour Fund II LP [2023] EWCA Civ 36, the Court of Appeal upheld Mr Justice Foxton’s ruling at first instance that certain financial instruments and the steps taken pursuant to them had not given rise to an equitable assignment of future shareholder distributions from various offshore companies. That conclusion meant that Phoenix was unable to invoke the equitable priority rules so as to secure those distributions for itself, rather than the distributions falling into a trust created by a litigation funding agreement in favour of Harbour.
The background to the dispute was a series of complex transactions, including the transfers of shares in those offshore companies, which had been procured by blackmail and bribery, and further attempts to shelter those shares through the use of nominees (which was considered by Foxton J during a 7 week trial in 2021 and subsequent judgment in SFO & Anr v LCL & 46 Ors / Re Smith, summarised here).
The appeal concerned two financial instruments which formed part of a package giving effect to a settlement of Commercial Court proceedings which was concluded in 2016, namely a Loan Note and the Liquidation Inter-Creditor Settlement Agreement. The question was whether those documents, and steps taken pursuant to them, effected an outright equitable assignment of the future shareholder distributions which would follow the winding up of the offshore companies by their liquidators (which process was not complete and the time and has not yet been completed even today).
The Court of Appeal agreed with Foxton J that they did not do so. In a judgment which is valuable for its clear statement of the principles involved in considering whether an equitable assignment has taken place, in particular in the context of future property which does not exist at the time the transaction(s) in question have been concluded. The Court of Appeal also rejected an alternative argument that it was appropriate to understand the transaction as having effected an assignment by way of security.
Those findings meant that the Court of Appeal was not required to deal with the issues arising on the Respondents’ Notice, which amongst other things would have required consideration of the true nature of rights arising under a trust (i.e. whether there is only ever one ‘beneficial interest’ or whether there can be multiple, competing equitable interests, which in the event of conflict, are given effect to by following the equitable priority rules).
The judgment of the Court of Appeal is available here.
Richard Hoyle (led by Daniel Saoul KC of 4 New Square) appeared on behalf of Harbour and the other Settlement Parties, instructed by Adam Zoubir and James Cockburn of Harcus Parker Limited.
