Sibir Energy Ltd & Ors v Slocom Trading Ltd (& Ors) (2014)
There had been no errors of law or unsustainable findings in a judge's ruling in favour of the claimants in their claim for breach of contract.
The appellants (E, M and T) appealed against a judge's finding ((2012) EWHC 3464 (Ch)) in favour of the respondents (S and D) in their claim for breach of contract.
In 2010, T sold a villa for €70 million to M as part of an elaborate mechanism whereby the entire value of the villa was to be conferred on E, as part-settlement of E's claim that it had been defrauded of sums in excess of US$400 million by its then director (X) who had been the ultimate beneficial owner of the villa. S and D sought to prevent the sale. S claimed to be a secured creditor of T, as assignee from D of the benefit of a loan agreement between D and T, together with security including a pledge of X's shares in T and an equitable mortgage over the villa pursuant to an assignment agreement. S brought claims that the sale of the villa amounted to an actionable interference by E and M with its rights as assignee and a breach by T of the loan agreement. S also claimed against M that the villa continued to be subject to the equitable mortgage created by the loan agreement. D was joined as co-claimant. The judge found in S and D's favour.
E, M and T submitted that the judge should not have rejected their claims at trial (1) that the loan agreement was a sham as his factual finding, that X and his financial adviser (H) had formed a subjective intention that T would substitute for him as debtor under his existing loans from D, was not supported by the pleadings or the evidence; (2) that the assignment agreement was voidable as a fraud on creditors under the Insolvency Act 1986 s.423.
(1) The judge identified and applied the relevant law applying to sham transactions. His finding that X and H had reached the subjective common intention, that T should replace X as debtor, had to be seen in the overall context. The burden of proof in relation to sham lay with E, M and T and they had not proved their case as to subjective intention. Their submission, that the judge's factual finding about the formation of a subjective intention had not been pleaded, was misconceived. It was their burden to plead and prove the facts necessary to sustain that allegation by way of defence. The case put by S and D lay at the opposite extreme to E, M and T's case. It was commonplace in civil litigation for the judge to find that the truth lay somewhere in the middle. There was an evidential basis for the judge's finding and there was no procedural unfairness (see paras 55, 58-59, 64, 66, 70-71, 74 of judgment). (2) The judge rejected E, M and T's case that the assignment agreement could be re-opened under s.423 because, in his view, it was not a transaction at an undervalue. The judge rightly rejected their various arguments. His conclusion was logical and inevitable and involved no errors of law or unsustainable findings. It represented simple business-like common sense (paras 78, 84, 87, 97).
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17 Jun 2014
Court of Appeal
Sir Terence Etherton, Tomlinson LJ, Briggs LJ
LTL 17/6/2014 :  EWCA Civ 831