Fortress Value Recovery Fund I LLP & Ors v Blue Skye Special Opportunities Fund LP (A Firm) & Ors

The court may order disclosure ancillary to an injunction where it is necessary to police and make the injunction effective. The scope of disclosure must remain proportionate to the injunction’s purpose. An injunction freezing an investment structure does not ordinarily freeze the underlying assets.

Further fortification requires evidence of a sufficient risk of loss; generalised or speculative assertions are inadequate. Security for costs may be ordered where there is reason to believe that a claimant will be unable to meet a future costs order, particularly where assets are illiquid and the claimant is winding down.

An arbitration clause covering disputes arising out of or in connection with an agreement receives a wide construction. A non-party third party beneficiary is treated as a party for disputes concerning enforcement of the substantive contractual right, but not merely because the person may rely on a contractual defence.

The claimants invested in a complex structure holding Italian distressed assets. They alleged that the defendants had dishonestly restructured the investment structure to diminish or eliminate the claimants’ interests. An injunction preserving the structure had been granted without notice and continued at earlier hearings.

At the return hearing, the court considered applications concerning disclosure, further fortification of the cross-undertaking, security for costs, stays under an arbitration clause, amendment, directions and costs relating to an anti-suit aspect of the injunction. The central issues included the proper scope of ancillary disclosure, the evidential requirements for fortification and security, and whether claims against non-parties to the partnership deed fell within its arbitration agreement.

1. Disclosure. The court had power to order disclosure ancillary to an injunction so that it could be properly policed and made effective, as recognised in Motorola Credit Corp v Uzan [2002] All ER (Comm) 945. The existing order required disclosure of the structure in which the assets were held, not the makeup or valuation of the underlying assets. The requested disclosure concerning every investment was disproportionate, particularly because the injunction froze the structure rather than the assets. The application was therefore refused.
2. Fortification. The applicants for increased fortification had to show a sufficient risk of loss. The court had to make an intelligent estimate of likely loss, but the evidence here was general and speculative. Further fortification was refused.
3. Security for costs. The relevant question was whether the claimants would be unable to pay a costs order when it fell due. Net asset value was not determinative where assets were illiquid. The first claimant was winding down, had not undertaken to maintain sufficient cash, and presented a real enforcement risk. Security was ordered, with the claimed sums reduced by 25 per cent.
4. Arbitration. Applying the wide construction required by Fiona Trust & Holdings Corp v Privalov [2007] UKHL 40, the Stepstone claims against the limited partners arose out of or in connection with the partnership deed and were stayed. The claims against the two managers were not stayed. Under the Contracts (Rights of Third Parties) Act 1999, section 8(1), a third party is treated as a party to the arbitration agreement only for disputes concerning enforcement of the substantive contractual right. The managers neither sought to enforce the indemnity nor relied on the exclusion clause. A contractual defence did not determine whether the proceedings were subject to arbitration.
5. The defendant managers’ costs of the earlier anti-suit applications were ordered to be in the case. The court directed the parties to agree the form of order.