Fortress Value Recovery Fund I LLP v Blue Skye Special Opportunites Fund LP & Ors

On strike-out and summary-judgment applications, a court should not determine complex fact-sensitive issues summarily where there is a real prospect that fuller evidence will affect the outcome. Under the Rome II Regulation, the place of direct damage and any manifestly closer connection must be assessed with care. The exceptional escape clause in article 4(3) may require consideration of the whole factual picture.

Section 423 of the Insolvency Act 1986 has a broad scope. The relevant claimant need not be the specific creditor whom the transaction was intended to defeat, and sufficient connection with England is a discretionary, fact-sensitive question. A secured creditor’s claim for diminution in the value of its security is arguable as a claim distinct from reflective loss.

The claimants were investors and lenders in an investment structure centred on an English limited partnership. They alleged that the defendants had dishonestly reorganised the structure, diminishing their interests and security. The applications sought strike-out, summary judgment on the applicable law of tort claims, and opposition to amendments.

The principal issues were whether the applicable law could be decided summarily under the Rome II Regulation; whether the claim for diminution in the value of loan security was barred by the rule against reflective loss; whether claims assigned under a security assignment were arguable; whether amendments could be made despite Stepstone’s Luxembourg insolvency; whether claims under sections 423 to 425 of the Insolvency Act 1986 were sustainable; and the costs consequences of discontinued claims.

1. Applications generally. The strike-out and summary-judgment procedures were inappropriate for resolving disputed factual questions or conducting a mini-trial. The applicable threshold was whether the claims were bound to fail or lacked a real prospect of success.
2. Applicable law of tort. The court declined to decide summarily which law governed the tortious claims. The claimants had a real prospect of establishing that the Fund was run from London, that direct damage occurred in England, or that the torts were manifestly more closely connected with England under article 4(3) of the Rome II Regulation. The issue required disclosure, evidence and, if necessary, cross-examination.
3. ZBS loss. The claim that the value of ZBS’s security had been diminished was arguable. A secured creditor was materially distinguishable from an unsecured creditor for reflective-loss purposes, and the pleaded claim was properly analysed as diminution in the value of security rather than reflective loss.
4. Security assignment. The wording of the assignment, including rights connected with the assigned property and the wide definition of Rights, made it arguable that all relevant contractual and non-contractual claims had been assigned to Fortress. Construction should not be decided before disclosure and evidence where the clause formed part of a network of related transactions.
5. Stepstone’s insolvency. Article 15 of the Insolvency Regulation governed the effect of the Luxembourg insolvency on proceedings pending in England. The English court was therefore to apply English procedural law when deciding whether the indemnity amendments could be made. The analogy with article 27 of the Judgments Regulation was rejected. Permission to amend was granted.
6. Sections 423 to 425. Section 423(3) was not confined to direct claims by the particular person bringing proceedings. The statutory concepts of a person who may make a claim and a victim were broad enough to encompass indirect claims. Sufficient connection with England was a discretionary question depending on all the circumstances and was unsuitable for summary determination. The claims were fully arguable.
7. Costs and disposal. The defendants were entitled to the usual costs of the discontinued claims, to be assessed at the conclusion of the proceedings. Subject to that order and the later determination of the Actio Pauliana claim, the applications were dismissed and the proposed amendments were permitted.