LIC Telecommunications Sarl & Anor v VTB Capital PLC & Ors

Under Luxembourg law, the principle of fraus omnia corrumpit requires a mandatory rule, an intention to evade that rule, and efficient fraudulent means causing prejudice. An indirect shareholder’s economic interest, or a general right not to suffer a tort, is not itself a mandatory rule for this purpose.

The financial-collateral regime does not prevent a post-enforcement claim seeking to reverse a fraudulent pledge enforcement, although the requirements for fraud and the appropriate remedy must still be established. It does not prevent a damages claim arising from fraudulent enforcement. A claimant need not have an enforceable right to participate in a sale process to advance a direct loss-of-chance claim. Questions of causation and certainty remained matters for trial.

The claimants alleged that the defendants had fraudulently engineered the sale of shares in Inter V Investment SARL, which were held by V2 Investment SARL and pledged to VTB Capital PLC as security for a loan.

The claim was governed, for the preliminary issues, by Luxembourg law. The claimants sought damages for diminution of their indirect shareholding and for the loss of an opportunity to participate in the sale process and acquire the shares. They also sought to set aside the sale or obtain declaratory relief.

The court was asked whether those claims were precluded by indirect ownership, the absence of contractual privity or a legal right to participate in the sale process, the Luxembourg law on financial collateral arrangements, and the doctrines of fraus omnia corrumpit and culpa in contrahendo.

1. Nature of the trial. The hearing was a trial of agreed preliminary issues, not a strike-out or summary-judgment application. The defendants bore the usual burden of proving their Luxembourg law contentions on the balance of probabilities. The court was required to determine the issues unless unresolved factual or other difficulties made a preliminary determination inappropriate.
2. Setting aside the sale. Fraus omnia corrumpit requires three elements: a mandatory rule, an intention to evade its application, and efficient means which cause prejudice. The alleged tortious rights and the claimants’ indirect economic interest did not constitute the necessary mandatory rule. The claim to set aside the sale therefore failed at that threshold.
3. The court nevertheless held that the financial-collateral legislation did not create an absolute bar to reversing a fraudulent enforcement after a trial on the merits. Following Pillar Securitisation v New Kaupthing Bank and others (12 July 2017, Judgment no. 132 IV-COM), the financial-collateral regime permits limits where enforcement involved clear fraud or abuse. The principle did not require the pledgor or every party to the underlying agreements to have participated in the fraud. The claimants would have established concert frauduleux if the other elements of fraus omnia corrumpit had been made out.
4. Reflective loss. Luxembourg law barred a claim for loss purely reflective of the loss suffered by the company owning the shares. Fraus omnia corrumpit could not be used to disapply that rule because reliance on reflective loss was not part of the fraudulent act sought to be set aside. The indirect-shareholding damages claim was therefore precluded.
5. Direct loss. The financial-collateral legislation did not bar damages for fraudulent enforcement. The absence of an enforceable right to participate in the sale process did not preclude a direct loss or loss-of-chance claim. Causation and certainty depended on the facts and were matters for trial. Culpa in contrahendo, which limits damages for bad-faith termination of negotiations to reliance loss, did not govern a fraud claim.
6. The question of declaratory relief was left to the consequentials hearing. The answers to Issues (i) and (iii) were broadly “yes”, and the answer to Issue (ii) was “no”.

First-instance determination of agreed preliminary issues. The judgment itself records no prior appellate decision in this litigation.