Kallakis v AIB Group Plc & Ors

The court considered an application by the first, second and fifth defendants for summary judgment and/or strike out under CPR 3.4 and CPR 24.2. Key legal issues were whether the claimant had a realistic prospect of succeeding in claims said to be brought (i) in his personal capacity as a beneficiary, (ii) on behalf of the Hermitage Syndicated Trust by assignment or derivatively, and (iii) derivatively on behalf of the struck-off BVI special purpose vehicle companies (SPVs).

The judge applied the familiar summary judgment/strike-out principles (as summarised in Magdeev and authorities such as Easyair and Swain v Hillman) and examined company derivative rules (Companies Act 2006 s.260 and CPR r.19.9), the possible effect of BVI law (including s.184C of the BVI Business Companies Act 2004), and the reflective-loss rule (Johnson v Gore Wood and the Giles v Rhind exception as explained in Marex).

Material subsidiary findings were that: (a) derivative claims advanced on behalf of the SPVs that have been struck off the BVI register had no real prospect and were struck out; (b) the claimant and the Trustee have realistic prospects on personal claims in deceit/negligent misrepresentation and on claims that the mortgagee sold at an undervalue or without lawful authority, subject to the reflective-loss doctrine; and (c) the court could not conclude on the evidence that BVI law or the requirement for BVI court permission (s.184C) definitively barred the derivative route. The Variation Application to permit joinder/substitution of the fifth defendant was granted.

Background and parties. The fifth defendant Allied Irish Bank plc (the Bank) lent substantial sums to 14 BVI SPVs which purchased English properties. The claimant is a beneficiary of the Hermitage Syndicated Trust, which he alleges was the sole shareholder of the SPVs and for which Mr Becker acted as trustee. The Bank sold the properties in November 2008 to purchasers funded by AIB. The claimant sued alleging (i) unlawful seizure and/or misrepresentations causing loss, (ii) sale without legal authority, and (iii) breach of duty to obtain the best price (undervalue sale). The claimant advanced claims in his own right, as assignee of the Trustee, derivatively for the Trustee and derivatively for the SPVs.

Nature of the application. The first, second and fifth defendants applied for summary judgment and/or strike out on the basis that various causes of action had no real prospect of success and that procedural or substantive bars applied (including company/derivative procedure, foreign law permission requirements and the reflective-loss rule). The defendants also sought a variation of a prior order to substitute the fifth defendant for the first and second defendants.

Issues framed by the court. The judge identified and addressed: (i) the standards for summary disposal under CPR 3.4 and CPR 24.2; (ii) whether a derivative claim could be advanced where the subject companies had been struck off the BVI register and whether BVI law required permission under s.184C; (iii) whether CPR r.19.9 and the Companies Act regime applied to foreign-company derivative claims; (iv) the application of the reflective-loss principle and the Giles v Rhind exception as discussed in Marex; and (v) whether any mortgagee duty of sale extended to the Trustee/beneficiaries.

Reasoning and conclusions. The judge accepted that the derivative claims on behalf of the struck-off SPVs had no real prospect and should be struck out because a claim cannot be advanced on behalf of a non-existent legal entity and the necessary route was not established. However, the court would not strike out personal claims of the Trustee (or claims assigned to the claimant) at summary stage: there was insufficient evidence to conclude that BVI permission (s.184C) or the reflective-loss rule definitively barred those claims. On reflective loss the judge found a realistic prospect that the Giles v Rhind exception might apply because the SPVs had been struck off and there was evidence suggesting the companies’ impecuniosity may have resulted from the defendants’ conduct; the judge could not resolve that issue on paper. The court also found that claims in negligent misrepresentation and for an undervalue sale had realistic prospects (recognising authority that, in some circumstances, duties may extend to shareholders/parents). Finally the Variation Application to join/substitute the fifth defendant was granted.

This was a first-instance disposal of a strike out/summary judgment application. The defendants' application was allowed in part and refused in part. The court struck out claims based on derivative actions on behalf of the struck-off BVI SPVs and struck out the claimant's personal fraudulent misrepresentation claim and certain personal claims in relation to the sale and undervalue sale; but refused to strike out the Trustee's personal claims (and claims assigned to the claimant) in negligent misrepresentation and in relation to the alleged undervalue sale and unlawful sale, finding there were realistic prospects of success and that issues of foreign law, causation and reflective loss could not, on the evidence, be resolved against the claimant at summary stage. The Variation Application to permit joinder/substitution of the fifth defendant was granted.