Whether “transactions defrauding creditors” applies to a debtor transferring assets through a company - Supreme Court’s judgment El-Husseini v Invest Bank

In El-Husseiny v Invest Bank PSC [2025] UKSC 4, the Supreme Court considered whether section 423 of the Insolvency Act 1986 extended to a transaction involving a company owned by a debtor transferring a valuable asset for no consideration or at an undervalue.

The bank sought to enforce Abu Dhabi judgments against Mr El-Husseini, the debtor, in the UK for around £20 million in respect of credit facilities granted by the Bank to two companies connected with him. The bank alleged that Mr El-Husseini had arranged for assets (including a property at 9 Hyde Park Garden Mews) in the UK to be transferred to one of his sons (Ziad El-Husseini) in order to put them beyond the bank’s reach, or to reduce the value of his shares in the companies which owned them. Legal and beneficial title to the property was transferred to Ziad for no consideration. As such, Mr El-Husseini’s shareholding was correspondingly reduced in value, and the bank’s ability to enforce the judgments was adversely affected to the tune of £4.5 million. 

The bank sought a remedy under section 423. This grants wide discretionary powers in respect of a individual who enters into transactions at an undervalue (or no value) for the purpose of putting assets beyond the reach of their creditors or other persons who are making, or may make, a claim against it. Unlike most of the vulnerable transaction measures (e.g. transactions at an undervalue and preferences), this remedy applies regardless of whether a company is in administration or liquidation, or not.

The issue on appeal was whether the transfer of the assets - belonging to, and effected by, the company owned and controlled by Mr El-Husseini - cannot be a “transaction” within the meaning of section 423(1) due to the separate legal personality. 

Lady Rose and Lord Richards dismissed the appeal (with whom Lord Hodge, Lord Hamblen and Lord Stephens agreed). The Supreme Court held that there can be a “transaction”, under section 423, even though the assets were not beneficially owned by the debtor. Thus, it can extend to a type of transaction in which the debtor arranges for a company owned by him to affect the transfer for no consideration or at an undervalue.

In my view, this was an easy appeal. The approach of Lady Rose and Lord Richards (hereafter Lady Rose) was the preferred approach. Mr Daniel Warents, appearing for the appellants, had a very difficult take. He produced creative arguments focusing on minutiae which were ultimately specious for failing to account for the bigger picture and Occam’s razor.

The plain language of section 423

As a matter of statutory construction of the language of section 423, Lady Rose had no difficulty in finding that Mr El-Husseini’s transfer was within the broad definition of a “transaction” under section 423(1). Section 436(1), in turn, made clear a very broad conception vis-a-vis a “transfer”. It also did not help counsel of the appellants - including Mr Graham Virgo - that there was no express requirement for the debtor to dispose of property belonging to him. Furthermore, Lady Rose held (at [37]) that section 423 had to be understand in light of the mischief being addressed. 

To my mind, it was very straightforward that the interpretation would be inconsistent with the appellant’s appeal, both purposive and textual. Afterall, the transfer did plainly prejudice the creditor’s ability to enforce the judgment (s. 423(3)(b)) and/or put the assets beyond the reach of the bank (s. 423(3)(a)).

The three textual contortions within sections 423—425

Mr Warents submitted three interesting textual analysis arguing the section 423 required the disposal of property belonging to the debtor.

Firstly, Mr Warents - relying on Spellman v Spellman [1961] 1 WLR 921 - sought to argue that the scope of “transaction” under section 423 ought to be understood as (1) a “person making a gift”; and, consequently, (2) like a gift, involved the transfer of a proprietary interest by the debtor. This was a difficult submission to make. 

Lady Rose held (at [43]) that narrowing the concept of a “transaction” to a gift (giving rise to its particular legal significance) was a strained reading which was unsupported by authority or academic commentary. In my view, Her Ladyship was right to point out that there was no sense to forcing the notion of a “transfer” within the conceptual framework of gifts in law. Indeed, Her Ladyship noted that the reality was precisely the opposite. Relying on Goode and Rebecca Parry’s Transaction Avoidance in Insolvencies, Her Ladyship (at [43]) noted that ”while a gift, by definition, involves the transfer of an asset, transactions which provide for the debtor to receive no consideration do not necessarily entail the transfer of an asset”. This is plainly correct. The surrender of an interest in property must be a transaction too. 

Secondly, Mr Warents then submitted that section 423(1)(a) can only properly operate in circumstances whereby property belonging to the debtor, as the subject matter of the transaction, was being transferred. He submitted that the operation of that section entailed a situation in which the property transfer did not “provide for him” to have received any consideration. This, he submitted, meant that “consideration” under this section could not apply in the general contractual sense (apropos good consideration provided to third parties). Thus, section 423(1)(a) was said to only operate if there was no consideration moving to the debtor which, in turn, required property only belonging to the debtor as being the subject of the transfer.

Lady Rose held (at [47]) that a “transaction” under section 423(1) may include unenforceable promises (agreeing slightly with Mr Warents). Therefore, Her Ladyship rationalised that the undertaking by Mr El-Husseini to transfer the property to Ziad for no consideration, as an unenforceable promise, was consideration (for the purposes of section 423).

Thirdly and finally, Mr Warents then submitted that the bona fide purchaser defence under section 425(2) necessarily entailed an assumption that the relevant transaction involved the transfer of an asset by the debtor. This is because the defence was limited to (1) an interest in property acquired “from a person other than the debtor” (s. 425(2)(a)) and (2) to a person who was not “a party to the transaction” with the debtor (s. 425(2)(b)). This presented a logical conundrum in the instant case. On the facts, Ziad could, if he had paid full value, have relied on the bona fide purchaser defence because Mr El-Husseini did not pass the property. And yet, as the most proximate person to the original transfer, it was submitted that the provision could only logically operate under the assumption that it required a transfer of asset by the debtor. 

This was a subtle and clever argument. However, Lady Rose noted (at [52]) that if such an assumption was entertained by the drafter, then it would have been made expressly. To my mind, this seems to sidestep a lacuna. Her Ladyship did recognise that it “put a third-party recipient in a more favourable position than someone who receives property directly.” Yet, on the other hand, if full consideration were rendered, then the bank would have secured the value of the shares held by Mr El-Husseini against his debt. Those shares would reflect the property sale on the balance sheet. Therefore, as Her Ladyship pointed out (at [52]) “given that Ziad did not pay anything for the house, he is not in any position to mount a defence under section 425(2).” Perhaps not much of a lacuna then?

The purpose of section 423

With respect to the purpose under section 423(3), it must be shown to either (a) put “assets beyond the reach of a person who is making ... a claim against him”, or (b) “prejudicing the interests of such a person in relation to the claim”. Mr Warents read into section 423(1) an implied restriction to its purpose apropos the mischief being targeted. Lady Rose noted, (at [60]) the appellant’s statements of case initially “required a transfer of an asset beneficially owned by the debtor.” 

With respect to the necessity of assets being transferred as a purpose, it was “diluted”, in the words of Lady Rose (at [60]), in respect of “the release of debt owed to the debtor or the surrender of an interest in property, whether gratuitously or at an undervalue” despite not being “property”. This has to be plainly correct.

With respect to the need of a transfer of property belonging to the debtor as a purpose, Lady Rose accepted Mr Paul McGrath’s KC submission on this point. The purpose had to account for the diminution in the value of assets available for enforcement of claims against the debtor (i.e. his shareholding). The plain reading of sections 423-425 did not expressly stipulate property belonging to the debtor as a prerequisite, and the fact that most cases will invariably entail such a transfer was not sufficient reasoning to justify a limitation in respect of all cases. 

The purpose can easily be satisfied in a transaction which does not dispose of the debtor’s own property - but has that effect. Why should the law not realise that? Such a statutory approach is similarly reflected in the common law’s balancing of the corporate personality. In Prest v Petrodel [2013] UKSC 34, the “evasion principle” was held to justify the piercing of the corporate veil. Under that exception, the individual debtor is under an existing legal obligation or liability which they deliberately evade or whose enforcement they deliberately frustrate by interposing a company under their control.

The ambit of “reasonable endeavours” in force majeure clauses - Supreme Court’s judgment in RTI v MUR Shipping

In RTI Ltd v MUR Shipping [2024] UKSC 18, the Supreme Court considered whether - on the interpretation of a force majeure clause - reasonable endeavours required non-contractual performance to “overcome” the impact of a performance impediment.

In 2016, MUR (as shipowner) entered into a contract of affreightment with the charterer RTI. The contract involved the carriage of bauxite over a 2-year period and stipulated payment of freight in US dollars. The contract also contained a force majeure clause. In 2018, RTI became subject to US sanctions. This caused difficulties with respect to timely payments of freight under US dollars. MUR then served notice invoking the force majeure clause. RTI rejected it and offering (1) to pay in euros instead and (2) to bear any additional expense associated with conversion of euros into US dollars. The owners refused affirming their right to suspend performance.

The force majeure clause was as follows:

36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:
(a) It is outside the immediate control of the Party giving the Force Majeure Notice;
(b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;
...
(d) It cannot be overcome by reasonable endeavors from the Party affected.

The issue was whether MUR were entitled to reject the offer of an alternative non-contractual performance and thus rely on the force majeure clause. 

Lords Hamblen and Burrows (Lords Hodge, Lloyd-Jones and Richards agreeing) held, on principle, that the exercise of reasonable endeavours to overcome a force majeure event did not require acceptance of non-contractual performance from the counterparty.

In the realm of interpretation?

Lords Hamblen and Burrows (abridged henceforth as Lord Hamblen) agreed with MUR that clause 36.3(d) was (1) commonly found in force majeure clauses in similar terms, and (2) that its interpretation should be “addressed as a matter of principle”. As such, the word “overcome” should mean no more and no less than its equivalent usage and understanding under the general law.

To my mind, the approach of Lord Hamblen is correct. The particular clause is entirely boilerplate. In fact, the same word “overcome” is used exactly as in Chitty on Contracts. There are no distinct or unconventional phrases which suggest that parties had intended their force majeure provision to be governed other than in the usual standard way under English law.

However, Lord Hamblen took a view of interpretation (at [25]-[26]) which appeared to sidestep the customary post-Wood “unitary” approach. Only Newey LJ in the Court of Appeal (at [78]) cited Wood v Capita Insurance [2017] UKSC 24 and ICS v West Bromwich [1998] 1 WLR 896. The Supreme Court did not identify what the reasonable person would have understood the provision to mean, considering the contract as a whole, while checking each suggested interpretation against its consequences. 

Lord Hamblen could have adopted a logic comparable to Lord Sumption’s argument (in the 2017 Harris Society Annual Lecture) vis-a-vis “properly drafted language [having] an autonomous meaning.” Lord Hamblen could have drawn a distinction between generic and commonplace provisions in which parties are presumed to have intended them to be interpreted under the general principles of contract law, and those which do not. Alternatively, His Lordship could have fastened his interpretation, admittedly somewhat, on Lord Hodge’s qualification (in Wood at [13]) that contextualism could be sidelined (and textualism taking precedence) if both parties were represented by lawyers and the contract appeared well drafted. (Although, even then, the courts can adopt a purposive contextualism).

Either way, the Supreme Court should have made its rationale plain with respect to the circumstances when the court will adopt an interpretation that yields to general contractual legal principles over the particulars of a given case.

Causation as the object of reasonable endeavours provisos

Lord Hamblen held (at [38] agreeing with Mr Nigel Eaton KC) that “force majeure clauses in general, and reasonable endeavours provisos in particular, concern the causal effect of impediments to contractual performance.” The force majeure event was the banking delay caused by US sanctions. MUR would have been excused from performance unless it could be shown that it could have reasonably prevented the failure of performance. 

Lord Hamblen’s reasoning was that MUR’s acceptance of payment in euros would have had no causal effect on the impediment. The banking delay, arising from US sanctions, would have remained in place despite payment in euros. 

To my mind, Lord Hamblen’s analysis on the centrality of causation vis-a-vis the purpose of reasonable endeavours provisos has to be correct. The corollary net effect would be that reasonable endeavours provisos (which act as an exception to the blanket-rule of excusing performance) would allow the affected party to find ways around the impediment to secure the contractual performance by not securing that performance. As Lord Hamblen held (at [38]) “the object of the reasonable endeavours proviso is to maintain contractual performance, not to substitute a different performance.”

The Gilbert-Ash principle

Lord Hamblen emphasised (at [44]) the importance of parties making it clear (expressly or by necessary implication) that they intend to forego valuable rights. This is so even in the face of reasonable performance to circumvent a problem (as per authorities cited; Bulman & Dickson v Fenwick [1894] 1 QB 179 etc.)

However, His Lordship made interesting obiter comments about the Gilbert-Ash rule (Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689). That rule was regarded as a presumption that if a party elects to surrender some particular remedies, clear words are needed to that effect. That used to mean statute, or tortious rights, or the general law of remedies that apply irrespective of what parties agreed. However, Lord Hamblen (at [45]) held, albeit obiter, that it may extend to valuable contractual rights (within the broader contract as a whole):

We do not think it greatly matters whether the applicable principle is that set out in Gilbert-Ash or an analogous principle applicable to valuable contractual rights.

This is interesting because it seems to be a new rule introduced by analogy. It suggests that parties to a contract with valuable rights in a given section need to bear in mind the need to expressly forgo them in a different section.

Freedom of contract and certainty

Lord Hamblen’s emphasis on party autonomy and certainty are a salutary and valuable reminder of the much preferred approach to contract law. As His Lordship held (at [42]) that the “freedom not to contract includes freedom not to accept the offer of a non-contractual performance.” It is interesting that this critical point of non-contractual obligations eroding party autonomy was not made in the Court of Appeal or by Jacobs J.

With respect to certainty, MUR’s approach was crystal-clear. In contrast, RTI’s two-limb test would involve an assessment of whether (1) acceptance of non-contractual performance involved no detriment to the party seeking to invoke force majeure, and (2) achieved the same result as the contractual performance. 

Lord Hamblen sensibly noted the inherent uncertainty and vagueness in these tests. What counts as detriment? How much detriment? Over what time scale of detriment (i.e. long-term consequential losses)? What if there are more than one result or purpose to an obligation? Is it the main or the dominant purpose which we are concerned with? These are difficult questions of evaluation which hinder parties ability to predict reasonably where they stand in the event of force majeure. 

The scope of contextual analysis in contractual interpretation - Supreme Court’s judgment in Sara & Hossein v Blacks Outdoor

In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2, the Supreme Court considered, and extended, the ambit of contextual analysis in contractual interpretation to advance a meaning that was not advocated by either party. 

Blacks rented retail premises from Sara & Hossein (“S&H”). The dispute concerned the interpretation of the service charge provision in the commercial lease. Each year, S&H should provide Blacks with “a certificate as to the amount of the total cost and the sum payable by the tenant and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive” (under paragraph 3 of Schedule 6). In particular, the clause stated that the certificate would be “conclusive” as to both amounts. Other relevant paragraphs under Schedule 6 include:

• paragraph 6 which stipulates the method of expert determination as it relates to disputes concerning the proportionate allocation of service charges between tenants; and
• paragraph 8 which gives tenants the right to inspect invoices and receipts for the period of 12 months.

The issue before the courts was whether the certificate was “conclusive” as to (1) the costs incurred by S&H, and (2) the sum payable by Blacks.

Lord Hamblen, leading the majority, introduced a novel approach to construction. Considering the contextual factors, His Lordship formulated a “middle ground” construction which favoured S&H’s interpretation, but which granted Blacks a means of contesting the extent of their liability at a later point following payment.

Lord Hamblen’s approach is highly problematic and is emblematic of a difficulty in the development of the law as it relates to contractual interpretation. There have been a multitude of cases going all the way to the Supreme Court and Court of Appeal in the past two decades. We can probably expect more in the future now. 

The two approaches to contractual interpretation

Since ICS v West Bromwich [1997] UKHL 28, the prevailing theory of contractual interpretation is that the meaning of a provision may be discoverable by reference to its context (as opposed to the quondam literal approach). Following West Bromwich, there are now two rival approaches to modern contractual interpretation with respect to contextual evidence. For the purposes of this analysis, I have described these as either the “textualism-focused” approach in Arnold v Britton [2015] UKSC 36 or the “unitary” approach in Wood v Capita Insurance [2017] UKSC 24.

The “textualism-focused” approach starts, as Lord Neuberger explained in Arnold (at [15]), by “focussing on the meaning of the relevant words” such that the “clearer the natural meaning the more difficult it is to justify departing from it” (at [18]). This is because, as Lord Sumption explained (in the 2017 Harris Society Annual Lecture), “the language of the parties’ agreement, read as a whole, is the only direct evidence of their intentions which is admissible.” Once the courts have weighed the viability of the parties’ competing constructions vis-à-vis the plain meaning of a provision, then the courts will consider the three contextual factors. In Arnold, Lord Neuberger (at [15]) listed the factors in a specific order to assess the objective intention of parties. They include (1) the contractual context (i.e. other provisions and overall object), (2) the factual context (i.e. the surrounding circumstances) and (3) commercial common sense. Indeed, Lord Neuberger noted in Arnold (at [17]) that “commercial common sense and surrounding circumstances ... should not be invoked to undervalue the importance of the language of the provision which is to be construed.”

The “unitary” approach in Wood postulated that ascertaining the objective intention required both the plain meaning and the contextual factors to be considered together (i.e. not sequentially) and their weight and importance was dependant on the particular case. In Arnold, Lord Hodge explained (at [76]) that contractual interpretation was “not a matter of reaching a clear view on the natural meaning of the words and then seeing if there are circumstances which displace that meaning.” As such, Lord Hodge held, in Wood (at [13]), that “textualism and contextualism are not conflicting paradigms in ... the field of contractual interpretation”. They were, His Lordship argued (at [13]), simply “tools to ascertain the objective meaning.”

The problems in the Blacks judgment

It was accepted by Richards LJ (as he then was) in the Court of Appeal (in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWCA Civ 1521) and Lord Briggs in his dissent in the Supreme Court that S&H’s interpretation was the natural and ordinary meaning. This seems a plain and obvious conclusion. Indeed, Richards LJ commented (at [21]) that the strained formulation of Black’s meaning required “express words to that effect or a necessary implication”. Under Arnold, the court would have assessed the meanings advanced by the parties, and only then balance the contextual considerations (if necessary). Since the weight of the contractual agreement and language used has been relegated post-Wood, a meaning need not necessarily be advanced by the parties. In my view, this is a logical corollary.

This in turn raises a number of problems.

Firstly, it is not at all clear that something has gone wrong in the drafting. In Blacks, Lord Hamblen argued (at [48]) that the language of the relevant provision was inconsistent with paragraphs 6 and 8. However, it is fallacious to assume that the mere existence of a dispute resolution mechanism in respect of the apportionment of the service charges among tenants would necessarily entail a similar mechanism for everything else in the landlord’s certificate. This point was made by Lord Briggs (at [67]) in his dissent in Blacks, and Lord Hamblen never engaged with that argument in explaining why that assumption was correct or appropriate. A further purported inconsistency by Lord Hamblen (at [48]) was that it would “be most surprising for the parties to agree that they could be determined conclusively by the landlord without representation or recourse.” However, it is not at all “surprising” when one considers, as Lord Briggs explained (at [69]), that “it is not at all uncommercial that the landlord should have wished, and insisted, on limiting the available grounds for such disproportionate litigation.” Richards LJ made a similar point in the Court of Appeal (at [24]) that “a tenant would be well advised to consider very carefully before agreeing a lease in these terms.” Instead, Lord Hamblen simply wrote-off S&H’s approach as being uncommercial (at [48]). It is worth recalling a point made by Lord Sumption (in his Harris Society Annual Lecture) that what the courts regard as commercial common sense can merely be the court’s formulation of fairness:

... judges’ notions of common sense tend to be moulded by their idea of fairness. But fairness has nothing to do with commercial contracts. The parties enter into them in a spirit of competitive cooperation, with a view to serving their own interest. Commercial parties can be most unfair and entirely unreasonable, if they can get away with it.

Another point made by Lord Sumption is that the words of a provision can have autonomous meanings. This point is worth bearing in mind because the search for inconsistencies and an arbitrary conception of commercial common sense makes the line between rewriting the bargain very hard to pinpoint. This case seems to demonstrate that a party can, under the guise of contextual considerations, invoke possible meanings as genuine “rival” interpretations to rewrite the bargain. 

Secondly, Lord Briggs criticised the majority approach of Lord Hamblen for adopting a meaning to paragraph 3 that was not advocated by either party. The problem here is that respecting party autonomy (and, thus, the objective intention) requires taking the parties’ purported intentions seriously as the logical starting point in the analysis. That is why the obligations in the written contract are so important. As Lord Briggs pointed out (at [61]) the court otherwise acts “carte blanche simply to make up a solution of its own.” In my view, the post-Wood “unitary” approach makes it much easier for the court to rewrite the bargain.

Thirdly, certainty and predictability are undermined if parties cannot be confident their bargains will be given effect - particularly with ingenious counsel. Furthermore, this evaluative process risks turning the approach to construction into a subjective assessment. In Blacks, the Court of Appeal adopted one meaning, and then the Supreme Court adopted an entirely different meaning.

Fourthly, in the Supreme Court, there was a division as to the commercial common sense factor. Lord Hamblen associated it with cash-flow exigencies for the landlord. Whereas Lord Briggs recognised the desire to avoid costly litigation instead. Lord Briggs argued that what Lord Hamblen held was uncommercial was in fact plainly commercial common sense. Since judges cannot agree on what constitutes commercial common sense, Neuberger LJ admonition in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 is apposite:

Judges are not always the most commercially-minded, let alone the most commercially experienced, of people, and should, I think, avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood.

In conclusion, the dissent of Lord Briggs was the more preferable approach. Overall, the law is overdue a return to the methodology articulated in Arnold. It provided a more considered theoretical structure between textualism and contextualism.

The contractual interpretation of an adjective paired to a list of nouns - Court of Appeal’s judgment in Cantor Fitzgerald v Yes Bank

In Cantor Fitzgerald & Co v YES Bank Limited [2024] EWCA Civ 695, the Court of Appeal considered the extent to which an adjective paired to a list of nouns qualifies them all.

In this case, the relevant word can be found in the letter of engagement:

We have been advised by the Company that it contemplates one or more financing(s) through the private placement, offering or other sale of equity instruments in any form, including, without limitation, preferred or common equity, or instruments convertible into preferred or common equity or other related forms of interests or capital of the Company in one or a series of transactions (a “Financing”).

Falk LJ held that the adjective at the start of a list of nouns qualifies them all. 

It was held that the “reader will naturally tend to assume that an adjective or determiner at the start of a list qualifies the entirety of it.” I agree with this formulation. In a sentence that reads “I would like to sponsor intelligent charities, people and plans”, as a matter of English ordinary usage, the word “intelligent” can only rationally apply to each item.

A further point was made by Falk LJ that to avoid such an interpretation, “parties did nothing to counter that natural interpretation, whether by omitting the word “private”, including the word “public”, changing the order of the list or otherwise.” It must stand that to avoid a list of nouns being modified by the first adjective, you could change the word order or introduce a different adjective to the second noun (thereby breaking the pattern).

Assessing the merits test in applications for freezing injunctions - Court of Appeal’s judgment in Dos Santos v Unitel

In Dos Santos v Unitel [2024] EWCA Civ 1109, the Court of Appeal had to determine the standard required to assess whether an applicant for a worldwide freezing injunction (WWFI) had satisfied the requirement of a “good arguable case” on its substantive claim. There were two rival standards argued in the court. They were either:

1. “good arguable case” explained as “more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 percent chance of success.” (as per Mustill J in The Niedersachsen [1983] 2 Lloyd’s Rep 600 [605]); or
2. “the better of the argument” apropos the three-limb test of Lord Sumption in Brownlie [2017] UKSC 80 (in the context of jurisdiction for service out) for the purposes of WWFI. This logic was argued by counsel to be based on Haddon-Cave LJ’s judgment in Lakatamia Shipping v Morimoto [2019] EWCA Civ 2203 (at [38]).

The Court of Appeal easily held that the standard of assessing the “good arguable case” was The Niedersachsen approach. After settling that, the court also held that, henceforth, it would be more helpful to ask whether there is a “serious issue to be tried” in the context of interim injunctions.

In my view, the judgment of the court and the analysis by Sir Julian Flaux is undoubtedly the preferable approach.

The Niedersachsen approach

Firstly, Mr Daniel Margolin KC, for the Appellant, argued that the jurisdiction-related threshold of the “good arguable case” was “imported” into the freezing injunction jurisdiction in Mareva [1975] 2 Lloyd’s Rep 509. As such, and according to that logic, the WWFI was ipso facto intended to have the same test as jurisdiction. The Mareva injunction was originally devised to prevent a foreign defendant from removing their assets beyond the jurisdiction of the English courts. However, the logic of Margolin’s KC argument completely negates the ensuing development of the law in respect of freezing injunctions. For example, Babanaft International [1990] Ch 13 extended the prevention of “judgment-proofing” to foreign assets held by the respondent if the respondent was subject to the English court’s in personam jurisdiction. Sir Julian Flaux properly argues this point whilst also reminding the Court of the various changes to the law on jurisdiction. 

Secondly, Sir Julian Flaux points out that the threshold of a jurisdictional gateway and the merits for granting a freezing injunction are necessarily designed to hit two different targets. For a freezing injunction, the court will be determining the merits at trial in the future. For service out, the court will be determining conclusively whether the case falls within a jurisdictional gateway (at [99]). So, only in the latter context, it would seem more rational to ask who has “the better of the argument”. As Butcher J argued in Magomedov v TGP [2023] EWHC 3134, the Brownlie approach required a relative assessment of the parties’ positions on the merit comparable to a mini-trial. This would be entirely inconsistent with the nature of interlocutory applications (often ex parte). Therefore, Sir Julian Flaux argued it would not only unsuitable, but “invidious” to expect applicants to summon a greater degree of evidence (at [100]). Often a WWFI is sought because of some fraud or bad faith, and it would cause injustice to the applicant to be burdened with greater work as well as the courts. 

Thirdly, Sir Julian Flaux argued that the underlying rationale of Haddon-Cave LJ in Lakatamia (at [35]-[38] in Lakatamia) did not “suggest that the Court was intending to change the law and substitute the three-limb test from Brownlie” (at [103]). Speaking for myself, those passages in Haddon-Cave LJ’s judgment are rather unclear. Para 38 (apropos Brownlie) does not seem to directly engage with para 37 (apropos The Niedersachsen). In fact, his Lordship expressly recognises Brownlie in the “context of jurisdictional gateways” (at [38]). All-in-all, Flaux LJ has to be correct. We cannot draw a change in the law merely from this authority. 

In my view, a further argument in favour of the lower The Niedersachsen approach is the existence of cross-undertakings by the applicant to the respondent and third parties in a WWFI. There is also the “high” duty of full and frank disclosure and the utmost good faith towards the court (as per Alliance Bank v Zhunus [2015] EWHC 714). Mr Margolin KC submitted that a higher burden is justified because of the “invasive nature” WWFI. However, the “invasive nature” of WWFI is militated by the English courts demanding undertakings to compensate the respondent if the applicant loses on the merits, alongside the duty of full and frank disclosure. Thus, the lower merit threshold seems entirely justified. 

Nomenclature

Flaux LJ considered that there is an “imperceptible” difference between The Niedersachsen approach to the “good arguable case” and the “serious issue to be tried” test for American Cyanamid. He argued that “the two tests should be equated” (at [106]). Popplewell LJ agreed, finding “it is no different in substance” (at [122]).

In my view, The Niedersachsen “good arguable case” (i.e. “more than barely capable of serious argument” - AKA for me: more than only just arguable) is practically identical to the summary judgment “realistic prospect of success” test (i.e. more than merely arguable). Furthermore, the American Cyanamid test “a serious question to be tried” is also capturing the same concept. All that is required is that a “claim has substance and reality” - no matter whether claimant’s prospects of success are 20% or 90%.

The court’s approach of consolidating these scrambled areas into a single conceptual framework is a sensible clarification. Thus, it seems we should be using “serious issue to be tried” as the merit test for WWFI henceforth, as Popplewell LJ argued:

That being so, it would be preferable to use [a ‘serious issue to be tried’] in the context of freezing orders and to restrict the use of the expression ‘good arguable case’ to the context of jurisdictional gateways, where it bears a different meaning in accordance with the principles explained in Brownlie.

Determining the market value of goods when assessing damages - Supreme Court’s judgment in Sharp v Viterra

If a buyer breaches a sale of goods contract by not accepting the goods, how are damages calculated? Should damages be based on either (1) the value of the goods that could have been sold, or (2) the value of the goods at the market where these goods were actually sold.

In Sharp v Viterra [2024] UKSC 14, the Supreme Court considered whether the quantification of damages as “the actual or estimated value of the goods, on the date of default” (under sub-clause (c) of the GAFTA standard form contract) involved either (1) the positing of a hypothetical substitute contract on the same terms as the parties’ contract save as to price, on the date of default; or (2) the valuing of the actual goods left in the seller’s hands “as is where is”. 

Viterra (the Appellant) sold consignments of lentils and peas to Sharp, the buyers (the Respondent). They were Cost & Freight free out (C&FFO) Mundra sales contracts dated 20 January 2017. They were governed by a GAFTA Contract terms. The buyers did not pay for the goods as required prior to the vessel’s arrival at Mundra. Attempts were made to extend payment terms via installments. Parties agreed that the buyer would discharge, customs clear and store the goods in a warehouse at Mundra, but they could not remove them from the warehouse without the seller’s written consent. After the goods had been cleared customs; in November and December 2017, the Government of India imposed significant import tariffs on peas and lentils. The buyer was then found liable to the seller for non-acceptance of the goods. The date of default was found to be 2 February 2018.

The issue was whether the seller’s damages were assessed by imagining a new identical contract of sale to someone else save for the price, or assessed on the real-world value of the goods the seller was stuck with.

Lord Hamblen gave the unanimous judgment of the court. The Court held that, since the seller still had the goods as the buyer refused acceptance, the measure of their loss was directly tied to what the buyer can actually do with the goods to which they had possession. Their loss is not the difference between the original contract price and a new hypothetical price. 

I will focus on the point about mitigation and damages.

Mitigation and acting reasonably

The Court emphasised (at [83]) the twin pillars of the law of damages: the compensatory principle and the principle of mitigation. Thus, the law of damages required the “injured party to take all reasonable steps to avoid the consequences of a wrong” (at [84]). Indeed, the two principles work together because the measures of damages requires a “deemed mitigation” (at [90]).

Lord Hamblen appears to be clarifying Bunge. (Bunge held that damages need to account for post-breach events which were bound to occur, and did in fact occur, between breach and assessment of damages). His Lordship extended the compensatory principle in Bunge v Nidera [2015] UKSC 43 and The Golden Victory [2007] UKHL 12 to account for mitigation. The rationale is that the market substitute concept is really an aspect of mitigation. Lord Hamblen quoted Andrew Dyson and Adam Kramer (at [85]) that “damages are assessed as if the claimant acted reasonably, if in fact it did not act reasonably”. This seems very persuasive. The question of taking reasonable steps in mitigation is the other side of the coin of compensatory damages.

Chirag Karia KC, for the Buyer, argued that it did not make sense to contemplate, for the purposes of assessing damages, some other goods abstracted. This is slightly reminiscent of Lord Sumption’s distinction (at [21] in Bunge) between valuing the goods that would have actually been sold and valuing the contract as an article of commerce in itself. It seems entirely misleading, in my view, for the courts to lose sight of the actual goods at the time of breach and where they are situated.

So, the proper question (at [100] in Sharp) is to consider which market would be reasonable for the seller to sell the goods. 

Lord Hamblen argued (at [113])that postulating a notional substitutive contract would be “contrary to the compensatory principle as it leaves out of account the fact that the Sellers were left with goods on their hands which had benefited from a significant uplift in value”. In my opinion, this mirrors the point made by Lord Scott in The Golden Victory (at [36] and quoted approvingly by Lord Sumption in Bunge) that it offends the compensatory principle to disregard subsequent events which serve to reduce or eliminate the loss suffered. It’s a similar point, albeit in a different context. 

As such, Lord Hamblen’s judgement is a logical extension of the underlying momentum and rationale in Bunge and The Golden Victory in seeking the actual loss by elevating the principle of mitigation.

No sidestepping the common law rules of enforcement for foreign bankruptcy orders - Supreme Court’s judgment in Kireeva v Bedzhamov

Can a Russian bankruptcy order, under the English common law, force the sale of a property owned by a debtor in London?

In Kireeva v Bedzhamov [2024] UKSC 39, the Supreme Court considered - where recognition of foreign bankruptcy proceedings is granted - whether the English courts can exercise their discretion to allow a foreign trustee to dispose of an immovable property.

The Respondent (Mr Bedzhamov) was a Russian national who left Russia in 2015. He has lived in England since 2017, where he is now domiciled. In 2015, he purchased a property in Belgravia, London. In 2018, a Russian court declared the Respondent bankrupt and appointed the Appellant (Ms Kireeva) as the new “financial manager” to realise the assets of the Respondent for judgment debts of over £30 million. This position is comparable to the English equivalent of a trustee in bankruptcy. The Appellant succeeded in getting recognition at common law of the Russian bankruptcy order and her appointment as the Respondent’s trustee.

The issue before the Supreme Court was whether the Appellant should be granted an order entrusting the Belgravia property to her for the benefit of his creditors.

Lord Richards and Lord Lloyd-Jones delivering the judgment (with unanimous agreement), upheld the supremacy of the “immovables rule”. Thus, even if the property is deemed part of the bankrupt’s estate under Russian law; as a matter of English substantive law, the Respondent’s “interests in the Property are unaffected by the Russian bankruptcy order” (at [69]). As such, an English court cannot “take steps to deprive the Respondent of his interests in the Property” (at [69]).

I think this is a sensible decision which affirms that the rules of private international law are not trumped by the exigencies of insolvency-related proceedings. I will discuss three points of interest. When discussing the judgment, I will use Lord Richard as a “short form” for the joint judgment of Lord Lloyd-Jones and Lord Richards.

The immovables rule as a substantive rule

In the Court of Appeal in Kireeva v Bedzhamov [2022] EWCA Civ 35, Arnold LJ - relying on Rule 132 of Dicey, Morris & Collins on the Conflict of Laws - held that the immovable rule was a choice of law rule. In his analysis, it was a procedural rule that informed the court’s approach as to the law that governs questions concerning rights to immovables in England (at [110]). 

In the Supreme Court, Lord Richards held (at [69]) that the immovables rule was a substantive rule of English law. His Lordship argued (at [25]) - citing Rule 140 of Dicey - that “a foreign court has no jurisdiction to make orders in respect of land in England and Wales”. He argued (at [30]) that the immovables rule was a matter of public policy reflecting “territorial sovereignty”. As such, it drew on principles of comity in private international law. So, for example, an English court will not give effect to judgments or order “purporting to affect property situated outside the foreign state” (at [33]).

In my opinion, Lord Richard’s analysis has to be correct. Rule 132 of Dicey frames the lex situs as a matter of procedural law. But, that is an incomplete picture. Normally, the question of the governing law invites an analysis of the connecting factors. Instead, the immovables rule gives a clear, direct and singular answer apropos the governing law of the immovable. It is clear and singular because it is a substantive rule of law. It’s the corollary of the inherent uniqueness of land and its centrality to sovereignty which is necessarily impinged by foreign orders.

The making of in personam order against the Respondent

In the Court of Appeal, Arnold LJ argued (at [113]-[114]) that, notwithstanding the immovables rule, “the English courts should exercise their own powers ... to [make] an order in personam against Mr Bedzhamov”. Stephen Davies KC, for the Appellant, argued (at [67]) that “she had a legal or equitable interest in respect of which assistance could be given ... to give effect to her rights and duties”.

In his judgment, Lord Richards argued (at [69]) that, because the immovables rule is part of substantive English law, the English courts do not have any discretion to affect any such interest in land.

Once again, Lord Richard’s rationale has to be commended. If the effect of an in personam order changes the Respondent’s interest in his property then it simply contravenes the law. The Supreme Court also gave short shrift to the (slightly embarrassing) Appellant authority of Re Kooperman [1928] WN 101. It purported to give a Belgian trustee authority over all of the bankrupt’s English land. It has been rightly overruled.

Modified universalism

Lastly, it was argued that the principles of modified universalism ought to help the Appellant.

In Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2006] UKPC 26, Lord Hoffmann articulated three broad principles of modified universalism. The propositions were summarised by Lord Sumption (at [15]) in Singularis Holdings Ltd v PricewaterhouseCoopers (Bermuda) [2014] UKPC 36:

The first is the principle of modified universalism, namely that the court has a common law power to assist foreign winding up proceedings so far as it properly can. The second is that this includes doing whatever it could properly have done in a domestic insolvency, subject to its own law and public policy. The third (which is implicit) is that this power is itself the source of its jurisdiction over those affected, and that the absence of jurisdiction in rem or in personam according to ordinary common law principles is irrelevant.

Over the years, there has been a retraction of these principles.

Firstly, in Rubin v Eurofinance SA [2012] UKSC 46, Lord Collins (for the majority) rejected Lord Hoffmann’s third suggestion that a judgment in insolvency proceedings falls into a separate category of different enforcement rules which is also treated as the source of the right. As such, where there is a conflict (in that case, for avoidance judgments), Rubin is authority that there are no special rules for foreign insolvency proceedings. The ordinary principles of recognition of foreign judgments apply. Lord Richards, in this case (at [106]), described it as a “decision based on constitutional, rather than insolvency, considerations”.

Then, in Singularis, further restrictions tightened around Cambridge Gas beyond Rubin. The Privy Council rejected Lord Hoffmann’s second suggestion. A domestic court cannot exercise a common law power to apply foreign insolvency legislation “as if” they applied as domestic law. Or, to apply domestic legislation “by analogy” to foreign insolvencies. Once again, no special rules for foreign insolvency proceedings. The court’s common law power to assist was subject to local law and local public policy. The English courts could only ever act within the limits of their own statutory and common law powers.

Lord Richards argued (at [103]) that the immovables rule was “a matter for Parliament and not for the courts”. He noted that the only exceptions to this rules were statutory (namely, section 426 of Insolvency Act 1986 and the Cross-Border Insolvency Regulations 2006) which suggests judge-made law would be an inappropriate method of removing the jurisdictional element (at [105]). Moreover, it bore on considerations of national sovereignty (at [103]).

To my mind, Lord Richards could have also argued that his judgment was in line with the momentum of the Supreme Court in recent times to accept the underlying rationale behind modified universalism (as per Lord Sumption in Singularis) while also affirming that foreign insolvency proceedings does not justify sidestepping the common law rules of private international law.

Finally, I think the English courts should be affirming the jurisdiction of the English courts in principle. It should be protecting defendants against a bankruptcy court’s universal jurisdiction.