A China Hustle? The Cayman Islands Court Says: “No” – Rupert Coe and Mark Baldock assist Cayman Islands firm Claritas in successful Grand Court Fraud Proceedings

20 September, 2023

On 17 August 2023, The Honorable Mr Justice Kawaley handed down judgment in the matter of Fortunate Drift Limited v Canterbury Securities, Ltd (FSD 227 of 2018) following a two-week trial in the Grand Court in June 2023. Three Stone members Rupert Coe and Mark Baldock assisted Katie Pearson of Cayman firm, Claritas, in successfully acting for the Plaintiff, Fortunate Drift Limited (“FDL”). The team was led by Stephen Atherton KC of Twenty Essex. The 76-page judgment is available here.

FDL is a BVI company, whose principals are based in Hong Kong and mainland China.  The Defendant, Canterbury Securities, Ltd (“CSL”), is a Cayman-registered company doing business in the Cayman Islands.  CSL is a “registered person” under the Securities Investment Business Act (2020 Revision). FDL deposited shares in a NASDAQ-listed company, “Listco”, with CSL in August 2018.

In order to help FDL obtain finance, CSL introduced FDL to PFS, Ltd (“PFS”) as a potential purchaser of Listco shares. Following the introduction, FDL and PFS, with the assistance of CSL, signed a Stock Purchase Agreement (the “SPA”), whereby PFS purchased 1,144,584 shares in Listco from FDL for US$10,000,000.  The SPA was governed by Nevada law.

The SPA contained a put option allowing PFS to put the purchased shares back to FDL.  FDL agreed to leave sufficient shares in its account with CSL to cover its obligations under the Put Option, if it was exercised by PFS.

In the events that unfolded between the conclusion of the SPA in August 2018 and December 2018:

  • FDL discovered that the owner of PFS was Erin Winczura, who was also “the face of CSL” (Judgment, paragraph [11]). Previously, CSL “gave the impression it was a neutral actor in the transaction and made it impossible for FDL to identify any connection between CSL and the ‘third party’ purchaser before it was committed to consummating the transaction” (Judgment, paragraph [61](d)).
  • FDL suspected that PFS had waived the Put Option by selling the purchased shares, and therefore sought the return of the Listco shares deposited in its account with CSL. Whether or not the Put Option was waived is the subject of separate proceedings before the Nevada courts.
  • On 6 and 7 December 2018, CSL sold a portion of FDL’s Listco shares for US $19,959,397.18, supposedly to protect PFS’ position should the Put Option be exercised. CSL claimed that the need to sell was precipitated by the publication of an article by the notorious US-based short seller Hindenburg Research, which alleged that Listco was a fraudulent scheme to siphon money away from U.S. public markets. At the time, Hindenburg Research itself held a short position in Listco.

FDL issued proceedings against CSL seeking relief for:

  • Breach of fiduciary duty in failing to disclose the connection between CSL and PFS arising out of Ms Winczura’s interests in both companies.
  • Breach of duty and/or conversion of FDL’s shares because it sold shares on 6 and 7 December 2018 without FDL’s authority.

CSL defended the claim on a number of bases, the most prominent of which was that FDL was not entitled to relief because it was party to Listco’s alleged “fraudulent scheme to inflate the price of its publicly traded shares artificially” (Judgment, paragraph [106]). CSL had suggested in the course of the trial that the context of this case was similar to that explored in documentary “The China Hustle”, which “exposed the way in which some Chinese companies listed on the US Stock Market fraudulently exploited the greed of Western investors hoping to make easy profits through investing in China” (Judgment, paragraph [3]).

In the event, Kawaley J found as follows:

  • CSL did owe FDL fiduciary duties “which obliged it to disclose that PFS was a closely connected entity and act in good faith to FDL with a view to mitigating any relevant conflicts of interests” (Judgment, paragraph [61]). That was a finding of particular note, given the reticence of the law to impose fiduciary duties on experienced commercial actors who are parties to a commercial relationship.
  • CSL breached those duties by “failing to disclose and failing to effectively mitigate the very significant conflicts of interest when it decided to liquidate the Collateral Shares in early December 2018” (Judgment, paragraph [63]).
  • CSL breached its contractual duties to FDL in failing to return the portion of FDL’s Listco shares which would not have been needed to cover the Put Option (which the Judge concluded was at least 45% of the shares which FDL had deposited with CSL) (see Judgment, paragraphs [64]-[76]).
  • CSL breached its contractual duties to FDL in selling the shares on 6 and 7 December 2018 because it did so contrary to the instructions on which CSL held the shares (Judgment, paragraphs [77]-[96]).
  • Subject to hearing CSL’s counsel if justice required it, FDL’s alternative claim for conversion of its shares in Listco succeeded (Judgment, paragraph [97]-[101]).

In finding for FDL, Kawaley J rejected CSL’s allegations of fraud, holding that the “pivotal allegation that FDL was engaged in the fraudulent scheme has not been proven” (paragraph [129]).

The upshot of the Judgment is that FDL was successful so far as CSL’s liability to it was concerned. The question of what specific relief it is appropriate to grant will be determined at a further hearing.

Rupert Coe and Mark Baldock assisted Cayman Islands firm Claritas in these successful Grand Court Fraud Proceedings.  If you would like more information, please contact Justin Brown.


Daria Gleyze obtains permission to appeal to the Court of Appeal

23 August, 2023

Daria Gleyze has recently appeared for the Claimant on a novel and complex point of law in respect of worldwide freezing injunctions (in an art law, company and civil fraud context). The judgment was handed down by Marcus Smith J and can be found at Santina Ltd v Rare Art (London) Ltd (t/a Koopman Rare Art) [2023] EWHC 807 (Ch).

In short, the Claimant is a company registered in the Seychelles which holds art and antiques. The Defendant is a world-leading antique silverware dealer. The Claimant alleges that the Defendant misrepresented (fraudulently, negligently or innocently) the provenance, ownership history and value of a pair of French antique silver-gilt soup tureens (fancy soup bowls which were sold for more than £180,000).

There were several interim applications before trial, determined in favour of the Claimant and some resulting in costs orders for the Claimant. The Defendant sought security for costs and its application came before Deputy Master Glover only 4 weeks before trial. Somewhat surprisingly, given the lateness of the hearing and the (at least partly) culpable delay by the Defendant, the Deputy Master made an unless order for security for costs (Santina Ltd v Rare Art (London) Ltd (t/a Koopman Rare Art) [2022] EWHC 3513 (Ch)). The Claimant obtained permission to appeal this order.

Some 4 months after the hearing before the Deputy Master, as the parties were awaiting the decision on the permission to appeal application, the Defendant applied without notice for a worldwide freezing injunction against the Claimant, to restrain the Claimant from taking the tureens out of the jurisdiction and/or dealing with them. The Defendant based the application on the (unsatisfied) security for costs order. The freezing injunction was granted ex parte and came before Marcus Smith J on the return date, which was a substantive hearing joined with the appeal and heard over two days.

There were many issues in dispute, which can be gleamed from the two judgments. On the freezing injunction, Marcus Smith J acknowledged the Claimant’s argument that the Defendant did not have a cause of action, but he held nevertheless that an unsatisfied security for costs order in the Defendant’s favour “is the essential equivalent of a cause of action” which could found jurisdiction. The Judge also restrained the Claimant from selling the tureens in order to raise funds to pay the security for costs.

The Claimant appealed to the Court of Appeal, who gave permission on four grounds: “The Appellant has a real prospect of success on four grounds: first, that no order should have been made since the Respondent has neither a cause of action nor an order for costs (other than for £14,000) in its favour … secondly, that the Respondent had failed to establish a real risk of dissipation …; thirdly, that no order should have been made because the proceedings were stayed; and fourthly, that there was no basis for preventing sale of the tureens in the absence of a proprietary claim”.

Daria continues to appear as sole counsel for the Claimant and will represent it in the Court of Appeal.

Daria Gleyze

Mark Watson-Gandy appointed to the Legal Services Panel for the government of the Virgin Islands

4 August, 2023

Mark Watson-Gandy  has been appointed to the Legal Services Panel for the government of the Virgin Islands

Mark specialises in the areas of insolvency, company, banking and private international law.

Mark is also a member of the Bars of the Eastern Caribbean (BVI) and DIFC (Dubai).

He is one of the Editors of the Butterworths Corporate Law Service and is the author of “Personal Insolvency Practice”, now in its 3rd edition.

Professor Subedi elected an Honorary Fellow of Exeter College, Oxford

5 July, 2023

Three Stone Chambers are pleased to announce that one of its barristers, Professor Surya P. Subedi, OBE, KC, DCL, has been elected an Honorary Fellow of Exeter College of Oxford University by the College’s Governing Body. It is the highest honour that Exeter College can bestow and is reserved for individuals who are both distinguished in their field and who have also contributed to society more generally. 

Professor Subedi obtained his DPhil in Law at Oxford in 1993 and was awarded Oxford University’s highest academic degree, Doctor of Civil Law , by the University of Oxford in 2019. He was made an OBE in 2004 and appointed a Queen’s Counsel (QC) (Hon) in 2017.  

Professor Subedi is a leading international lawyer whose expertise covers a number of areas of international law, including international investment law, international trade law, the law of the sea, international land and maritime boundary disputes, international environmental law, international watercourses law, and international human rights law.

See: Oxford University News

Is mediation suited to the resolution of insolvency litigation?

29 May, 2023

Stephen Baister, Katherine Hallett and Matthew Marsh take a look at whether and how mediation works in relation to the existing insolvency legislation.


The question of the suitability of mediation in insolvency litigation still arises, even though it has established itself for some years now as a tool for the settlement of insolvency cases. Why?

Nature of insolvency proceedings: class proceedings

The first reason is the nature of insolvency proceedings. They differ from much other litigation because insolvency proceedings are often not concerned simply with the interests of two opposing factions. Even when they are, they remain class proceedings, although often below the surface rather than obviously so. The concept of insolvency proceedings as a class remedy is a consequence of the collective nature of the proceedings, although it is not mentioned expressly in the legislation.

In Re a company (No 001573 of 1983) [1983] BCLC 492,Harman J described it like this (at p.495):

On a petition in the Companies Court in contrast with an ordinary action there is not a true lis between the petitioner and the company which they can deal with as they will. The true position is that a creditor petitioning the Companies Court is invoking a class right…and his petition must be governed by whether he is truly invoking that right on behalf of himself and all others of his class rateably, or whether he has some private purpose in view.

Whilst a winding up or bankruptcy petition may be the most obvious manifestation of that class principle, it permeates the whole of insolvency. Thus, a person who challenges an office-holder’s decision in her capacity as a creditor must act in accordance with the interests of the class, not simply in her own personal interests. In Lock v Stanley and Edengate Homes (Butley Hall) Ltd [2021] EWHC 2970, when Mrs Lock challenged the liquidator’s decision to assign a misfeasance claim brought against her and other connected parties, relief was refused because (para.40): –

It is obvious from the Application itself and the overall context in which it was made, together with Mrs Lock’s two witness statements in support of the Application, that her interests are not aligned with the interests of the creditors as a whole and her real complaint is with the pursuit of the substantive claims in the Main Proceedings against herself and her family rather than the contractual arrangements between the Liquidator and [the assignee].”

The decision was upheld on appeal at [2022] EWCA Civ 626.

In Re Longmeade Ltd [2016] EWHC 356, Snowden J made the generality of the class proposition clear, in the context of apparently perverse creditor behaviour, as follows (para.52: –

Liquidation is a class remedy to be conducted in the best interests of the general body of creditors as a whole. If creditors are not promoting a view based upon their capacity as such, but are doing so as the result of extraneous factors which are not shared by, or are even contrary to the interests of the remainder of the class, then such views should be discounted or not given effect.

Office-holder’s position as fiduciary

The second reason why some may question whether mediation is suitable in insolvency litigation is that  the office-holder (the most common applicant), whilst often bringing proceedings in his own name or as agent of the company in respect of which he has been appointed, does so as a fiduciary i.e. on behalf of the creditors (or members) in whose interests he must act. (For a discussion on the office-holder as fiduciary see Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 (‘Maxwell’): although the case dealt primarily with office-holders’ remuneration, it remains an important statement on the nature of insolvency offices). In this crucial respect, an office-holder is not simply acting in his own commercial interests, as most parties to litigation are entitled to do.

Should these reasons militate against mediation in insolvency proceedings?

These features of insolvency proceedings need not be an obstacle to mediation: indeed, in many circumstances, they will militate in favour of it.

Many other parties bring claims in a fiduciary capacity. Trustees bring a wide variety of claims in the interests of the beneficiaries whose interests they represent. Personal representatives of a deceased do so as well. Provided they bear in mind the capacity in which they are acting and the attendant duties, mediation may be as proper a course to take as full-blown litigation. Ultimately, office-holders are expected to use good judgment and to make commercial decisions. They do this all the time when they deal with assets in a more concrete form than the asset which a cause of action represents. As Ferris J noted in Maxwell (p.648): –

They are appointed because of their professional skills and experience and they are expected to exercise proper commercial judgment in the carrying out of their duties.

Office-holders are generally entitled to do this without having to look over their shoulders: e.g. Re A Debtor, (No 400 of 1940) ex parte Debtor v Dodwell (Trustee) [1949] Ch 236.

Furthermore, the use of mediation will often be aligned with an office-holder’s fiduciary duties and the obligation to exercise commercial judgment. An early return to creditors may be more desirable than a (possible) better return much later, having regard to litigation risk, the legal costs of proceedings (including irrecoverable costs) and, in most cases, the costs of keeping the relevant insolvency open for a number of years in circumstances in which it could otherwise be concluded. Indeed, early mediation before proceedings are issued can avoid the not insubstantial cost of after the event insurance, which any office-holder would be well-advised to obtain to protect against an adverse costs award.

Nor need the class nature of insolvency proceedings be an obstacle to mediating. Many proceedings brought by an office-holder are, in reality, commercial in nature: they are intended to recover assets or money for the benefit of the insolvency estate. Applications for restitution or other relief arising out of director misfeasance,  a transaction at an undervalue (s 238 Insolvency Act 1986) or a preference (s 239) (or their bankruptcy equivalents), fraudulent or wrongful trading (ss 213 and 214), or transactions in fraud of creditors (s 423) are all as capable of resolution by mediation as any other essentially commercial claim.

Many winding up and bankruptcy petitions, in spite of their quintessentially class nature, are also capable of mediation: in practice the majority involve only two parties, the petitioner and the company or debtor. Where there are supporting or opposing creditors, they will often be aligned with one of the main parties. Petitions may be less susceptible of settlement where the interests of the parties and the nature of their claims differ substantially, as they occasionally do, although even then multi-party mediation remains a viable possibility.

Potential problems resolved

This is not to say that difficulties of another kind may not arise in insolvency cases. Some of these (as in all litigation) go to the stage at which mediation is desirable and the position of a respondent director as a litigant in person (although litigants in person are now a feature of litigation of many kinds).

It may, for example, be unwise for an office-holder to come to mediation without knowing the figure that has to be reached to enable him to bring the winding up or bankruptcy to a conclusion. This is likely to be most relevant where a settlement might enable all creditors to be paid, or even give rise to a surplus. This is a rare situation, but it is not unknown. An office-holder may not have wanted to incur the cost of examining the creditors’ proofs of debt and adjudicating on them. Many do not do this until they have funds to distribute, but it may be wise to do so in cases where it is likely to affect any negotiations. Directors acting both with and without legal support often want to know what the total claims are. At the very least an estimate from the insolvency practitioner in charge is desirable.

Then there are what one might call psychological factors that are peculiar to insolvency cases.  Directors who have “lost everything” often see litigation against them as a form of persecution: liquidation or bankruptcy was supposed to be the end of their problems, not the beginning of even more. That psychological difficulty is compounded where the only asset out of which they can satisfy a claim is their house: having lost their company, they now face losing their home as well.

A particular problem in insolvency cases is the inability of many directors to understand the separate legal personality of what was often a one-man or family company. Many directors have little understanding of their statutory or common law duties, seeing their company as no more than an alter ego. Even those who have some understanding of their duty to shareholders have none of the obligation to creditors when their company is becoming insolvent. An effective mediation may involve explaining this (or indeed the law on misfeasance, transactions at undervalue or preference) simply in an informal setting, with an independent third party assisting.

It can be difficult to persuade a director who is feeling persecuted to go to mediation (and contribute to the costs of doing so). The prospect of early, or any, settlement is not always attractive: keeping one’s head firmly in the sand often seems more appealing, at least in the short term. If common sense and an appeal to certainty do not do the trick, it may be legitimate to remind a refusenik of the potential costs consequences of refusing to mediate. Wales (t/a Selective Investment Services) v. CBRE Managed Services Ltd & Anr [2020] EWHC 1050 is just one recent example in which a significant part of a successful defendant’s costs was disallowed because it had refused to mediate both at the start of the claim and before trial. His Honour Judge Halliwell (sitting as a High Court judge) noted that even if mediation had not fully succeeded, it would have assisted the parties by clearing up some misapprehensions about the case (para.29): –

“[A]t the very least it is likely that some of the obscurities and difficulties which have bedevilled the proceedings could have been avoided.

Finally, it should be borne in mind that many cases brought during an insolvency are not insolvency proceedings properly speaking. An office-holder frequently brings proceedings for breach of contract, in debt (for example where a director’s loan account is overdrawn), or for anything which the company or individual (where the claim has vested) could have claimed. By their nature, such proceedings are as capable of mediation as they would have been if the company had continued to trade, or the individual had not been adjudicated bankrupt, and had decided to litigate.


Insolvency and insolvency related cases are generally speaking as capable of resolution by mediation as any other kind of case. More and more insolvency practitioners are having recourse to it, frequently with success. The question whether pressure from the courts and the judiciary will increase the likelihood of compulsory mediation remains open. In the meantime, the desirability of early settlement and certainty of outcome remain the main factors in promoting mediation along with the potential costs consequences. As the court said in DSN v Blackpool Football Club Ltd [2020] EWHC 670 per Griffiths J (para.28): –

“No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them.”

That must apply equally to a claimant or applicant as it does to a defendant or respondent.

This article was first published in ThoughtLeaders4 FIRE magazine.

Members of Three Stone have extensive experience of both mediation and insolvency litigation.  If you would like to discuss instructing a member of Three Stone, please contact Justin Brown.

Three Stone supports 10,000 Black Interns scheme

9 March, 2023

Three Stone is pleased to support the 10,000 Black Interns scheme and will be welcoming our first intern shortly.

10,000 Black Interns aims to transform the horizons and prospects of young Black people in the UK by offering paid work experience across a wide range of industries, as well as world-class training and development.

Further details can be found on the 10,000 Black Interns website.  Applications re-open in Autumn 2023.

Derivative Claims and Foreign Companies – Three Stone involved in successful first stage permission hearing for permission to continue a claim on behalf of a UAE company

22 February, 2023

On 7 February 2023, Peter Knox K.C. (sitting as a Deputy Judge of the High Court) handed down judgment in Haider v Delma Engineering Projects Company LLC & Ors [2023] 219 (Ch)John McDonnell KC, leading Mark Baldock, appeared for the Claimant, Mr Haider.

This is the first example of permission being granted at the first stage for a claimant to pursue a derivative claim on behalf of a foreign company in England and Wales pursuant to the provisions of CPR rr.19.9A and 19.9C.

Permission was granted at the first stage in respect of a claim for loss under UAE law arising out of alleged frauds of which Delma Engineering, a company also incorporated in the UAE, was the victim. The alleged frauds were perpetrated using letters of credit to extract monies from Delma Engineering, which were then paid away to a vehicle controlled by the Delma Group’s then CFO. It is alleged that some £33m were misappropriated from Delma Engineering using the scheme, which involved procuring letters of credit from Delma’s bankers for the purchase of non-existent goods, which were then made the subject of sham purchase and re-purchase transactions (“repos”). It is alleged that the scheme was orchestrated by a company in London specialising in inventory financing.

The Judge gave directions for a so-called “second-stage hearing”, at which the Court, having heard from any other interested parties, will consider whether or not permission to continue should be granted.

If you would like more information, please contact Justin Brown.

“Bankruptcy: law and practice” co-authored by Stephen Baister published

17 February, 2023

A new, comprehensive guide to bankruptcy has just been published – “Bankruptcy: Law & Practice” (Edward Elgar Publishing).

The book is co-authored by Stephen Baister of Three Stone (previously Chief Registrar of the Bankruptcy Register of the High Court) and Alaric Watson, an experienced insolvency practitioner.

It provides an up to date and in depth analysis of every aspect of bankruptcy law.  It also examines the historical and socio-economic context in which this field of law operates and the policies that govern it, the impact of the death or incapacity of the debtor, the interrelationship between bankruptcy and both matrimonial and employment law as well as various cross-border considerations.

If you would like more information, please click here.

Happy Christmas and New Year

19 December, 2022

Three Stone would like to wish all their contacts a very happy Christmas and New Year.

Professor Subedi KC appointed to the list of arbitrators under the UK-EU Trade and Cooperation Agreement

2 December, 2022

Three Stone Chambers are pleased to announce that one of its leading barristers, Professor Surya P. Subedi OBE, KC, DCL, has been appointed to the list of arbitrators under the UK-EU Trade and Cooperation Agreement (TCA). His name was proposed by the UK Government and approved by the European Union.