1 IN THE GRAND COURT OF THE CAYMAN ISLANDS 2 FINANCIAL SERVICES DIVISION 3 CAUSE NUMBER: FSD 11 OF 2013 (AJEF) 4 BETWEEN: 5 NEDGROUP TRUST (JERSEY) LIMITED 6 (As trustee of the Brian Gilbertson Discretionary Settlement, suing as 7 shareholder of the Fourth Defendant, Pallinghurst (Cayman) General 8 Partner LP (GP) Limited) 9 PLAINTIFF 10 AND: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Coram: Hearing Dates: Appearances: (1) RENOVA INDUSTRIES LIMITED (a company incorporated under the laws ofthe Commonwealth nf',;·fhi>· Bahamas) (2) VLADIMIR VIKTOROVICH KUZNETSOV (3) VIKTOR FELIKSOVICH VEKSELBERG (4) PALLINGHURST (CAYMAN) GENERAL PARTNER LP \-~";J.;i LIMITED (5) PALLINGHURST (CAYMAN) GENERAL PARTNER LP (6) PALLINGHURST RESOURCES MANAGEMENT LP DEFENDANTS Mr. Justice Angus Foster Thursday, 2ih and Friday, 28th February 2014 For the Plaintiff: Mr. Michael Bloch, QC (of the English Bar) instructed by Mr. David Butler and Miss Jessica Williams ofHarneys For the 1st to 3rd Defendants: Mr Richard Millett, QC (of the English Bar) instructed by Mr James Eldridge of Maples and Calder RULING L Introduction 1.1 This Ruling concerns an application by the plaintiff pursuant to GCR 0.15, r.12A (2) for leave to continue a multiple derivative action. The first to third defendants have given notice of intention to defend and strongly oppose the application. Rilling -FSD 11/2013 - Nedgrollp Tmsf (JerseJj) v Rellova Industries Limited et aT: Foster 1 Pagel 0/36 1 2 3 4 5 6 7 8 9 10 15 16 17 18 19 20 21 22 23 24 25 26 27 1.2 1.3 The action is very closely related to the litigation: Renova Resources Private Equity Limited v Gilbertson and Four Others [2012J 2 CILR 416 ("the Project Egg litigation"l"the Project Egg action"). The Project Egg action involved the same named parties or closely related persons as the present action and the same investment fund and company/exempted limited pat1nership structure known as the Pallinghurst Structure. The Project Egg action was also a multiple derivative action brought on behalf of the same company by the other 50% shareholder. That action principally concerned breaches of fiduciary duty by MI'. Brian Gilbel1son ("Mr. GilbeI1son") as a director of the company in light of his acquisition of the rights to the well known Faberge brand by diverting them fi'om the Pallinghurst Structure. The present action concems the acquisition and subsequent sale for its own benefit by the first defendant of a shareholding in an Australian mining company and whether or not that acquisition was made as another investment of or for the same investment fund as pat1 of the Pallinghurst Structure. The background to the present action is fully set out in the judgment referred to above ("the Project Egg Judgment"). There were also several other significant contested applications to the cOUl1 in the Project Egg action, some of which are also reported. The principal such application which is most relevant for these purposes was the application by the plaintiff in the Project Egg action, Renova Resources Private Equity Limited ("Renova Resources"), for leave to continue that multiple derivative action on behalf of the same company: see the Ruling in Renova Resources Private Equity Limited v Gilbertson and Foul' Others [2009J CILR 268, ("the Renova leave to continue Ruling"). Ruling -FSD 11/2013 - Nedgrollp Tntst (Jersey) v Renova Industries Limited et al: Foster J Page 2 0/36 1 2 3 4 5 6 7 8 9 10 11 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
The Palties 2.1 2.2 2.3 2.4 I shall describe the involvement of some of the parties in more detail later but, apatt from the first defendant, all of the other five defendants were also named parties in the Project Egg action. The plaintiff is the trustee of the Gilbertson family trusts and in patticular the Brian Gilbertson Discretionary Settlement in Jersey, Channel Islands. The plaintiff was formerly called Fairbairn Trust Limited and was referred to as "Fairbairn" in the Project Egg litigation. In order to avoid confusion I shall also refer to the plaintiff as "Fairbairn" in this Ruling. Autumn Holdings Asset Inc. ("Autumn"), which was the fifth defendant and a counterclaimant in the Project Egg action, is wholly owned by Fairbairn atld is a special purpose vehicle acquired by Fairbairn for purposes of the payment for M1'. Gilbertson's acquisition of the Faberge rights. Mr. Gilbeltson was the principal defendant and counterclaimant in the Project Egg litigation atld according to the Project Egg Judgment he was the directing mind and will of Autumn, through Fairbairn in its capacity as trustee ofthe Gilbertson family tlusts. The first defendant, Renova Industries Limited ("RIL") is a company incorporated in the Bahamas and is a member of the Renova Group of companies ("Renova"). RIL was not itself a patty to the Project Egg action but its associated company Renova Resources was, as I have already pointed out, the plaintiff in that action and Renova was frequently referred to in the Project Egg litigation. The second defendant, M1'. Vladimir Kuznetsov ("Mr. Kuznetsov") is or was at all material times the Chief Investment Officer of Renova. Mr. Kuznetsov was a party to the Project Egg action by virtue of being the second defendant to the counterclaim by M1'. Gilbertson and Autumn. Rulillg -FSD 11/2013 - Nedgrollp Tntst (JerseJj> v Reuova Industries Limited et aI: Foster J Page 3 0/36 1 2 3 4 5 6 7 8 9 10 11 1'~' 7, ' (J Ii 13 14; 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 3 2.5 2.6 2.7 The third defendant is Mr. Viktor Vekselberg ("Mr. Vekselberg") who was also a party to the Project Egg action by virtue of being the first defendant to the counterclaim by Mr. Gilbelison and Autumn. Mr. Vekselberg is the principal owner of Renova and chairman. The fourth defendant, Pallinghurst (Cayman) General Partner LP (GP) Limited ("the Company") is an exempted limited company incorporated under the laws of the Cayman Islands. There are two shareholders of the Company, Renova Resources and Fairbairn, who each own 50% of the shares. The Company is the general pminer of the fifth defendant, a Cayman Islands exempted limited partnership which is in turn the general pminer of the sixth defendant ("the Master Fund") which is the investment fund to which I have already refell'ed. The Company, the fifth defendant and the Master Fund together form the Pallinghurst Structure. It was as a shareholder of the Company that Renova Resources commenced and pursued the Project Egg litigation. Apmi from RIL, all of the parties in the present action, as well as Fairbairn, Autumn and Mr. Gilbertson are more fully described in the Project Egg Judgment. The Procedural History 3.1 3.2 Fairbairn's writ in the present action was issued on 16th January 2013 which was shortly before the expiry of the relevant limitation period. The writ was subsequently amended but not served. On 14th June 2013 Fairbairn applied ex-parte for leave to serve its amended writ out of the jurisdiction on each of RIL, Mr. Kuznetsov and Mr. Vekselberg by way of substituted service on their Cayman Islands attorneys, Ruling -FSD 11/2013 - Nedgrollp Tmst (JerseJJ) v Renova Industries Limited et al: Foster J Page 4 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 4 3.3 3.4 Maples and Calder. By order dated 9th July 2013 Henderson J. granted such leave. The amended writ was served on 15th July 2013 and the statement of Claim was served on 2nd September 2013 some 8 months after the writ was issued. Fairbairn's summons in the present application for leave to continue the action was filed on 23rd September 2013, which was the last possible date under the GCR for filing the application. The first suppOliing evidence was served on 15th November 2013. The test for leave to continue a derivative action 4.1 4.2 The present action is brought derivatively by Fairbairn as a 50% shareholder of the Company. Pursuant to GCR 0.15, r.l2A(8) on the hearing of an application to continue such a derivative action the court may - "(a) grant leave to continue the action, for such period and upon such terms as the Court may think fit; (b) subject to paragraph (J 1), dismiss the action; (c) adjourn the application and give such direction to joinder of parties, the filing of jzll'fher evidence, discovelY, cross examination of deponents and otherwise as it may consider expedient. " The appropriate test for the grant of leave to continue a derivative action was considered in some detail in the Renova leave to continue Ruling at para. 31 as follows: "The only issue is, or should be, whether there is a prima facie case, first, that the claim falls within the exception Ruling -FSD 11/2013 - Nedgrottp Tmst (JersetJ) v Rel10va Industries Limited et al: Foster J PageS 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 4.3 to the rule in Foss v Harbottle [(1843) 2 Hare 461; 67 E.R. 189] and, secondly, on the merits against the defendant. The purpose of this "filter" as Lord Millett, N.P.J. described it, [in Waddington Limited v Chan Chun Hoo Thomas and Others, Hong Kong Court of Final Appeal, 8th September 2008 (unrepOlied)], is to satisfY the court that there are reasonable grounds for the plaintiff's claim and that it is not vexatious 01' ji'ivolous or has no real prospect of success ... 32 In my opinion, the appropriate test for this court to adopt in considering an application for leave to continue a derivative action is the prima facie case test, that is, where a defendant in a derivative action has given notice of intention to defend, the plaintiff must satisfY the court that the company has a prima facie case against the defendant (and that the action falls within the applicable exception to the rule in Foss v Harbottle). It was agreed that the present action falls within the applicable exception to the rule in Foss v Harbottle (supra). Accordingly, the second issue in this regard is whether the Company, acting by Fairbairn, has a prima facie case against the fITst andlor the second andlor third defendants on the merits. The standard of a prima facie case was also considered in the Ruling on Renova Resource's application for leave to continue its action as follows: "33 There does not appeal' to have been any precise analysis in the English case law of the standard of a prima facie case in this context. In Prudential Assur. Co. Ltd. v. Newman Indus. Ltd. (No. 2) [[1981J Ch. 257; on appeal [1982J Ch. 284J, in the passage which I have already quoted, it was made clear that the right to progress a minority action is not to be equated with the absence of Rilling -FSD 11/2013 - Nedgrollp Tmst (JerseJj) v Reltova Industries Limited et al: Foster J Page 6 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 grounds for a strike-out in ordinmy litigation. It has also been made clear that a prima facie case is more than a good arguable case. It is also clear that the hearing of such an application for leave "must not be allowed to turn into a mini-trial, but the Court must nevertheless have sufficient evidence before it is able to make a careful assessment of the merits" - see Supreme Court Practice 1999, para. 15/12A, at 259. 34 Counsel for the plaintiff accepted that the plaintiff must do more than merely show that the case cannot be struck out but he also submitted that the plaintiff does not have to prove its case on the evidence as if this were a trial, which in my view must be right. However, he also argued that the appropriate question is whether, if the defendants were to choose not to defend, the claim would be more likely than not to succeed on the pleaded case and the material before the court. That seems to me to amount to submitting in effect that the court should proceed as if the pleaded case were true and ignore the evidence submitted by the defendants, which does not accord with my understanding of the authorities. The purpose of requiring the plaintiff to obtain leave to continue the derivative action, as I understand it, is to prevent the expense and time of (and to protect the defendants against) vexatious or unfounded litigation which has little or no prospect of success or which is clearly brought by an aggrieved shareholder for his own reasons rather than in the interest of the company. The phrase "prima facie" has various shades of meaning but literally means "at first sight". Given that there is not to be a mini-trial of the plaintiff's case, it seems to me that I must form a view of the plaintiff's case based on my first impressions, haVing regard to my Rilling -FSD 11/2.013 - Nedgroup Tmst (Jersey) v Reuova Iudustries Limited et al: Foster J Page 70/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 5 assessment of all the evidence before me, including that submitted by the defendants. For the plaintiff to obtain leave to continue with the action, I consider that I must be satisfied in the exercise of my discretion that its case is not spurious or unfounded, that it is a serious as to opposed to a speculative case, that it is a case brought bona fide on reasonable grounds, on behalf of and in the interest of the company and that it is sufficiently sh'ong to justifY granting leave for the action to continue rather than di;;missing<f( at this preliminmy stage. " The claims proposed to be made by Fairbaim on behalf ofthe Company 5.1 The present action concems the purchase by RIL of shares in the Australian mining company, Consolidated Minerals Ltd ("Consmin"), in September
The detailed background to the commercial alTangements including the Letter Agreement, the Pallinghurst Structure and negotiations surrounding them, and the involvement of Mr. Gilbertson, Sean Gilbertson, Mr. Kuznetsov, Mr. Vekselberg and, subsequently, Mr. David Kalberer, a Renova lawyer, is all set out in detail in the Project Egg Judgment. The agreed intention was for what became the Master Fund, as the ultimate investment entity within the Pallinghurst Structure, to specialize in investment in metals and mining industry assets. In summary, one of the projects identified by Mr. Gilbertson as such a potential investment opPOItunity was the acquisition of a stake in Consmin. This proposal became known as Project Charlie, to which reference was made at the trial of the Project Egg action (both in evidence and submissions), in the documentation produced on discovery and at the trial and in the Project Egg Judgment. 5.2 Although the documentation relating to the Pallinghurst Structure, including the Master Fund, was not complete, it is Fairbaim's contention on behalf of Rilling -FSD 11/2013 - Nedgroltp Tmst (Jersey) v Rellova Industries Limited et al: Foster J Page 8 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 5.3 5.4 the Company that it was agreed between the Company, as the ultimate general partner of the Master Fund, and RIL that RIL would acquire the shares in Consmin ("the Shares") for the benefit of the Master Fund. Fairbaim also claims that the subsequent acquisition of the Shares by an Australian stock broking company instlUcted by Sean Gilbertson was as nominee for RIL pursuant to that agreement and that the Shares were to be and were held for the benefit and on behalf of the Master Fund. Fairbairn contends that Mr. Kuznetsov, who was a director of the Company, and Mr. Vekselberg both knew of and approved of this agreement. During January 2007 the relationship between Mr. Gilbertson and Mr. Vekselberg broke down in relation to Project Egg as explained in detail in the Project Egg Judgment. Subsequently, at a meeting in May 2007 in London between Mr. Gilbelison, Mr. Vekselberg and Mr. Kuznetsov, Mr. Gilbelison, it is now contended by F airbaim, was informed that Renova would keep the Shares in lieu of costs which it had incurred in relation to the establishment of the Pallinghurst StlUcture, and because Mr. Gilbelison "took Faberge". It is Fairbaim's claim that from that time RIL was in breach of the agreement that the Shares would be, and on Fairbaim's case had been, acquired for the benefit and on behalf of the Master Fund. In December 2007 RIL sold the Shares for a net profit of the AUD equivalent of approximately US$2.32M, which it kept for itself. The relief which Fairbaim now seeks against RIL on behalf of the Company is damages for breach of contract, breach of tlUSt and breach of agency. It also seeks an account of the profit made by RIL on the sale of the Shares and damages for conspiracy by lawful or unlawful means by RIL, Mr. Kuznetsov and Mr. Vekselberg. Relief is also claimed against each of Mr. Kuznetsov and Mr. Vekselberg for damages, as well as for the said alleged conspiracy, for inducement of the alleged breach of contract, breach of Rilling -FSD 11/2013 - Nedgrollp Tmst (Jersey) v Re1tQva Industries Limited et a1: Foster J Page 9 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 6 agency and breach of trust by RIL as well as against Mr. Vekselberg for dishonest assistance of breach of trust by RIL. 5.5 The evidence which Fairbairn relied upon in support of its case was an affidavit by Sean Gilbertson (who was also a principal witness in the Project Egg action) and also two affidavits by Ms Debbie Lumsden, a newly appointed director of Fairbairn. Ms Lumsden had sworn her fust affidavit in support of Fairbairn's application for leave to serve its amended writ out of the jurisdiction. The Defendants relied in opposition upon an affidavit by Ms. Evgenia Loewe, a New York admitted attorney who islJeacl,()f the /;:"", C', ;'c '. Foreign Litigation Depatiment at Renova. ('0 .. 0 0 The case on the merits \ \:- 6.1 Since it is well established that it is not appropriate to conduct a mini-trial in such a case and I consider that I should form a view of the plaintiff s case based on first impressions, I shall in this judgment only summarise the principal evidential points made in relation to the merits, rather than going into every detail. 6.2 There is no dispute that in September 2006 RIL paid a total of AUDI,663,093 of its own money for the Shares. It is also accepted that approximately a year later, in September 2007, RIL sold the Shares for a profit of AUD2,569,587.08 (approximately USD2.32m.) and that RIL kept this profit for itself. 6.3 Fairbairn's case is largely based on various email exchanges as well as two specific meetings. There is no dispute that the possible investment in Consmin by the Master Fund was originally proposed by Mr. Gilbelison and was the subject of discussion at a meeting on 25th and 26th July 2006 in Frankfurt attended by Mr. Gilbelison, Sean Gilbelison, Mr. Kuznetsov and Rllli1tg -FSD 11/2.013 - Nedgrollp Tntst (JersetJ) v Reuova Industries Limited et al: Foster J Page 10 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 6.4 6.5 others. There was discussion at that meeting of a possible acquisition of up to 4.99% of the share capital of Consmin at a price of up to AUD2.00 per share. However, as emphasized on behalf of RIL, Mr. Kuznetsov and Mr. Vekselberg, who I shall refer to together for present purposes as "the Defendants", the documentation relating to the Pallinghurst Structure, known in the Project Egg litigation as "the long f01ID documentation", had not been finally approved or executed by Renova and was still being reviewed. Accordingly, as stated by Sean Gilbertson in an e-mail to Mr. Gilbertson on 31 st August 2006 the Master Fund was not "officially up and running". Sean Gilbertson made it clear that he wanted Renova to fund the proposed purchase of the Shares "in the meantime". It seems to me that "the meantime" must have meant pending the approval and execution of the long form documentation. Also on 31 st August 2006 Sean Gilbertson sent out a draft resolution of the "Executive Committee" of the Company confirming the intended acquisition of the Shares for Mr. Kuznetsov, as a director of the Company, to sign. In fact, because the long f01ID documentation had not been executed the "Executive Committee" did not legally exist as such. Leading Counsel for the Defendants also pointed to several inconsistencies between the draft resolution as sent out by Sean Gilbertson and the fmal version as signed by him, apparently on 28th August 2006, and by Mr. Kuznetsov on 15th September 2006. These inconsistencies were not explained by Sean Gilbertson. There was also e-mail correspondence at about this time between Sean Gilbertson, and Mr. Denis Derjitski of the Renova treasury department and also between Sean Gilbertson and the Australian stock brokers, Bell Potter. Fairbairn and the Defendants each rely on different passages in these e- mails, in the case of Fairbairn to support its contention that the Shares were to be and were acquired by RIL through Bell Potter on behalf of and as Rilling -FSD 11/2013 - Nedgrollp Tmst (JerselJ) v Reuovtl Industries Limited et tll: Foster J Page 110/36 1 2 3 4 5 6 7 8 9 10 11 12 13\. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 6.6 agent of or in hust for the Master Fund and, in the case ofthe Defendants, to dispute that contention and to support their own case that the Shares were acquired by RIL on its own account and conditionally on the long form documentation being executed, which it never was. For example, Fairbairn relies on an e-mail from Sean Gilbertson to Mr. Deljitski in which he said that the Shares would for the time being be held by Bell Potter's nominee company on behalf of Renova as agent for the Pallinghurst Fund so as to keep Renova's and Pallinghurst's names out of the market. However, the Defendants rely on the fact that Sean Gilbertson did not say anything to Bell Potter about the Master Fund or Pallinghurst or that Renova or RIL was supposedly acting as agent of the Master Fund in respect of the Shares. On the contrary, Bell Potter, it is said, understood that Sean Gilbelison was acting as the authorized representative of Renova, not as representative of the Master Fund, of which they knew nothing. As I have already mentioned, and as is clear from the Project Egg Judgment, relations between Mr. Gilbelison on the one hand and Mr. Vekselberg on the other hand broke down over Project Egg in January 2007, only some 3 months after RIL purchased the Shares. As a result the long form documentation was never executed. On 25th January 2007 Renova instructed Bell Potter to remove Sean Gilbertson as its authorized representative in relation to the Bell Potter Share acquisition account. The Defendants rely on the fact that there is no evidence that Mr. Gilbertson or Sean Gilbertson, who were aware of this, objected to it, which, they argue, was not consistent with the contention that RIL was the agent or trustee of the Master Fund in respect of the Shares. Furthermore, on 12th February 2007 RIL was listed as a shareholder of Consmin to the knowledge of Mr. Gilbertson and Sean Gilbertson but again there was no objection on their pmi and no contention by them that the listed shareholder should have been recorded as the Master Fund or as RIL as nominee for the Master Fund. Rilling -FSD 11/2013 - Nedgrollp Tmst (Jersey) v ReJlova Industries Limited et al: Foster J Page 12 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 6.7 6.8 6.9 On 5th May 2007, Mr. Gilbertson met Mr. Vekselberg and Mr. Kuznetsov at Claridges in London in an unsuccessful attempt to resolve the differences between them. According to Mr. Gilbelison at that meeting the matter of the Shares was raised. He contends that Mr. Kuznetsov said that Renova would be keeping the Shares in satisfaction of Renova' s costs of setting up the Pallinghurst Structure and because Mr. Gilbelison "took Faberge", the latter implication being, according to Fairbairn, that the Shares were kept by Renova as a kind oftit-for-tat rather than because they considered that they were entitled to them. Mr. Kuznetsov was cross-examined about the Shares by leading counsel for Mr. Gilbelison and Autumn (now leading counsel for Fairbairn) at the trial of the Project Egg action. Mr. Kuznetsov's evidence was to the effect that the Shares were kept by Renova because their possible acquisition for the Master Fund had been conditional on the approval and execution of the documentation relating to the Master Fund (the long form documentation) and it never was executed. He said that the Shares were purchased by Renova at its own risk. That evidence was not challenged at the time. Mr. Vekselberg said he had no recollection of any discussion of the Shares at the meeting and Mr. Kuznetsov said it was his decision that the Shares should be kept by Renova. As stated in the paragraph from the Renova leave to continue Ruling cited above, in considering whether Fairbairn has established that the Company has a prima facie case against the Defendants or any of them the standard applicable is more than that of a good arguable case. That, of course, was the startdard applicable on Fairbairn's application in the present action for leave to serve its amended writ out of the jurisdiction. The appropriate standard in the present application is accordingly higher thart the standard which was applied in that application. It was argued on behalf of Fairbairn that its claim on behalf of the Comparty that there was an agreement that the Shares would be acquired by Renova Ruling -FSD 11/2013 - Nedgroltp Tmst (Jersey) v Renova Industries Limited et al: Foster J Pnge130/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 on behalf of and as agent or trustee of the Master Fund is made out prima facie on the evidence. It was submitted that by selling the Shares and keeping the resulting profit for itself RIL was in breach of contract andlor of agency andlor oftrust. On the other hand, it was argued for the Defendants that the claim is unfounded and not of sufficient strength to justify the grant of leave to continue it. They contend that RIL bought the Shares with its own money and at its own risk and that the proposal to transfer them to the Master Fund was only if and when the long form documentation was approved and executed. Once the parties fell out and it was clear that the long fmm documentation would never be executed RIL was entitled to retain the Shares which it had purchased with its own money and at its own risk. 7 Is the claim in the interests ofthe Company? I, ~ '\.' <""'-" .. - '<",'>" f 7.1 In determining whether there is a prima facie case I m~s{ also satisfied that the claim is in the interests of the Company. The claim against RIL in respect of the profit made on its sale of the Shares is for approximately US$2.32m. The derivative claim on behalf of the Company in the Project Egg Litigation was for in excess of US$85m. On the approach adopted on behalf of Mr. Gilbertson in the Project Egg litigation, under the Pallinghurst Structure the Company would receive some 25% of any recovery made by the Master Fund. In the present case that would therefore amount to approximately US$750,OOO for the Company. In the context that is a relatively small amount. Fairbairn seeks an indemnity from the Company for its costs of these proceedings. I shall consider that in more detail later in this Ruling but if the Company was required to so indemnify Fairbairn, it is hard to see how, given the size of the claim and the likely cost of pursuing it, there would be any significant benefit to the Company. In my view it is questionable whether the claim is in the interests of the Company. In fact, I Ruling -FSD 11/2013 - Nedgrollp Tmst (JersetJ) v ReJtova Industries Limited et al: Foster J Page14of36 1 2 3 4 5 6 7 8 9 10 11 7.2 am satisfied that the present claim has not been brought genuinely in the interests of the Company but for Mr. Gilbelison's own reasons. My assessment, in light of all the circumstances, including the Project Egg Judgment, is that this claim has been brought in furtherance of Mr. Gilbertson's dispute with Mr. Vekselberg, which has a long history and extends to the conflict over the Pallinghurst Stmcture. In my opinion Mr. Gilbelison, through Fairbairn, is using the Company to further pursue his personal fight with Mr. Vekselberg. That is not in the interests of the Company. 12 8 Is the claim bona fide? 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 8.1 8.2 It is also appropriate, in this context, to considel' whether the claim which Fairbairn seeks leave to bring on behalf of the Company is bona fide. In these circumstances it is relevant to consider the parties and others involved. In the Project Egg Judgment it was held that Fairbairn, as tmstee of the Gilbelison family tlust and the sole shareholder of Autumn, was subject to the directing mind and will of Mr. Gilbelison. The former director of Fait'bahn, Mr. Thomas, basically did as Mr. Gilbelison wished. It was argued, in my opinion with justification, that the situation was unlikely to have changed in the last 18 months. It was pointed out too that in the present proceedings Fairbairn is represented by the same legal team that represented Mr. Gilbelison and Autumn in the Project Egg litigation. Although Ms Lumsden says Fairbairn "would not be seeking to pursue this claim unless it believed that it is in the financial interest of the Tmst to do so", in light of previous findings it seems to me most improbable that Mr. Gilbertson has not at least prompted and more likely pressed Fairbairn to pursue this claim. Ms Lumsden did not say how pursuing the claim is in the financial interest of the Tmst. The financial interest of the Tmst, being in Rilling -FSD 11/2013 - Nedgrollp Tntst (Jersey) v Renova Industries Limited et al: Foster J Page 150/36 1 2 3 4 5 6 7 8 the region of US$375,OOO seems relatively nominal, indeed possibly non- existent if it has to meet its own, and possibly others' costs of the litigation. Even if the claim were to be successful Fairbairn would inevitably incur significant costs which would not be recoverable on a taxation. In my assessment the more probable position in all the circumstances is that Mr. Gilbeltson is behind the bringing of these pl'(\Cll,~qi~g~l in feud with Mr. Vekselberg. 9 9 Abuse of Process 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 9.1 The Defendants contend that the present action amounts to an abuse of process and that the principle in Henderson v Henderson applies. In summary that will prevent parties and their privies from litigating matters which arose in earlier litigation and which could and should have been litigated in that earlier litigation. In Henderson v Henderson (1843) 3 Hare 100 Sir James Wigram V-C said: " ....... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, ji'om negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce ajudgment, but to evelY point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time. " Ruling -FSD 11;2013 - Nedgroup Tmst (ferse/j) v ReI/ova Illdustries Limited et al: Foster J Page 16 0/36 1 2 3 4 5 6 7 8 9 1p ill .. h2 \ . 13 .... "'< 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 9.2 9.3 I was also referred to the Judgment of Lord Kilbrandon in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975J AC 581, who said: "But there is a wider sense in which the doctrine [of res judicata] may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings. The locus classicus of that aspect of res judicata is the judgment of Wigram V-C in Henderson v Henderson" That, of course was a case in the Privy Council and therefore binding on this cOUli. The slightly wider form of the rule in that case has been applied by this cOUli in Re Swiss Oil Corp [1988-89J CILR 277 and in H Limited vB and F Limited [1994-95J CILR 343, although the circumstances of those cases were not the same as in the present proceedings. However, the principle has been more recently re-stated by the House of Lords in Johnson v Gore Wood & Co (ajirm) [2002J 2 AC 1 in which Lord Bingham said at page 31: " Henderson v. Henderson abuse of process, as now understood, although separate and distinct fi'om cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be jinality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisjied (the onus being on the party alleging abuse) that the claim or defence should have Ruling -FSD 11/2013 - Nedgrollp Tmst (Jersey) v Reuova Industries Limited et al: Foster J Page 17 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessmy, before abuse may be found, to identifY any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in early proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misllsing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of fimds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of fimds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the Ruling -FSD 11/2013 - Nedgrotlp Tn/st (Jersey) v Renova Iudustries Limited et al: Foster J Page1S of36 1 2 3 4 5 6 7 8 9 10 / i11 I '12 9.4 rule has in my view a valuable part to play in protecting the interests of justice. Accordingly, it would appear that decisions in earlier cases should now be read in light of this guidance from the House of Lords. The applicable principle behind Henderson v Henderson (supra) is "abuse of process", namely the power of the comi to prevent misuse of its procedure in such a way which would be unfair to a party to litigation or would bring the administration of justice into disrepute. "The bringing of a claim or the raising of a defence in later proceedings may amount to abuse of process if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings ...... The court should take a broad, merits-based approach which takes account of all the facts of the case and focusing on whether a party is misusing or 15 abusing the process of the court" see Clerk & Lindsell on Tmis (20th Edn.) 16 at 31-25. 17 18 19 10 The relevant facts 20 21 22 23 24 25 26 27 28 29 30 31 32 10.1 There is no question that the commercial relationships between essentially the same people involved and considered in great detail in the Project Egg litigation are also the same in the present proceedings. This action relates to a proposed investment (the Shares) by precisely the same investment fund, the Master Fund, which was involved in the Project Egg litigation which related to another proposed investment (the Faberge rights). It involves precisely the same background, the same Letter of Agreement, the same Pallinghurst Structure, the same Company on behalf of which the proceedings were brought and are now proposed to be brought and the same individuals, Mr. Gilbelison, Sean Gilbe11son, Mr. Kuznetsov, Mr. Vekselberg and possibly Mr. Kalberer. The only difference is that the Project Egg litigation concerned the proposed investment of the Master Rilling -FSD 11;2013 - Nedgrollp Tmst (JersetJ) v ReJlov(I Industries Limited et al: Foster J Page 19 of36 1 2 3 4 5 6 7 8 9 10 11 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 10.2 10.3 Fund in the Faberge rights and the present litigation concems the proposed investment of the Master Fund in the Shares, although the latter investment was, as I have already explained, in fact also the subject of evidence and comment in the Project Egg action. Fairbaim relies on the fact that it was not a party to the Project Egg action. But it seems to me that there are two answers to that. Firstly, the real plaintiff in both actions is the Company. Both the Project Egg action and this action are derivative actions brought on behalf of the Company; in each case it was and is the Company's claim. Admittedly in each case the action is brought on behalf of the Company by a different 50% shareholder, in the Project Egg action by Renova Resources and in the present action by Fairbaim. Nonetheless, in my view it is the substance not the form that really matters and in each case the real plaintiff is the Company, there is no difference in that respect. The second answer to the non-party point anses from the relationship between Fairbaim and Mr. Gilbertson and Autumn, the latter two of whom were, of course, both parties in the Project Egg action. The strict relationship between Fairbaim and Mr. Gilbertson is that of trustee and beneficiary. As trustee, Fairbaim should be acting for the benefit of Mr. Gilbertson as beneficiary. Mr. Gilbelison has a beneficial interest in the present action through Fairbaim as shareholder of the Company. As such Mr. Gilbelison has an interest in the outcome of the present proceedings. However, as I have already explained, in practice the relationship goes much fi.lliher than that. As found in the Project Egg Judgment, Mr. Gilbertson is, in the context of the trust relationship, the directing mind and will of Fairbairn and thus also of Autumn. Autumn is the wholly owned subsidiary of Fairbairn and Fairbairn, or its affiliated company, Fairbairn Corporate Services Limited, is the director of Autumn. Autumn was acquired (it was an "off the shelf' BVI company) by Fairbairn specifically Ruling -FSD 11/2013 - Nedgroup Tmst (Jersey) v Renova Industries Limited et al: Foster J Page20of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 lOA 10.5 for the purpose of making the payment for Mr. Gilbertson's acquisition of the Faberge rights, the economic benefit of which had been intended as an investment of the Master Fund. It does not seem to me that in the circumstances Fairbaim, the plaintiff in these proceedings, is for these purposes independent of Mr. Gilbertson or of Autumn, who were both defendants and the counterclaimants in the Project Egg litigation. Although not named as a party, I consider that Fairbaim was nonetheless very much involved in the Project Egg litigation. It was not only an equal shareholder in the Company with the plaintiff in that action but in paragraph 67 of Mr. Gilbertson's and Autumn's defence and counterclaim they pleaded as follows:- "In any event, Fairbairn Trust (as 50% shareholder in its capacity as trustee of the Gilbertson family discretionmy settlement) has the right (which is hereby reserved) to bring and seek the cOllrt's leave to continue derivative claims for damages and/or equitable compensation against MI'. Vekselberg, Mr. Kuznetsov, Renova Holding and [Renova Resources Private Equity Ltd] in respect of their liability to the Company and/or the Mastel' Fund as aforesaid under paragraphs 64 and 66.1 above or otherwise howsoever arising. " It would appear from this that Fairbaim was able to look to Mr. Gilbertson to plead for it and to seek to reserve the rights which it claimed. Those rights, although specific claims were not identified, seem likely to have encompassed the right to bring the present derivate action in respect of Project Charlie. In these circumstances, in my opinion, the degree of identity between Mr. Gilbertson and Autumn on the one hand and Fairbaim on the other hand is Rilling -FSD 11/2013 - Nedgrollp Tmst (JersM}) v Renova Industries Limited et a1: Foster J Page 21 of36 1 such that it is appropriate that Fairbairn as plaintiff in the present 2 proceedings, even though not a named party in the Project Egg action, 3 should be treated as a party common to both actions for these purposes and 4 subject to the Henderson principle. 5 6 11 Should the present claims have been heard together with the claims in the 7 previous action? 8 9 10 11 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 ILl It also seems to me almost self-evident in the circumstances here that the claims which Fairbairn now makes in the present proceedings should have been heard and determined together with the claims in the Project Egg action. As I have already mentioned, and in my view most significantly, the acquisition of the Shares, which is the subject of the present proceedings, was itself the subject of evidence and comment at the trial ofthe Project Egg action. Mr. Kuznetsov was cross-examined about it by leading counsel for Mr. Gilbelison and Autunm, who is the same leading counsel now representing Fairbairn in the present proceedings. Mr. Vekselberg was also asked about the Shares at the Project Egg trial and leading counsel for Mr. GiIbelison and Autunm made reference to the Shares in both his written and his oral closing submissions. It is obvious that Mr. Gilbelison and Fairbairn knew all of the facts on which Fairbairn now seeks to rely well before the Project Egg action was even commenced. All of the relevant communications and meetings, and the acquisition and the sale of the Shares had occurred by December 2007. Indeed the alleged breaches of which Fairbairn complains were known to Mi'. Gilbertson at the meeting in London on 5th May 2007. There is no obvious reason why the claims which are made in the present proceedings could not have been made at the time of and in conjunction with the claims made in the Project Egg litigation and tried at the same time and in my view they plainly should have been. Apart from Fairbairn and RIL, who were anyway very closely identified with the parties to the Project Egg action as I have explained, all of the pmiies are the Rilling -FSD 11/2013 - Nedgroltp Tmst (Jersey) v Renovo Illdustries Limited et al: Foster J Pagen 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 11.2 11.3 same. All of the relevant individuals, M1'. Gilbelison, Sean Gilbertson, Mr. Vekselberg, Mr. Kuznetsov and Mr. Thomas of Fairbaim gave evidence both by witness statement and orally at the trial of the Project Egg action and could easily have given evidence also on the Project Charlie issues, as indeed Mr. Kuznetsov and Mr. Vekselberg in fact anyway did at the trial. As far as discovery is concemed, if the Project Egg and the Project Charlie claims had been dealt with together the necessary searches for relevant documentation could easily have been extended to include Project Charlie. The additional time and costs in doing so would have been inconsequential. Similarly, in my opinion, the length of the Project Egg trial would not have been materially extended if the claims regarding Project Charlie had been tried at the same time. In light of the fact that the whole circumstances and background are common to both Projects, the inclusion of the Project Charlie issues in the Project Egg trial would in my view, have added at most another day and quite possibly less, to the length of the trial. In the context of a 5 week trial that is insignificant. FUlihermore, not only were all the witnesses relevant to the present claim present and cross-examined at the Project Egg trial but so were all the relevant legal representatives present. As I have already mentioned, the same leading counsel who represented M1'. Gilbelison and Autumn in the Project Egg litigation now also represents Fairbaim in the present proceedings. The same leading counsel who represented Renova Resources, Mr. Kuznetsov and Mr. Vekselberg now also represents RIL and continues to represent Mr. Kuznetsov and Mr. Vekselberg in the present proceedings. The same English solicitors are involved and the same Cayman Islands attomeys. The same judge is assigned to the present action as was assigned to the Project Egg action and heard the trial and produced the Project Egg Judgment. Rlllil1g -FSD 11/2.013 - Nedgrollp Tmst (JersetJ) v ReJlova Industries Limited et al: Foster J Page 23 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 11.4 11.5 It would not only have been convenient and saved costs for the parties to have the Project Charlie claims tried at the same time as the Project Egg claims but it would also have been in the interest of the administration of justice. As Lord Bingham said in Johnson v Gore Wood and Co (supra), the public interest "that there should be finality in litigation and that a party should not be twice vexed in the same matter...... is re-enforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interest of the parties and the public as a whole".". By commencing a separate action and requiring another trial in relation to matters which could and should have been heard in the previous trial considerable additional time and inconvenience is caused to the cOUli, both the judiciary and the administration. It is not, in my opinion, in the interests of the administration of justice for such unnecessary duplication of time and effort to be required, nor is it in the public interest. The fact that the Project Charlie claims were not tried at the same time as the Project Egg action will also cause considerable inconvenience and additional unnecessary costs to the Defendants. M1'. Vekselberg is based in Russia, and M1'. Kuznetsov in Switzerland, from where they each travelled to Cayman to give evidence at the Project Egg trial in AprillMay 2012, just over 2 years ago. To require them to retum, if necessary, for a fUliher trial in relation to Project Charlie seems to me a considerable inconvenience and to involve unnecessary duplication of costs. Mr. Gilbertson and Sean Gilbertson are based in London as are both the leading counsel involved and the English Solicitors whose representatives attended the Project Egg trial and who would no doubt attend the trial of the present action. In light ofthe probable difficulties in availability of all involved and timetabling such a trial, even if only for a few days, it would be unlikely to take place before late 2015 at the earliest. The costs and inconvenience of all of this would be considerable. Rilling -FSD 11/2013 - Nedgrollp Tnlst (Jersey) v Renova Industries Limited et al: Foster 1 Page 24 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15/, 16" ( 1¥' 18 19 20 21 22 23 24 25 26 27 28 29 11.6 11.7 It would, in my view, with appropriate case management, have been possible to have ensured that the claims relating to Project Charlie were tried and detelmined at the same time as the claims relating to Project Egg, given the ovelwhelming desirability of that. Even if it was not procedurally possible to join Fairbairn and RIL as parties to the Project Egg action, and I express no view on that, it surely would have been possible, if not to consolidate the two actions if they had to have been brought separately, at least to give appropriate directions regarding co-ordination of pleadings, discovery and timetabling and to ensure that they were tried at the same time to avoid duplication of time and cost. I do not doubt that it could have been done and I consider that it should have been done. It does seem to me that the bringing of the present proceedings raising claims which could and should have been heard at and resolved following the trial of the Project Egg action, does involve unfair and unjust vexation and harassment of Mr. Vekselberg and Mr. Kuznetsov. There is no good reason, in my view, why they should again be subjected to allegations of conspiracy and dishonesty when such allegations could and should have been heard and dealt with at the trial of the Project Egg action. Allegations of conspiracy in relation to Project Egg were made and ultimately either abandoned or not ultimately pursued. It seems to me unjust and unfair in such circumstances that the same allegations should now be repeated, albeit in relation to another proposed investment of the Master Fund, some 2 years later. No one, however sophisticated or successful wishes to be accused of dishonesty or conspiracy or should be exposed to such allegations more than once in relation to the same or similar matter yet such accusations are now made against Mr. Vekselberg and Mr. Kuznetsov all over again. In my opinion that is unjust and unfair and should only be allowed in special and unusual circumstances. That is not the case here. Ruling -FSD 11/1.013 - Nedgroup Tn/sf (Jersey) v Rellova Industries Limited et al: Foster J Page2S of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 11.8 11.9 Leading counsel for Fairbairn submitted that for Mr. Kuznetsov and Mr. Vekselberg to be subjected to a second action does not amount to harassment and he pointed out also that RIL was not a patty to the first action (the Project Egg action) anyway. In my opinion the validity of those submissions must be considered in light of the particular circumstances. The circumstances here are that Mr. Kuznetsov and Mr. Vekselberg flew to Cayman from Switzerland and from Russia respectively to be cross- examined in a foreign language on their witness statements at the Project Egg trial. Both Mr. Kuznetsov and Mr. Vekselberg at'e Russian and Mr. Vekselberg required the assistance of an interpreter at the trial. Clearly having to do that would have required not only time and inconvenience but also some personal anxiety and distress. It would also have involved significant cost to them both direct and indirect. Had the claims now made in relation to Project Charlie been tried at the same time, their cross- examination may have been extended but, in my opinion, only by a shott time, and that would have been an end of the matter. If the present action is allowed to proceed all that may well have to be repeated. As fat' as RIL is concerned, it is a Renova company and although not a named party in the Project Egg action, the involvement of Renova in the Project Egg litigation, which is explained in considerably more detail in the Project Egg Judgment, was significant. Mr. Vekselberg is the principal beneficiary and chahman of Renova and Mr. Kuznetsov is a senior executive. As I have already said, in considering the circumstances in this context, it seems to me that the court should look at the substance not the form. In my view to seek to litigate again against Renova, by which for these purposes I include RIL, in respect of a matter which could and should have been tried with the Project Egg claims some time ago also amounts to inequitable conduct and harassment. Ruthlg -FSD 11/2013 - Nedgrollp Tmst (Jersey) v Rellova Illdustries Limited et al: Foster J Page 26 0/36 1 2 3 4 5 6 7 8 9 10 11 12./, f" ~ i 131;; ! ': 1\ 14\ 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 11.10 It was also submitted on behalf of Fairbairn that M1'. Kuznetsov and M1'. Vekselberg were put on notice in the Project Egg action that such a claim as the present one may be brought derivatively by Fairbairn on behalf of the Company. This was based on the pleading to which I have already refelTed to above (see para. 10.4 above). Renova Resources, Mr. Kuznetsov and Mr. Vekselberg responded in their Reply and Defence to Counterclaim that any such application by Fairbairn for leave to bring such a derivative action would be resisted. It was argued for Fairbairn that they did not suggest that any such claim by Fairbairn should be brought in the Project Egg litigation, as they now do. Ms Lumsden for Fairbairn stated that if they had done so Fairbairn would have considered it, the implication being that Renova, Mr. Kuznetsov and M1'. Vekselberg are themselves to blame for the present claim not having been brought before now. I did not find this argument persuasive. The Reply that any such application by Fairbairn would be resisted does not, in my view, constitute a consent, still less a proposal, that the claims in relation to Project Charlie should be deferred until the Project Egg action was concluded. Nor does there seem to me to be any basis for finding that Fairbaim relied upon the response to the reservation of rights by M1'. Gilbertson on its behalf as a reason or justification for defelTing the bringing of its present claim at this time. If it was desirable and appropriate to have the Project Charlie claim by Fairbairn heard and dealt with at the same time as the Project Egg claim, as, in my opinion, it obviously was, Mr. GilbertsonlFairbairn should have taken steps in that respect and appropriate orders and/or case management directions could have been made. Whether or not the Defendants would have opposed Fairbairn being granted leave to continue such a claim, as they pleaded in their reply, on the basis that there was no prima facie case on the merits is neither here nor there. It was Fairbairn's proposed claim and it could and should have brought the claim at that time so it could be dealt with, if allowed, at the same time as the Project Egg claim. Ruling -FSD 11/2013 - Nedgrollp Tmst Uersey) v Renova Iudnstries Limited et al: Foster J Page 27 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 11.11 11.12 11.13 It was also contended for Fairbairn that having the present claims tried at the same time as the Project Egg action would have exposed the TlUst to substantially greater costs. I do not accept that. Indeed for the reasons which I have already explained, by having the Project Egg and the Project Charlie claims tried together a likely significant duplication of time and costs would have been avoided. Insofar as necessary to avoid Fairbairn being liable for costs arising in relation to the Proj ect Egg claim it would have obviously been open to the court to make an appropriate order limiting its costs to only those incurred in respect of its claims regarding the Shares. There was significant debate between leading counsel concerning the apparent delay in bringing these proceedings. There is no obvious justification for Fairbairn waiting until the last minute to commence the present action. All the relevant facts were known to them at least by early 2008 and Mr. Gilbertson and Autumn expressly purported to reserve Fairbairn's right to bring a derivative action in the name of the Company as I have already explained. Leading counsel for Mr. Gilbertson and Autumn cross-examined Mr. Vekselberg and Mr. Kuznetsov about the Shares in April and May 2012 at the trial of the Project Egg action. No satisfactOlY explanation was given for the fact that the present action was not commenced until almost a year later. Leading counsel for Fairbairn simply relied on the fact that the present action was commenced within the limitation period and the application for leave to serve out was within the provisions of the relevant rules. Leading counsel for the Defendants submitted that it is to be infen-ed that Fairbairn has deliberately delayed the present proceedings as far as possible because it wished to know the outcome of the appeal against the Project Egg Judgment before bringing the present action. Unfortunately for it the outcome of the appeals is not yet known and accordingly Fairbairn was constrained to commence the present proceedings because the relevant Rilling -FSD 11/2013 - Nedgrollp Tmst (Jerse1j) v Renova I1ldustries Limited et al: Foster J Page2S 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 18 19 20 21 22 23 24 25 26 27 28 29 30 11.14 11.15 limitation period was about to expire. Leading counsel for the Defendants contended that the allegations which Fairbairn now makes are diametrically the opposite of the allegations advanced by Mr. Gilbertson and Autumn in the Project Egg action and which they continued to put fOlward at the hearing of the appeal. This inconsistency would have caused difficulty for Fairbairn in the present action until the conclusion of the Project Egg case as a result ofthe end of the appeal process. That difference in the allegations made in the two actions was largely accepted by leading counsel for Fairbairn but he contended that a party is pelmitted to run legally inconsistent cases in the alternative and that there is nothing inherently wrong with the inconsistencies which the Defendants now allege. However, if that is correct there would seem to me to be no reason why Fairbairn's present claims relating to Project Charlie could not have been tried at the same time as Renova Resources' claims relating to Proj ect Egg. In my view there is some force in the submissions of leading counsel for the Defendants regarding the probable reason for the delay in bringing the present proceedings. It was also submitted that this delay has caused fmiher unfair vexation and unfairness to Mr. Kuznetsov and Mr. Vekselberg by umeasonably and inappropriately prolonging the time over which the latest allegations of fraud and conspiracy have been left umesolved. In my view such delay of proceedings for what amount to purely tactical reasons is not compatible with the interests of justice. The overriding objective behind the GCR is to enable the court to deal with every cause or matter in a way that is not only just and economic but also expeditious. Delaying proceedings is not desirable or appropriate either having regard to the administration of the court's business generally. It is not in the public interest. Ruling -FSD 11/2013 - Nedgrotlp Tmsf (Jerse/J) v RellOva Illdllstries Limited et al: Foster J Page 29 0/36 1 12 The Nurcombe Defence 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 12.1 " The Defendants also relied on the principle established by the English Court of Appeal in Nurcombe v Nurcombe and another [1985J 1 All ER 65, namely that the COUIt will not allow a derivative action in the name of a company by a person who it considers is not a proper person to bring the claim. At page 71 Browne-Wilkinson LJ said: "The Court of Appeal [in Towers v African Tug Co [1904] 1 Ch 558] relied on the fact that only a person having a personal interest could bring a minority shareholder's action and (at 571 per Cozens-Hardy LJ): 'When you get that fact clearly established it seems to me impossible to avoid taking the next step - that all personal objections against the individual plaintiff must be gone into and considered before relief can be granted. ' In my judgment that case established that behavior by the minority shareholder, which, in the eyes of equity, would render it unjust to allow a claim brought by the company at his instance to succeed, provides a defence to a minority shareholder's action. In practice, this means that equitable defences which would have been open to defendants in an action brought by the minority shareholder personally (if the cause of action had been vested in him) would also provide a defence to those defendants in a minority shareholder's action brought by him. Since the bringing of such an action requires the exercise of the equitable jurisdiction of the court on the grounds that the interests of justice require it, the court will not allow such an action to be used in an inequitable manner so as to produce an injustice. Ruling -FSD 11/2013 - Nedgrollp Tntst (Jersey) v Renova Illdllstries Limited et al: Foster J Page30of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 19 20 21 22 23 24 25 26 27 28 29 12.2 12.3 Towers v Afi'ican Tug Co shows that 'all personal objections against the individual plaintiff' must be considered. It is for this reason that, in my judgment, a court of equity will not allow a minority shareholder to succeed in a minority shareholder's action where there are equitable defences which, as between the shareholder personally and the defendants, the defendants could properly rely on in equity ... ...... " It is the Defendants' case that in light of the reality that it is M1'. Gilbertson who is behind Fairbairn in bringing these proceedings the conduct of Fairbairn as plaintiff makes it inequitable to allow its claim to proceed. I have already addressed the relationship between M1'. Gilbertson and Fairbaim and the extent of M1'. Gilbe11son's influence over Fairbairn in respect ofthe Gilbertson family busts. The Defendants point to the fact that in the Project Egg litigation Mr. Gilbertson has been found to have been in serious breach of his fiduciary duties as a director of the Company on behalf of which Fairbaim now seeks to bring the present proceedings. They argue that Mr. Gilbertson would not be a proper person to bring the present claims and that in the circumstances Fairbaim is neither. The Defendants also rely on the fact that Fairbaim, as already explained, owns Autumn. But Autumn is pursuing an appeal against the order made on the Project Egg Judgment, which appeal is plainly against the interests of the Company whose interests Fairbairn now proposes to represent in bringing the present action. It is argued that Fairbairn cannot be a proper person to represent the Company's interests while at the same time, through its wholly owned subsidiary, of which its affiliated company is director, it is adopting a position which is overtly hostile to the Company's interests. Rilling -FSD 11/2013 - Nedgrollp Tmst (Jersey) v Renova Industries Limited et al: Foster J Page 31 0[36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16\\ 17 18 19 20 21 22 12.3 12.4 It should also be borne in mind that the level of potential economic benefit to the Company, still less to Fairbairn, even if the present action was allowed to proceed and was successful, is very small. That is in my view a further reason to question the conduct of Fairbairn in bringing this present action and the motives behind its doing so. Leading counsel for Fairbairn argued that the Defendants' submissions based on the Nurcombe principle did not add anything to their submissions on abuse of process generally. It is COlTect that there is inevitably considerable overlap in that respect in the circumstances of the present case. However, Nurcombe is concerned with equitable defences which would be open to the defendants in an action brought by the shareholder personally if the cause of action had been vested in him. It is in that context that the conduct of Fairbairn (as procured by Mr. Gilbeltson) is to be considered in detennining whether the action is being used in an inequitable manner. My view is that the action is being brought by an inappropriate plaintiff and is being used to fulther the personal objectives of an inappropriate individual, without obvious regard to the interest of the Company. It seems to me in all the circumstances of this case that the action is indeed being used in an inequitable manner and, adopting the Nurcombe principles, I should not allow that to happen. 23 13 Indemnity 24 25 26 27 28 29 13.1 By its summons seeking leave to continue the present action Fairbairn also applied, pursuant to GCR 0.15, r.12A(13), for an order that it be indemnified out of the assets of the Company in respect of its costs of the action. The sub-rule provides that "the Court may grant sllch indemnity upon such terms as may in the circulIlstances be appropriate". RlIli1lg -FSD 11/2013 - Nedgr01lp Tnrst (Jersey) v Rellova Industries Limited et al: Foster J Page 32 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 l3.2 In the Renova leave to continue Ruling, although Renova Resources did not apply for such an indemnity from the Company for its costs of the Project Egg action, there was some consideration of the relevant test applicable to such an application. Reference was made to the comments of Buckley LJ in Wallersteiner v Moil' (No.2) [1975J 1 QB 373, when he said at pp. 403-405: In all the instances mentioned the right of the party seeking indemnity to be indemnified JIIust depend on whether he has acted reasonably in bringing or defending the action, as the case may be: see, for example, as regards a trustee, In re Beddoe, Downes v Cottam [1893 J 1 Ch 557. It is true that this right of a tl'llstee, as well as that of an agent, has been treated as founded in contract. It would, I think, be difJicult to imply a contract of indemnity between a company and one of its members. Nevertheless, where a shareholder has in good faith and on reasonable grounds sued as plaint/rOn a minority shareholder's action, the benefit of which, if successful, will accrue to the company and only indirectly to the plaintiff as a member of the company, and which it would have been reasonable for an independent board of directors to bring in the company's name, it would, I think, clearly be a proper exercise of judicial discretion to order the company to pay the plaintiff's costs. This would extend to the plaintiff's costs down to judgment, if it would have been reasonable for an independent board exercising the standard of care which a prudent business man would exercise in his own ajftlirs to continue the action to judgment. if, however, an independent board exercising that standard of care would have discontinued the action at an earlier stage, it is probable that the plaintiff should only be awarded his costs against the company down to that stage". Ruling -FSD 11/2013 - Nedgrollp Tmst (JerseJJ) v Renova Industries Limited et «1: Foster 1 Page 33 0/36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 115 16 17 18 19 20 21 22 23 24 25 26 27 13.3 In the Project Egg Ruling I also concluded, in light of this authority that the test to be adopted in considering whether a shareholder plaintiff in a derivative action should have an indemnity for its costs from the company concerned should involve consideration of whether a hypothetical independent board of directors would be likely to approve the incurring of such costs by the company. In the present case I am of the view that the shareholder (Fairbairn) is not acting in good faith or in the interests of the Company, rather in the interests and at the behest of Mr. Gilbertson. I am not therefore satisfied that an independent board of directors, acting reasonably, would have authorized the Company to incur the costs, including the risk of liability for the Defendants' costs, of this action in this case. In my opinion such a board of directors would not have taken the risk in respect of the costs in light of the low potential return in respect of this claim. I think it fair, however, to say that leading counsel for Fairbairn did not anyway press the application for an indenmity patiicularly strongly and he made it clear that Fairbairn would proceed with the action, if given leave to do so, even if it was not granted an indemnity. Furthermore, I understood that the Company has no assets, other than the present claim and any recoveries from the Project Egg litigation, which may be limited depending on the outcome of the appeal in that case, so the Company may not in practice be in a position to meet or at least to fully meet, any such indemnity in any event. In all the circumstances, in the exercise of my discretion in this respect I would decline to order that Fairbairn should have an indemnity from the Company for its costs of the present action if it were given leave to proceed. 28 14 Conclusions 29 30 14.1 I have concluded on the basis of the evidence put before me that Fairbairn's 31 claims in relation to the Shares do not reach the necessary standat·d of a Ruliltg -FSD 11/2013 - Nedgrollp Tmst (Jersey) v Rel10va Iudustries Limited et a1: Foster 1 Page 34 of36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 14.2 14.3 prima facie case with all which that entails, such as to justify the court granting leave to continue these proceedings. I find the Defendants' case that the Shares were purchased by RIL at its own risk and that any understanding otherwise was subject to a reasonable and likely condition which was never met, to be far more convincing and probable. In light of the evidence overall I am not satisfied that Fairbairn has more than a very weak case on the merits. Nor am I satisfied that the claim is brought bona fide or in the interests of the Company. In the exercise of my discretion in all the circumstances I would not grant leave to Fairbairn to continue the present proceedings further. I should add that, lest there be any doubt about my conclusion concerning Fairbairn's claims generally, I have particularly come to the view that the claims against the Defendants for conspiracy, whether by lawful or unlawful means, and the claims against Mr. Kuznetsov and Mr. Vekselberg for dishonesty, are not established to the requisite standard in any event. Even at the hearing of Fairbairn's application for leave to serve its amended writ out of the jurisdiction, the Hon Judge hearing the application expressed the view that the claims for conspiracy were "weak" and that, of course, was on the lesser standard of a good arguable case for the claims. However, I have also concluded, not as a matter of discretion but as a matter of my judgment, for the reasons which I have explained above that in all the circumstances the present proceedings amount to an abuse of process under the Henderson principle as explained more recently in the Johnson v Gore Wood case. All the disputes between Mr. Gilbelison and Mr. Vekselberg concerning the Pallinghurst Structure could and should have been heard and detelmined at one and the same time. It would have brought appropriate and desirable fmality to the litigation between them. The present proceedings simply prolong what has all the appearance of a vendetta and that should, in the public interest, be brought to an end. The process of this Ruling -FSD 11/2013 - Nedgrollp Tntst (Jersey) v Reuova Indllstn'es Limited et al: Foster J Page 35 of36 1 2 3 4 5 6 7 8 9 10 11 12 14.4 Comi is, in my view, being misused and that should not be allowed. I have also concluded that the action should be dismissed pursuant to the Nurcombe principles. The conduct of Mr. Gilbertson through Fairbaim is such as to bar equitable relief. There has been an unacceptable delay in bringing this action and Fairbaim is, in the circumstances, not a proper person to bring these proceedings. It would be inequitable, in my judgment, to allow Fairbaim to proceed with this action, notwithstanding that the cause of action is vested in the Company. I therefore mle that the present action should not be allowed to continue. I also order that the action should be dismissed as an abuse of process. 13 Dated this 22nd day of July 2014 14 15 16 17 The Hon. Mr. Ju . e Angus Foster 18 JUDGE OF THE GRAND COURT Ruling -FSD 11/2.013 - Nedgrollp Tntsf (Jersey) v Re110va Iudustries Limited et al: Foster J Page 36 0/36