BTU Power Management Co v Abdul‑Mohsen Hayat - Ruling (Summary Judgment Application)

¶ E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 1 IN THE GRAND COURT OF THE CAYMAN ISLANDS 1 2 CAUSE NO: 444 OF 2007 3 4 BETWEEN: BTU POWER MANAGEMENT COMPANY 5 Plaintiff 6 7 -AND- 8 9 10 ABDUL-MOHSEN HAYAT 11 Defendant 12 13 14 15 Coram: The Hon. Mr. Justice Foster in Chambers 16 17 Appearances: Mr. James Eldridge of Maples and Calder for the Plaintiff 18 Mr. Graeme Halkerston and Mr. Callum McNeil of Appleby for 19 the Defendant 20 21 Heard: Tuesday 1st December 2009 22 23 24 RULING 25 26 27

¶ [1] This is an application by the Defendant by summons dated 14th January 2009 for 28 summary judgment pursuant to GCR O.12, r.14. The Plaintiff Company is a 29 Cayman Islands Company with its principal place of business in Massachusetts, 30 USA. (“the Company”). The majority shareholders in the Company are a Mr. Al 31 Mazeedi (“Mr. Al Mazeedi”) and his wife. The Defendant (“Mr. Hayat”) is also a 32 shareholder in the Company. At the relevant times Mr. Al Mazeedi and Mr. 33 Hayat were the only directors of the Company. Mr. Hayat has since been 34 removed as a director. 35 36 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 2

¶ [2] The Company, under the control of Mr. Al Mazeedi and his wife, issued these 1 proceedings on 27th September 2007 and served an Amended Writ and Statement 2 of Claim on 5th February 2008. Counsel for Mr. Hayat opened his submissions by 3 contending that these proceedings have been brought by the Company in bad faith 4 and in an attempt to derail litigation brought by Mr. Hayat and others against Mr. 5 Al Mazeedi, the Company and others in Massachusetts and that these proceedings 6 are merely a device with no prospect of success. However, quite apart from the 7 fact that such allegations are hotly disputed by the Company and there is no 8 application to dismiss the proceeding as vexations or as an abuse, they were 9 specifically withdrawn from Mr. Hayat’s pleaded case by his Amended Defence 10 dated 12th January 2009 and filed on 20th August 2009. In these circumstances, it 11 does not seem to me that I should take such contested allegations into account in 12 determining Mr. Hayat’s application for summary judgment and I have not done 13 so. 14 15

¶ [3] The pleadings as they currently stand are the Company’s Re-amended Writ and 16 Statement of Claim, Mr. Hayat’s Amended Defence and Counterclaim and the 17 Company’s Reply and Defence to Counterclaim. The parties have also exchanged 18 various Further and Better Particulars. In my view, I must, for present purposes, 19 proceed upon the basis of the parties’ pleadings and particulars as they currently 20 stand. 21 22

¶ [4] The Company makes two unrelated claims against Mr. Hayat. There was 23 originally a third claim but that has now been withdrawn. I shall, as did counsel, 24 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 3 refer to the two claims as “the Evolvence claim” and “the charitable payment 1 claim” respectively. 2 3

¶ [5] The legal principles and tests appropriate to an application for summary judgment 4 by a defendant were not materially in issue. GCR O.14, r.12 (1) provides that a 5 defendant who has served a defence, may apply for summary judgment on the 6 ground that “the plaintiff’s claim has no prospect of success or that the plaintiff 7 has no prospect of recovering more than nominal damages” (my emphasis). The 8 equivalent test in relation to an application for summary judgment by a plaintiff 9 has been similarly stated by various courts over the years which have made it 10 clear that summary judgment is only intended to apply to cases where there is no 11 reasonable doubt that the party applying is entitled to judgment. It should not be 12 granted where there is any substantial disputed question of fact which should be 13 tried. It has been said that “no prospect of success” means no reasonable or real 14 prospect of success (see Re Omni Securities Ltd. (No. 3) [1998] CILR 275 at 15 280, line 1 per Smellie CJ). It is also well established that the judge hearing a 16 summary judgment application must not “usurp the position of the trial judge by 17 embarking upon a trial of the case in chambers, on affidavits only, without 18 discovery and without oral evidence tested by cross examination”. A summary 19 judgment application must not become a “mini trial” (see Civil Aviation 20 Authority v Island Air [2003] CIRL 483 at 497 per Smellie CJ). 21 22

¶ [6] The Evolvence claim is based on allegations of breach of duty as a director of the 23 Company by Mr. Hayat in connection with his participation on behalf of the 24 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 4 Company in contractual negotiations with another company, Evolvence Capital 1 (“Evolvence”), while not disclosing that he had or was negotiating to obtain a 2 personal shareholding in Evolvence. The Company contends that Mr. Hayat had 3 a clear conflict of interest in acting as he did and that he procured the Company to 4 enter into an agreement with Evolvence on terms which were unduly onerous for 5 the Company (and thus beneficial to Evolvence). It is contended that the 6 Company could have obtained more favourable terms from other companies or 7 entities and that the Company has therefore sustained loss and damage through 8 being committed to Evolvence as a result of Mr. Hayat’s actions. In addition, the 9 Company contends that Mr. Hayat consequently made a secret profit through his 10 interest in Evolvence for which he should account. 11 12

¶ [7] Mr. Hayat’s case is that Mr. Al Mazeedi was made aware of his interest in 13 Evolvence at early stage in the negotiations and well before the Company had no 14 alternative but to commit to Evolvence. He says that his relationship with 15 Evolvence, known to Mr. Al Mazeedi was beneficial to the Company and enabled 16 the Company to reach agreement with Evolvence on terms which, he contends, 17 are favourable to the Company and not unduly onerous. He contends that he was 18 acting in good faith and in the interests of the Company throughout and that he 19 assisted the Company in achieving a beneficial agreement with Evolvence which 20 it would not otherwise have been able to do. He denies that the Company would 21 or could have obtained any better agreement with any other company. 22 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 5

¶ [8] There are clearly material factual disputes between the parties, particularly as to 1 when Mr. Al Mazeedi was first made aware of Mr. Hayat’s potential or actual 2 interest in Evolvence, precisely when the Company became committed and/or 3 contractually bound to Evolvence and whether the contractual terms of the 4 agreement with Evolvence were unduly onerous for the Company and whether the 5 Company could have obtained better terms elsewhere. There is also a clear 6 dispute as to whether Mr. Hayat was acting in good faith. Clearly it is not for me 7 to attempt to resolve such conflicts of evidence on the basis of affidavits filed by 8 or on behalf of the parties at a summary judgment hearing and counsel for Mr. 9 Hayat accepted that. He proposed that the hearing before me should proceed on 10 the basis of certain correspondence which indicated that Mr. Al Mazeedi was 11 aware of Mr. Hayat’s interest in Evolvence at least by 13th April 2003 and I 12 accordingly proceeded upon that basis. 13 14

¶ [9] However, that does not entirely resolve the difficulty because there remains a 15 factual dispute as to when the Company actually became committed to the deal 16 with Evolvence, at least to the extent that it was not feasible to back out. Mr. Al 17 Mazeedi says that was on or about 24th April 2003, only about 10 days after it is 18 accepted that, for this purpose, disclosure of his interest in Evolvence was made 19 by Mr. Hayat, and Mr. Al Mazeedi points to a Company document issued at about 20 that time which incorporates the name of Evolvence. On the other hand, Mr. 21 Hayat contends that the Company was not contractually bound to Evolvence until 22 1st July 2003, almost 2½ months later, when a letter dated 1st May 2003 from 23 Evolvence confirming the terms of agreement was signed by the Company. I 24 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 6 clearly cannot and should not endeavour to resolve that conflict of evidence at a 1 summary judgment hearing. It is, however, a material issue because if Mr. Al 2 Mazeedi is right, Mr. Hayat did not disclose his interest in Evolvence until about 3 10 days before the Company became committed to Evolvence, whereas if Mr. 4 Hayat is right he did so some 2½ months before the Company was committed to 5 Evolvence. It seems to me that, in determining whether Mr. Hayat complied with 6 his fiduciary duties to the Company, the length of time in advance of the 7 Company’s commitment to Evolvence that Mr. Hayat disclosed his interest in 8 Evolvence is likely to be a significant factor. In fact, as I have pointed out, Mr. 9 Hayat’s pleaded case is that Mr. Al Mazeedi was aware of his actual or potential 10 interest in Evolvence considerably earlier and at least from the latter part of 2002. 11 That is hotly by Mr. Al Mezeedi but anyway, as explained it is not the basis on 12 which, by agreement, the summary judgment application proceeded. 13 14

¶ [10] What seems to me to be the issue of most significance raised in Mr. Hayat’s 15 defence, and one which his counsel submits is conclusive and therefore a basis for 16 the grant of summary judgment against the Plaintiff, concerns the indemnity and 17 exculpatory provisions in the Company’s Articles of Association in favour of a 18 director, such as Mr. Hayat. Article 146 provides that every director of the 19 Company “shall be indemnified out of the assets of the Company against any 20 liability incurred by him as a result of any act or failure to act in carrying out his 21 functions other than such liability (if any) that he may incur by his own wilful 22 neglect or default. No such Director, agent or officer shall be liable to the 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 7 Company for any loss or damage in carrying out his functions unless that liability 1 arises through the wilful neglect or default of such Director ……” The argument 2 for Mr. Hayat is that in negotiating with Evolvence as a director of the Company 3 on behalf of the Company he was clearly carrying out his functions as a director 4 of the Company. Accordingly, it is said, he is not liable to the Company for any 5 loss or damage unless that liability arises through his wilful neglect or default. 6 His counsel also contends that by reason of the indemnity given to Mr. Hayat by 7 Article 146, the Company has no cause of action against him. Reference was 8 made, in support of this proposition to Viscount of the Royal Court of Jersey v 9 Barry Shelton and Another [1986] 1WLR 985 in which it was said, in 10 considering similar company articles of association: “A company has no cause of 11 action against a director in respect of a matter against which the company had 12 agreed to indemnify him”. 13 14

¶ [11] In response to Mr. Hayat pleading this defence, the Company, in its Reply, 15 averred that Mr. Hayat’s liability for the loss and damage sustained by the 16 Company as a result of the unduly onerous terms of the contact with Evolvence, 17 did indeed arise through Mr. Hayat’s wilful neglect or default. However, counsel 18 for Mr. Hayat contended that the Company’s pleading (and particulars) in this 19 respect singularly fails to comply with the well-established requirements of 20 pleading such an allegation, a contention which counsel for the Company strongly 21 resisted. 22 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 8

¶ [12] I did not understand it to be materially disputed that there are two elements to 1 wilful default. First, there must be a default in the sense of a wrongdoing, in a 2 case like this a breach of duty, by the alleged wrongdoer. Secondly, and 3 importantly, in order to constitute a wilful default it must be pleaded and 4 established that the wrongdoer was actually aware at the time of his default that 5 his conduct thereby constituted a breach of duty or at least that the wrongdoer did 6 not care or was reckless as to whether or not his conduct constituted a breach of 7 duty. This principle is established by: In Re City Equitable Fire Insurance Co. 8 [1925] 1 Ch 407 per Romer J; In Re Vickery [1931] 1 Ch 572 per Maugham J; 9 and Armitage v Nurse [1998] 1 Ch 241 per Millett LJ. It was common ground in 10 the case before me that the Company does not seek to allege recklessness by Mr. 11 Hayat as to whether or not his conduct constituted a breach of duty and that the 12 issue here, if properly raised, is whether Mr. Hayat was actually aware at the time 13 that his conduct (in not disclosing his interest in Evolvence) constituted a breach 14 of his fiduciary duty to the Company as a director. 15 16

¶ [13] The Company’s Re-amended Statement of Claim sets out in considerable detail 17 its factual allegations with respect to Mr. Hayat’s failure to disclose his interest in 18 Evolvence until the Company was effectively committed to the agreement with 19 Evolvence and it was too late to pull out. However, there is no express reference 20 in the Re-amended Statement of Claim to wilful default on the part of Mr. Hayat 21 or express averment that he knew that such failure to disclose was a breach of his 22 duty to the Company. The words “wilful default” are only mentioned for the first 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 9 time in the Company’s Reply to Mr. Hayat’s Defence in which the provisions and 1 consequences of Article 146 in particular are pleaded. Counsel for Mr. Hayat was 2 critical of the Company’s failure to plead wilful default in its Statement of Claim 3 but it does not seem unreasonable to me for a plaintiff’s initial pleading not to 4 anticipate a possible specific defence, which may not be relied on, unless that 5 clearly is part of the pleaded circumstances or has already been made known, for 6 example in prior correspondence. The real issue is here whether the Company’s 7 pleading with regard to wilful default in its Reply and its subsequent Further and 8 Better Particulars are sufficient to properly found a claim of wilful default such 9 that the Company should be allowed to go to trial on that issue. Counsel for Mr. 10 Hayat argues that merely including the term “wilful neglect and/or default” in a 11 pleading is wholly insufficient and that in the absence of anything else the 12 Company is barred from bringing such a claim. He also says that the Company 13 anyway has no real prospect of success in establishing a wilful default by Mr. 14 Hayat. 15 16

¶ [14] In its Reply dated 4th March 2008 the Company pleads: “It is averred that the 17 plaintiff’s claims, and each of them, arise through the wilful neglect and/or default 18 of the defendant, and that as such, the defendant is not entitled to any indemnity”. 19 On 18th March 2009 in response to a Request by Mr. Hayat for Further and Better 20 Particulars of this averment the Company stated (with regard to the Evolvence 21 claim) as follows: “Full particulars are already provided at paragraphs 13 to 18 of 22 the Amended Statement of Claim. It is alleged that the breaches described and 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 10 particularised therein were wilful insofar as the defendant was acting with full 1 knowledge of his undisclosed conflict of interest and/or wilfully placed himself in 2 a position where he could take a secret profit”. 3 4

¶ [15] Counsel for Mr. Hayat argues strongly that the Company’s pleading in its Reply 5 and its Further Particulars as set out above entirely fail to comply with the 6 requirements of GCR O.18, r.12 (1) (a) or (b) or the authorities on wilful default 7 referred to above, and particularly the comments as to what is required to be 8 pleaded in such a case by Millett LJ in Armitage v Nurse (ibid). It was 9 particularly emphasized that these pleadings do not satisfy the well-established 10 requirements because the Company’s averments are equally consistent with an 11 innocent or honest explanation for Mr. Hayat’s knowledge or understanding of his 12 conduct. It was emphasized that neither does mere “incantation” of the words 13 “wilful default” carry the Company any further. 14 15

¶ [16] Counsel for the Company argued, equally strongly, that the facts pleaded in the 16 Company’s Re-Amended Statement of Claim clearly demonstrate in themselves 17 that the alleged breaches of duty by Mr. Hayat were wilful and that having regard 18 to the nature of the claim it was not necessary to specifically plead that Mr. Hayat 19 knew that his actions were in fact a breach of his duties to the Company. It is 20 clear from the authorities that if it is implicit in what is pleaded that wilful default 21 is involved or that the conduct which is alleged is self evidently wilful then it is 22 not necessary for the plaintiff to specifically plead that the defendant knew that 23 his actions were in fact a breach of duty. Reference was made to the recent ruling 24 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 11 of this Court in Renova Resources Private Equity Limited v Brian Patrick 1 Gilbertson and Others (14th April 2009 – unreported) in which the Court held that 2 the nature of the claim pleaded in that case was such that it was not necessary for 3 the plaintiff’s pleading to specifically use the words dishonest or dishonesty in the 4 context of what was being alleged against the first defendant as a director of the 5 plaintiff company. The Court considered that it was quite clear that the acts of the 6 first defendant which were alleged were, if established, self evidently dishonest 7 and that such dishonesty was implicit in what was pleaded. Reference was made 8 there to Armitage v Nurse (ibid) and Belmont Finance Corporation Ltd. v 9 Williams Furniture Ltd. [1979] Ch 250. In the present case Counsel for the 10 parties both noted, however, that it was also made clear in those cases that if the 11 facts pleaded are consistent with innocence on the part of the alleged wrongdoer 12 that his conduct is a breach of duty or where the facts are particularly 13 complicated, it is incumbent upon the party claiming dishonesty (or wilful 14 default) to make it quite clear that dishonesty or wilfulness is being alleged. 15 16

¶ [17] As I have said, counsel for the Company contended that it was implicit in the 17 detailed facts alleged in the Company’s pleading that wilfulness on the part of Mr. 18 Hayat was being alleged. He argued that the facts alleged were not consistent 19 with an innocent breach of duty and that it was simply not credible on the facts 20 alleged that Mr. Hayat’s failure to inform Mr. Al Mazeedi of his interest in 21 Evolvence was not an intentional breach of his obvious duty to the Company to 22 disclose his interest in Evolvence. In the circumstances pleaded, he submitted, 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 12 there was no other inference than that Mr. Hayat knew very well that his duty 1 required that he should disclose such an interest or potential interest as soon as he 2 acquired or might acquire it and well before he actually did, by which time the 3 deal was effectively concluded. As far as Mr. Hayat’s contention that he was 4 acting at all times in good faith and honestly, is concerned, that is a matter of fact 5 which is strongly disputed and should not be resolved without examination and 6 cross examination of Mr. Hayat and any other relevant witnesses at trial. Mr. 7 Hayat, of course, pleads that he disclosed his interest or potential interest in 8 Evolvence to Mr. Al Mazeedi in 2002 but, on the assumption on which this 9 application for summary judgment proceeded, it is in my view hard to see how the 10 failure to disclose his interest in Evolvence by Mr. Hayat prior to 13th April 2003 11 can reasonably be said to be consistent with bona fide compliance with his duty 12 not to put himself in a conflict of interest vis-a-vis the Company. While Mr. 13 Hayat’s bona fides is not a question that can be appropriately determined on this 14 application for summary judgment since it is hotly disputed issue, even if Mr. 15 Hayat did genuinely think that he was acting in the best interests of the Company, 16 there is written evidence that at least the Board of Evolvence thought he was 17 acting in the best interests of Evolvence, so clearly the requirements of a conflict 18 of interest were present and that must have been obvious. It does not seem to me 19 that Mr. Hayat’s failure to disclose his interest in Evolvence until about 13th April 20 2003, which is the breach of duty complained of, is, in all the circumstances 21 which are pleaded by the Company, compatible with an innocent explanation for 22 that failure. In my view it is indeed implicit in what is pleaded by the Company 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 13 that the alleged breach of duty by Mr. Hayat in not disclosing his interest in 1 Evolvence until 13th April 2003 was wilful and not innocent. In my judgment this 2 is a matter which is properly raised by the pleadings and particulars and is not a 3 matter which should be determined summarily. 4 5

¶ [18] It is, of course, the case that the indemnity and exculpatory provisions in the 6 Company’s Articles are only relevant in respect of the Company’s claim for loss 7 and damage. They are not relevant in respect of the Company’s claim against Mr. 8 Hayat for an accounting for his alleged secret profit arising by virtue of his 9 allegedly undisclosed interest in Evolvence. As far as the claim for loss and 10 damage is concerned, the Company pleads that Mr. Hayat’s breach of duty 11 resulted in the Company being committed to what, it claims, were the unduly 12 onerous terms of the agreement with Evolvence. The Company contends that 13 these terms do not reflect terms which could have been negotiated and agreed in 14 arms length negotiations between parties in the position of Evolvence and the 15 Company, that they were not appropriate for a business with the Company’s 16 business model and financial structure and do not reflect general practice or 17 industry standards at that time for the provision of services of the kind to be 18 provided by Evolvence. The Company claims that general practice for a more 19 standard arrangement would have involved different and less onerous terms and it 20 pleads the general nature of such different terms. It was argued on behalf of Mr. 21 Hayat that the particulars of the loss and damage claimed by the Company were 22 wholly inadequate and that the pleading did not enable Mr. Hayat to know the 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 14 amount of the claim which is made against him. It was pointed out that Further 1 and Better Particulars of the Company’s claim for loss and damage had been 2 requested but no further information about the quantum of the claim had been 3 made available to date. Counsel for the Company contended that sufficient 4 particulars were pleaded as to the basis for and nature of the loss and damage 5 claimed by the Company. He said that the Company would be calling expert 6 evidence as to the general practice and standard arrangements in agreements of 7 this kind and as to the more standard terms which could and would have been 8 achievable in an agreement negotiated at arms length. He submitted that it was 9 not necessary for a party to provide such expert evidence for purposes of a 10 summary judgment application and that it was not appropriate to consider the 11 precise quantum of loss and damage at such a hearing. In my view, having regard 12 to the circumstances of this case, that is correct. The particulars of the nature of 13 and general make up of the loss and damage claimed by the Company seems to 14 me to be sufficiently pleaded and the pleading is not such as to warrant a 15 conclusion that the Company has no prospect of a claim in respect of that claim. 16 17

¶ [19] Similar criticisms were made on behalf of Mr. Hayat with regard to the 18 Company’s claim for an accounting of profit made by Mr. Hayat as a shareholder 19 of Evolvence consequent upon Evolvence’s agreement with the Company, which, 20 it is alleged, he had persuaded the Company to enter into. However, in the 21 absence of discovery by Mr. Hayat as to the precise nature and extent of his 22 financial interest in Evolvence and the precise effect, if any, upon that of the 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 15 payments received by Evolvence under its agreement with the Company it is, in 1 my opinion, difficult to see what more could be pleaded by the Company in this 2 respect. It would seem to me to follow that if Mr. Hayat did act in the way 3 pleaded by the Company, with a simultaneous financial interest in Evolvence, he 4 would be required, in the normal course, to account for any profit which he had 5 made a result of this conflict of interest. I do not consider that in respect of this 6 head of claim either I can conclude at this time that the Company has no prospect 7 of such a claim. 8 9 10

¶ [20] In light of the material disputed facts in this matter, and having regard to my 11 assessment of the pleadings and particulars outlined above, I do not consider that I 12 can safely conclude, in the absence of examination and cross examination of the 13 relevant witnesses in particular, that the Plaintiff has no fair or reasonable 14 prospect of a claim with respect to the Evolvence claim. It is my view that the 15 claim can only be fairly and properly determined at trial. I therefore decline to 16 grant summary judgment against the Company and refuse Mr. Hayat’s application 17 to dismiss the Evolvence claim on a summary basis. 18 19

¶ [21] With regard to the charitable payment claim the background is that in about 20 March 2003 Mr. Hayat proposed to Mr. Al Mazeedi that, in accordance with Arab 21 tradition, it would be appropriate and desirable for the Company to make a 22 significant charitable donation to an, as yet unidentified charity. In response to 23 this suggestion on about 24th October 2003 the Company paid to Mr. Hayat the 24 sum of US$250,000 for purposes of his making such a charitable contribution on 25 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 16 behalf of the Company. Mr. Hayat was, of course, at that time one of the two 1 directors of the Company, Mr. Al Mazeedi being the other. The payment was 2 made by wire transfer to a bank account in the name of Mr. Hayat. However, 3 there was no doubt, and it is accepted, that this was the Company’s money and 4 that the charitable donation was to be made by Mr. Hayat in his capacity as a 5 director and on behalf of the Company. 6 7

¶ [22] There is a factual dispute between the parties as to whether in late October or 8 November 2003 Mr. Al Mazeedi, as a director of the Company, orally requested 9 Mr. Hayat to provide details of when and to whom the charitable donation was to 10 be or and for evidence of the donation to be provided to him or the Company. 11 Whether or not such oral request was made, in fact Mr. Hayat did not inform Mr. 12 Al Mazeedi or the Company of when and to whom the Company’s charitable 13 donation was made or provide any documentary evidence of the donation. As I 14 have mentioned, the Company’s Writ and Statement of Claim were issued on 27th 15 September 2007 and at that time the Company pleaded that no information or 16 evidence in relation to the proposed charitable donation by Mr. Hayat on behalf of 17 the Company had ever been received by the Company and claimed inter alia an 18 accounting by Mr. Hayat as a director in respect of the sum of US$250,000. In 19 his original defence filed on 19th February 2008 Mr. Hayat pleaded that, apart 20 from a request by email in 2003, no enquires were made of him in respect of the 21 charitable donation by the Company and went on to plead that if such an enquiry 22 had been made prior to the issue of the Writ he would have informed the 23 Company and/or Mr. Al Mazeedi of the details of the charitable donation. Mr. 24 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 17 Hayat also pleaded that he paid the charitable donation to a named educational 1 establishment in Iraq on 28th October 2003 same 4 days after the Company paid 2 the money over to him. However, even then no documentary evidence to vouch 3 that was produced or offered by him. Subsequently, on 12th December 2008 an 4 order was made on a Summons for Directions for the parties to exchange Lists of 5 Documents within 56 days of that date. However, Mr. Hayat did not comply with 6 that direction and on 30th March 2009 an unless order was made that if he did not 7 serve his List of Documents by 1st June 2009 his Defence and Counterclaim 8 would be struck out. Eventually, in compliance with the unless order Mr. Hayat 9 provided documentary evidence to vouch the payment of the charitable donation 10 US$250,000 to the named educational establishment in Iraq. 11 12

¶ [23] According to Mr. Hayat’s affidavit evidence he had in his possession a receipt for 13 the charitable payment from December 2003 and he claimed that if he had been 14 asked to do so he would have provided it to Mr. Al Mazeedi or the Company. He 15 also states that after the present proceedings were commenced in 2007 he 16 requested a letter from the educational charity further confirming the payment to 17 it by Mr. Hayat, which letter was duly provided to him at that time. It therefore 18 appears that at least since late 2003 Mr. Hayat has been possession of a receipt 19 vouching the payment of the charitable donation and since shortly after these 20 proceedings were served in late 2007 he has been in possession of a letter from 21 the charity further confirming receipt of the charitable payment. However it 22 appears that Mr. Hayat at no time proffered either of these to Mr. Al Mazeedi or 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 18 to the Company or their lawyers and only produced them when required to do so 1 pursuant to the unless order for discovery made by this Court on 30th March 2009. 2 Accordingly the Company has now eventually received from Mr. Hayat the 3 information and documentation with regard to the charitable donation which is the 4 subject of the charitable donation claim instigated in 2007. In the circumstances, 5 the Company now seeks judgment against Mr. Hayat in respect of that claim with 6 indemnity costs in light of Mr. Hayat’s allegedly unjustified delay in producing 7 such information and documentation. 8 9

¶ [24] Counsel for Mr. Hayat pointed out that in its pleading the Company bases the 10 charitable payment claim on a contention that from the time the US$250,000 was 11 paid to Mr. Hayat, the money was held by him on trust for the Company and that 12 consequently it was entitled to an accounting for the money or at least information 13 as to how it had been dealt with by Mr. Hayat. It was argued on behalf of Mr. 14 Hayat that as a matter of trust law this analysis was wrong. He submitted that the 15 correct analysis was that from the time the Company provided the funds to Mr. 16 Hayat, the Company was in the position of a settlor of a charitable trust and that 17 Mr. Hayat held that money as trustee on trust for the benefit of the beneficiary, 18 namely charity. There was no need for a settlor of a general charitable trust to 19 specify any particular charity, the particular charity to be benefitted could always 20 be left to the trustee to select in its direction. It was said that as a matter of trust 21 law a trustee is only liable to account to the beneficiaries, in this case charity and 22 has no obligation to account to the settlor. Accordingly, it was argued, Mr. Hayat 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 19 had no duty to account for the trust money to the Company and no legal 1 obligation to provide to the Company the information or documentation which the 2 Company claimed. 3 4

¶ [25] Counsel for Mr. Hayat was also critical of the Company for having done and said 5 nothing about this issue since November 2003 and having only raised it through 6 service of these proceedings in 2007. 7 8 9

¶ [26] The response of counsel to the Company to this legal analysis was to point out 10 that at all relevant times Mr. Hayat was acting as a director and on behalf of the 11 Company and consequently as an agent and, in some sense, trustee, for the 12 Company and that as such he was under the “clearest obligation to keep proper 13 accounts of [his] receipts and payments, dealings and transactions on behalf of the 14 Company”. (See Palmer on Company Law - 12th Edition page 237). Accordingly 15 it was contended that even if, in a sense Mr. Hayat was holding the Company’s 16 money in trust for the purpose of making a charitable donation, that did not in any 17 way obviate his clear duty to the Company as a director to account for his dealing 18 with its money. 19 20

¶ [27] In the circumstances I prefer the analysis of counsel for the Company. Whether 21 or not it is a correct analysis that Mr. Hayat was in the circumstances holding the 22 US$250,000 as a trustee for the purpose of making a charitable donation on behalf 23 of the Company as settlor, I do not consider that detracts from Mr. Hayat’s clear 24 obligation as a director of the Company, on whose behalf this was being done, to 25 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 20 account to the Company for his use of its money and to provide the Company 1 with a proper receipt from the charitable organization to whom he paid the money 2 on behalf of the Company. As a matter of comment, I find it surprising, to say the 3 least, that one of the two directors of a company who had been entrusted by the 4 company to make a significant charitable donation with company funds on its 5 behalf should apparently not consider it necessary or appropriate to promptly 6 inform the other director of the company precisely how the money had been spent 7 and to provide an appropriate receipt or other written evidence of that. All parties 8 accept that there is no doubt that this was to be a donation by the Company and I 9 would have thought it almost self evident that the director responsible for dealing 10 with the Company’s money in this manner on its behalf should account fully to 11 the Company for his dealings. 12 13

¶ [28] In the whole circumstances of this matter, the facts of which are not materially 14 disputed, I find the statement by Mr. Hayat that if he had only been asked to 15 produce a receipt to the Company he would have done so, quite unconvincing. 16 Criticism was made by counsel for Mr. Hayat of the failure by the Company to 17 send a letter before action before commencing these proceedings and it was 18 submitted that Mr. Hayat would have responded to such letter by producing the 19 receipt, which had by then been in his possession for almost four years. This, it 20 was argued, would have avoided the need for the charitable payment claim to be 21 made in these proceedings at all. In light of the fact that Mr. Hayat only finally 22 produced the receipt for the charitable payment almost two years after these 23 E:\2010 JUDGMENTS\03-12-09 BTU Power v Adul Mohsen Hayat.doc 21 proceedings were issued and then only in response to an unless order of this 1 Court, I do not find that submission at all persuasive. I can see no good reason 2 why Mr. Hayat could not have provided the receipt to the Company shortly after 3 he obtained it in 2003 and I am persuaded by the argument that as a director of the 4 Company it was his duty to do so. At the very least there is no reason, if what he 5 says about his willingness to do so is true, why he could not have produced the 6 receipt to the Company or its attorneys on being served with these proceedings in 7 2007 or even together with his Defence in early 2008. 8 9

¶ [29] In my opinion, in the circumstances surrounding this matter the Company should 10 have judgment against Mr. Hayat on the charitable payment claim and I so order. 11 Furthermore in the exercise of my discretion having regard to the history of this 12 claim and Mr. Hayat’s apparent intransigence, despite what he says I order that 13 Mr. Hayat shall pay the Company’s costs in respect of the charitable payment 14 claim, including the costs of this hearing insofar as relating to that claim, on an 15 indemnity basis. Mr. Hayat shall also pay the Company’s costs in respect of the 16 balance of this application relating to the Evolvence claim on the standard basis, 17 all such costs to be taxed if not agreed. 18 19 20 21 22 23 24 Dated 3rd December 2009 _____________________________ 25 The Hon. Mr. Justice Angus Foster 26 Judge of the Grand Court 27