BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| ST VINCENT EUROPEAN GENERAL PARTNER LIMITED
|- and -
| BRUCE ROBINSON
WINTERBOURNE PTE LIMITED
PPL WINTERBOURNE LIMITED
MOLYNEUX INVESTMENTS LIMITED
THISTLE AVIATION LIMITED
ALASTAIR NICHOLSON (deceased, through the administrator of his estate, Alistair David John Nicholson Jr)
KOREA FUEL-TECH POLAND SP. Z.O.O.
MACDONALD & PARTNERS LIMITED
PICTON JONES (ASSET MANAGEMENT) LIMITED
HAUSSMANN DEVELOPMENTS POLSKA SP. Z.O.O.
Clare Stanley QC (instructed by Clyde & Co LLP) for the 1st, 3rd and 5th Defendants
Thomas Braithwaite (instructed by ASB Law) for the 4th, 6th and 11th Defendants
Jason Evans-Tovey (instructed by Aaron & Partners) for the Proposed 12th Defendant
Tom Roscoe (instructed by DWF LLP and Temple Bright LLP) for the Proposed 13th (DWF) and 14th (Temple Bright) Defendants
Ben Quiney QC and Carlo Taczalski (instructed by Mills & Reeve LLP) for the Proposed 15th Defendant
The Proposed 16th Defendant was not represented
Hearing dates: 9 and 10 May 2018
Crown Copyright ©
Mr Justice Males :
(1) an application by the 1st, 3rd and 5th defendants ("the Robinson defendants") to strike out the claim against them, alternatively for summary judgment;
(2) an application by the 4th, 6th and 11th defendants ("the Nicholson defendants") to strike out the claim against them, alternatively for summary judgment;
(3) an application by the claimant ("St Vincent") to re-amend its Particulars of Claim against the existing defendants and to add five new defendants to the claim.
"In essence, the court must, taking account of the overriding objective, balance the injustice to the party seeking to amend if it is refused permission, against the need for finality in litigation and the injustice to the other parties and other litigants, if the amendment is permitted. There is a heavy burden on the party seeking a late amendment to justify the lateness of the application and to show the strength of the new case and why justice requires him to be able to pursue it."
"38. Drawing these authorities together, the relevant principles can be stated simply as follows:
a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;
b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;
c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;
d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;
e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;
f) it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;
g) a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so."
(1) countersigned the executed share transfer forms to effect a transfer of the shares in HHL to Winterbourne Pte, a company incorporated in Singapore which was owned and controlled by Mr Robinson, as nominee of the Creditors;
(2) completed the signed letters of resignation so as to remove the directors of HHL and replace them with Mr Robinson and another;
(3) procured the removal of Simon Lees, who had been appointed by St Vincent as the President of the Management Board of HDP and replaced him with Mr Robinson.
"… I just wanted to update you on the proposed repayment of your group's debt, interest and legal fees. I requested and now have received a print off of the total amount outstanding from the accountant of St Vincent which amounts to a figure of a little short of EUR2.1 million.
In addition I have been in contact with our JV partners in Poland and a member of the board will be able to fly to London … on Monday 22nd August to meet with you. This way you can speak to the cheque writer.
Please also note that I have requested proof of funds as you requested and this is being arranged but I can assure you that the JV agreement has been signed and is subject to repaying your debt and your group handing back full control of the shares in HHL and at the HDP level. It is understood by us both that the charges will be left in place on the Cross Point land properties but controlled by our joint venture company and that you will leave us to deal with the courts and other creditors. We are fully aware of the pending bankruptcy and will handle all legal matters directly with the court administrator.
… I have been asked, as you will appreciate, the cost of the legal fees and disbursements that you and your group have incurred and perhaps you can obtain this from your lawyers and have this at least ready for our meeting."
"… Please advise me of the identity and any information you have about your joint venture partner. We will contact them direct to establish their bona fides, and if satisfactory, will arrange for them to meet the administrator if he is willing.
I note from your email that your [sic] in touch with St Vincent, who do not reply to any of our correspondence. …
Please remember that we are under no obligation to settle with you at the price you indicate. The administrator decides the amount of debt and attributable costs, and in any event his authority does not extend to the ownership of the shares. …
Please be advised that Winterbourne acts for the Polad Group and has the full authority of all members of the Group, who have asked that as you are now in contact with me you do not correspond with them further …"
"The only missing figure is the amount for the fair and reasonable legal costs incurred by yourself and in this respect please note that as I represent the equity investors I would mention that they are not prepared to pay any sum that cannot be fully substantiated or are not directly relevant to the recovery of your/your group's aforementioned debt.
HDP creditors whom I have dealt with directly – the majority by value – are not convinced that anybody has any funds to resolve the current bankruptcy situation. The JV clearly does. Once we have agreed terms between us, and I aim to do so as amicably as possible, I will introduce myself and my plans together with the JV partners and major creditors to the court administrator to table a workable solution which satisfies everybody. These negotiation [sic] would not include yourself/Winterbourne in any capacity. …
All that I wish to achieve is to reach a fair conclusion which includes settling your debt and in this respect please note that I will be party and present to all negotiations whether at home or in Poland. As I had mentioned before I wish to conclude this simply, subject to observing any legal requirements and of course with your full cooperation. You receive the money owed under the original Agreement and we take over everything from that point."
"… for the avoidance of doubt, we are not obliged to treat with you. You are not in any position to demand anything whatsoever from us.
I will continue discussions with you when I know who I'm dealing with, have been able to establish their credentials, am satisfied with their ability to perform, and have discussed matters with the administrator. In the meantime I will not deal with any further correspondence."
(1) Mr Hassall (on behalf of St Vincent) informed Mr Robinson that St Vincent was ready, able and willing to pay and discharge the debts it owed to the Creditors, together with all expenses and other sums to which the Creditors were entitled.
(2) Mr Scully confirmed that the funding was available to enable St Vincent to pay the Creditors.
(3) Mr Robinson refused to confirm that the Creditors would accept the payment referred to, stating that a payment in excess of €3m would be required, plus a further "fee" for himself.
(4) Mr Robinson privately indicated that the inflated sum he was demanding would enable him to "carve out a slice" for Mr Hassall, which Mr Hassall took to be the offer of a bribe.
"… I am working on putting together a more attractive solution based on what we privately discussed yesterday that will be to our mutual benefit … I know that you do not wish to go down a protracted legal battle … and I would not recommend anyone to do so if we can reach a settlement that is financially attractive to you."
"To clarify, the link with St Vincent was severed when we took possession of the Cyprus company, the transfer subsequently is an administrative detail. …"
"… We have rescued this project while everyone else has done nothing, we are not about to step down or cede control now."
"Therefore the consensus (the investors I represent and HDP creditors) is to offer you the EUR 2.1m because it is widely understood that you/Winterbourne are owed no more as a secured creditor, plus reasonable legal fees deemed to be fair and appropriate however you have seized ownership in Cyprus in HHL or made subsequent changes to the ultimate ownership of HDP which is of no relevance in determining the fair and reasonable settlement of EUR 2.1m plus legal costs. Please see the attached basis of calculation to see how the E2.1m has been derived at. Such amount will be paid as soon as the terms are clarified and agreed including exchanging the receipt of funds for total ownership and control of HDP without any action or claims against you by the investors and creditors. The creditors will shortly be providing to the courts (via your close friend the court administrator) evidence substantiating the acceptance of the Joint Venture offer. We will also ensure, as you requested, that employment will continue for the staff currently on site. That deals with 2 of the 3 points you wished me to cover in concluding your acceptance of a cash settlement; the third point was for you to be paid EUR500,000 cash on top, this has not gone down particularly well. Although I have not been directly in contact with John Clark and Alistair McDonald [sic] I understand that inevitably there has been relevant professional fees incurred to date which I have arranged with the JV partners to be fully settled in cash.
Perhaps you could respond so that I can inform everyone accordingly so that we can settle this matter promptly both on the ground in Poland and in the UK. As already stated, through the Joint Venture agreement with Alterco/Reinhold we are offering you a cash solution for your group represented by Winterbourne and we would be happy to meet again to discuss this in greater detail. Please confirm your willingness to meet. …"
St Vincent's existing claims
The judgment of Phillips J
Asset stripping and reflective loss
"I am in any event satisfied that the reflective loss principle applies with full force to St Vincent's claims in these proceedings."
Should there be summary judgment for the defendants on the existing claims?
(1) The judgment of Phillips J does not create any issue estoppel.
(2) Phillips J addressed only two elements of St Vincent's pleaded case, the "tender" claim and the "asset stripping" claim against the Robinson defendants.
(3) The test for summary judgment is that a claim has no realistic prospect of success, which is a less demanding test than the test of good arguable case required to obtain or maintain a freezing order.
(4) There is now additional evidence before the court on the merits of St Vincent's claims.
"In the absence of any clear authority to support the proposition that the plaintiff was not obliged to give a redemption statement in those circumstances, I am prepared to proceed at this interlocutory stage on the assumption that the plaintiffs were obliged to provide a redemption statement. I consider that there is practical force in the defendant's contention that the way that the property markets work, is that mortgagors who give mortgagees notice of a desire to sell expect to be given redemption statements so that they and their solicitors know how much of the money will have to be paid over on completion to the mortgagee and what balance remains in favour of the mortgagor.
I have not seen any authority which supports the contention in law, and it is fair to say in the plaintiff's favour there are cases which suggest that, if the defendant is right on this point, it could represent a change of the law in favour of mortgagors. Nonetheless, I think that it is an arguable point and not one on which I would want to base any decision shutting out the defendant at this stage."
Asset stripping and reflective loss
"(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. … (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. … (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other."
"48. St Vincent's case is that damages it claims in each case are to be assessed by reference to the value of the HHL shares (as represented by the value of the HDP shares and thus the value of the Cross Point Development) in August 2011, or alternatively September 2011 or alternatively October 2011 or alternatively June 2014 or alternatively such date as the court deems fit. The value of HHL shares, the HDP shares and the Cross Point Development are a matter of expert evidence, for which St Vincent will seek permission in due course.
49. Further, or in the alternative, St Vincent will seek compensation based on its lost opportunity, through its shareholding in HHL and control of HDP, to develop the Cross Point Development to the extent allowed by the outline planning permission that existed and thereby increase the value of: (i) the HDP shares; and (ii) consequently the HHL shares. However, St Vincent's case is that this is no less than €30 million."
"53A.1 Its loss is not the loss in value of the HHL shares, its loss is the failure of the Creditors to restore what was due to it as pledgor/mortgagor and/or the failure of the Creditors to repay to it the true residual value of the security after payment of the Creditors' debts and HDP's debts."
"49. It is clear from the analysis and discussion in the cases to which I have referred, that the rule against reflective loss is not concerned with barring causes of action as such, but with barring recovery of certain types of loss. On that basis, there is obviously a powerful argument for concluding as this court did in Shaker's case [Shaker v Al-Bedrawi  EWCA Civ 1452,  Ch 350], that, whether the cause of action lies in common law or equity, and whether the remedy lies in damages or restitution, should make no difference as to the applicability of the rule against reflective loss. Furthermore, given that the foundation of the rule is the need to avoid double recovery, there is a powerful case for saying that the rule should be applied in a case where, in its absence, both the beneficiary and the company would be able to recover effectively the same damages from the defaulting trustee/director."
The Giles v Rhind exception
"34. One situation which is not addressed is the situation in which the wrongdoer by the breach of duty owed to the shareholder has actually disabled the company from pursuing such cause of action as the company had. It seems hardly right that a wrongdoer who is in breach of contract to a shareholder can answer the shareholder by saying, 'The company had a cause of action which it is true I prevented it from bringing, but that fact alone means that I the wrongdoer do not have to pay anybody'.
35. In my view there are two aspects of the case which Mr Giles seeks to bring which point to Mr Giles being entitled to pursue his claim for the loss of his investment. … Second, even in relation to that part of the claim for diminution which could be said to be reflective of the company's loss, since, if the company had no cause of action to recover that loss the shareholder could bring a claim, the same should be true of a situation in which the wrongdoer has disabled the company from pursuing that cause of action."
"66. To put the point more starkly, the effect of the judge's decision – as he himself recognised – is that a wrongdoer who, in breach of his contract with the company and its shareholders, 'steals' the whole of the company's business, with the intention that the company should be so denuded of funds that it cannot pursue its remedy against him, and who gives effect to that intention by an application for security for costs which his own breach of contract has made it impossible for the company to provide, is entitled to defeat a claim by the shareholders on the grounds that their claim is 'trumped' by the claim which his own conduct was calculated to prevent, and has in fact prevented, the company from pursuing. That were, indeed, the law following the decision in Johnson v Gore-Wood & Co  2 AC 1, I would not find it easy to reconcile the result with Lord Bingham of Cornhill's observation, at p 36C, that 'the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily denied fair compensation'."
"(1) a loss claimed by a shareholder which is merely reflective of a loss suffered by the company – i.e. a loss which would be made good if the company had enforced in full its rights against the defendant wrongdoer – is not recoverable by the shareholder [save in a case where, by reason of the wrong done to it the company is unable to pursue its claim against the wrongdoer]; (2) where there is no reasonable doubt that that is the case, the court can properly act, in advance of trial, to strike out the offending of claim; (3) the irrecoverable loss (being merely reflective of the company's loss) is not confined to the individual claimant's loss of dividends on his shares or diminution in the value of his shareholding in the company but extends … to 'all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds" …; (4) the principle is not rooted simply in the avoidance of double recovery in fact; it extends to heads of loss which the company could have claimed but has chosen not to and therefore includes the case where the company has settled for less than it might …; (5) provided the loss claimed by the shareholder is merely reflective of the company's loss and provided the defendant wrongdoer owed duties both to the company and to the shareholder, it is irrelevant that the duties so owed may be different in content."
"60. Secondly, over and above any point that might be taken on the pleadings, it is important to bear in mind the limits of the exception established in Giles to the rule against reflective loss. As was made clear by Lord Millett in Johnson at 66D-E, cited above in paragraph 30, the mere fact that the company chooses not to claim against the defendant, or settles with the defendant on comparatively generous terms, does not, at least without more, justify disapplying the rule against reflective loss (and in this connection it is perhaps worth noting that he was supported by similar observations in this court in Prudential at 223E-F). Accordingly, the court must be satisfied that the sort of circumstances described in Giles by Waller LJ at paragraph 34 or by Chadwick LJ at paragraph 66 exist, before the fact that the company has abandoned, or settled on apparently generous terms, its claim against the defendant, justifies disapplying of the rule against reflective loss.
61. In my judgment, there was simply no evidence before the judge to support the contention that the release of Mr Parker, as contained in the 1995 Settlement, was forced upon Scoutvale by Mr Parker, let alone that Scoutvale was prevented from pursuing Mr Parker because of its impecuniosity, or even that any such impecuniosity had been caused by the wrongdoing alleged in the reamended statement of claim against Mr Parker.
62. The mere fact that Scoutvale was in administrative receivership plainly did not of itself prevent that company starting an action, as is evidenced by the existence of the s423 proceedings. Further, in paragraph 47 of his judgment, the judge said that:
'It is not suggested by [counsel then appearing for Mr Gardner] that it can be shown (and it is certainly neither pleaded nor a matter of common ground between the parties) that Scoutvale was disabled from pursuing any claim against Mr Parker by reason of a lack of financial means caused by his wrongdoing. On the contrary, [counsel] very fairly conceded in his skeleton argument that 'the financial pressures on … Scoutvale … may have that effect [i.e. an inability to pursue any claim against Mr Parker] independent of any action taken by Mr Parker to deplete its assets'. Nor does the fact, if fact it be, that Mr Parker has continued to control Scoutvale mean that Scoutvale has been disabled from bringing a claim'."
"58. … The loss referred to in paragraph 190Y is reflective loss. The shares are said to be worthless in the relevant circumstances and that loss is the loss of the value of the company's asset. The important question, it seems to me, is whether this is within Giles v Rhind. I'm not satisfied that it would be impossible for the company to sue for that loss. The fact is that the company simply chooses not to do so, no doubt, assuming the conspiracy was proven, because the conspirators control it at least to the level of leaving it deadlocked. The company could bring a derivative claim if it wanted to and I'm satisfied that Giles v Rhind as explained in Kazakhstan Kagazy Plc v Arip does not apply to permit this claimant to bring this claim for reflective losses."
"59. The difficulty for St Vincent in this regard is that it brought proceedings against both the Creditors and HHL in Cyprus between 2013 and 2015. It is unclear why such claim could not have included a derivative claim against Mr Robinson and PPL as equitable shareholder (both the holder of the shares and the company being parties). After the first day of the hearing before me Mr Downes sought permission to adduce a further witness statement dealing with the present difficulties in bringing a derivative claim in the name of HHL. I refused permission to rely on that evidence, the issue having been known to St Vincent for some time and Mr Robinson and PPL having no opportunity to respond. But in any event, I did not understand that evidence to deal with the position in the years 2013 to 2015.
60. Mr Downes referred to s.260 of the Companies Act 2006 (assuming for these purposes that the law of Cyprus is the same as the law of England), which refers to derivative claims by a member of a company, suggesting that such a reference limits derivative claims to those brought by a registered shareholder (in this case PTE, the nominee of the Creditors). Whilst that may be so, I see no reason why an equitable shareholder (as it is accepted St Vincent must be) cannot bring such a claim in the name of the legal holder of the shares, joining them to the proceedings if appropriate so as to perfect the cause of action."
Conclusion on reflective loss
The proposed amendments
"… Working from first principles however it is plain that, provided the defendant can show a prima facie defence of limitation, the burden must be on the claimant to show that the defence is not in fact reasonably arguable. The claimant is after all in effect inviting the court to make a summary determination that the defence of limitation is unavailable. If the availability of the defence of limitation depends upon the resolution of factual issues which are seriously in dispute, it cannot be determined summarily but must go to trial. Hence it can only be appropriate at the interlocutory stage to deprive a defendant of a prima facie defence of limitation if the claimant can demonstrate that the defence is not reasonably arguable."
(1) there will be summary judgment for the existing defendants.
(2) the application to re-amend the Particulars of Claim and to join additional defendants is refused.