High Court of Ireland Decisions

Bluzwed Metals Ltd. v. Transworld Metals S.A. [2004] IEHC 23 (4 February 2004)

 
THE HIGH COURT

Record No 1999 NO. 51 COS

IN THE MATTER OF TRADALCO LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 1990

BETWEEN

BLUZWED METALS LIMITED

CLAIMANT

AND TRANSWORLD METALS S.A.

RESPONDENT

JUDGMENT of Miss Justice Laffoy delivered on 4^th February 2004.

The application

This is the claimant's application for an order striking out the respondent's points of defence and dismissing the respondent's points of counterclaim for failure to furnish proper replies to the claimant's notice for further and better particulars dated 23^rd October 2001 as directed by order of this Court dated 19^th November 2002.

Background

Tradalco Limited (the Company) was incorporated in the State on 27^th October 1995 as a company limited by shares. The claimant, a company registered in the British Virgin Islands, and the respondent, a company registered in the Bahamas, are each fifty per cent shareholders in the Company. These proceedings were initiated by a Petition issued on 24^th March 1999 in which the claimant sought an order pursuant to Section 213 (f) of the Companies Act 1963 that the Company be wound up on the ground that it was just and equitable to do so, it being alleged that the relationship of mutual trust and confidence which theretofore existed between the claimant and the respondent had irretrievably broken down. The respondent is resisting the winding up of the Company and is counterclaiming for orders under Section 205(3) of the Act of 1963 for various reliefs, including –

(i) an order directing the claimant to return to the Company the value of all assets and moneys (including diverted profits) of the Company alleged to have been misappropriated by the claimant, and

(ii) an order directing the claimant to purchase the shares of the respondent in the Company at a value fixed on a basis which measures the worth of the Company and its assets by reference to the value the Company and its assets would have had if the claimant had not been guilty of alleged wrongdoing and had accounted for all sums due and owing.

By order dated 17^th May 2001 made by this Court (Lavan J.), William O'Riordan was appointed provisional liquidator (the Provisional Liquidator) of the Company. The Provisional Liquidator is not involved in these proceedings.

Underlying the Company there was a joint venture relationship between the claimant and the respondent, each of which was involved in worldwide aluminium trading. It is common case that there was agreement between the joint venture partners that certain trading operations of the joint venture would be carried out through the Company. These trading operations are described in the claimant's points of claim as tolling operations, sales and purchase operations and import and export operations with regard to various raw materials (such as alumina, petroleum coke, fluorspar) and aluminium products at different production plants located in the Russian Federation. There is a dispute as to the duration of this arrangement.

The Law

It is also common case that the legal principles in relation to the role of particulars in civil litigation were outlined by the Supreme Court in McGee v. O'Reilly [1996] 2 I.R. 229, where (at p. 233) Keane J., as he then was, having stated that, in considering whether particulars should be ordered, the purpose of pleadings, of which particulars form part, must be borne in mind, quoted the following passage from the judgment of Fitzgerald J., as he then was, in the Supreme Court in Mahon v. Celbridge Spinning Company Limited [1967] I.R. 1:

"The whole purpose of a pleading, be it a statement of claim, defence or reply, is to define the issues between the parties, to confine the evidence of the trial to the matters relevant to those issues, and to ensure that the trial may proceed to judgment without either party being taken at a disadvantage by the introduction of matters not fairly to be ascertained from the pleadings. In other words a party should know in advance, in broad outline, the case he will have to meet at the trial."

Later, at p. 234, Keane J. stated:

"In our system of civil litigation, the case is ultimately decided having regard to the oral evidence adduced at the trial. The machinery of pleadings and particulars, while of critical importance in ensuring that the parties know the case that is being advanced against them and that matters extraneous to the issues as defined will not be introduced at the trial, is not a substitute for oral evidence of witnesses and there cross examination before the trial judge."

Claimant's Submissions

Counsel for the claimant drew attention to the observations of Keane C.J. at the end of his judgment in Orange Limited v. Director of Telecoms (No. 2) [2000] 4 IR 159 (at p. 202), in which the Chief Justice commented on the length of the trial and the appeal and the need for case management of complex commercial litigation. The claimant recorded a concern that, as the respondent has not commenced proceedings in any other jurisdiction in relation to the alleged underlying partnership or joint venture arrangements, these proceedings are being used as a means of attempting to try matters in which the Irish courts have no jurisdiction and, in particular, claims in relation to the alleged underlying joint venture and the alleged misappropriation of assets from that joint venture. The respondent must particularise with clarity the claims which it is seeking to make in these proceedings so that the Court is only required to determine those claims properly within its jurisdiction and, in particular, those claims which properly relate to the Company and not to the alleged underlying joint venture, it was asserted.

Particulars were first sought by the claimant in a notice dated 22^nd December 1999. At the hearing of this application counsel for the claimant identified the following paragraphs of the notice as not having been properly replied to:

paragraphs 1(f), 7(a), 7(d), 7(e), 7(f), 9(b), and 9(e) to (g). The claimant's contention is that the respondent from the beginning has refused to clarify two fundamental matters, namely:

(a) what assets are alleged to have been misappropriated from the Company as opposed to assets allegedly misappropriated from the alleged "joint venture" itself or other "joint venture" companies?

(b) what assets belonging to the Company are alleged to have been misappropriated by the claimant as opposed to have been misappropriated by someone else who is not a party to the proceedings?

It was submitted that the Court might deal with the principles which those two questions raise, rather than address the minutiae of the requests for particulars and the replies. To do so in a meaningful way, it seems to me that it is necessary to illustrate the issues and the conclusions by reference to one of the disputed items. I propose to do so by reference to paragraph 7(a) of the notice of 22^nd December 1999.

Paragraph 7(a)

The elements of the pleadings which appear to me to be relevant to paragraph 7(a) are as follows:

(1) Points of claim

In the points of claim (delivered on 14^th June 1999) the claimant pleaded that the then net asset value of the Company, after discharging all liabilities other than liquidation costs and expenses, was in the region of US$24,400,000.

(2) Points of defence and counterclaim

Points of defence and counterclaim were delivered on 15^th October 1999. Subsequently, amended points of defence and counterclaim were delivered on 17^th January 2003 pursuant to an order of this Court (Lavan J.) made on 19^th November 2002. I propose to refer to the amended points of defence and counterclaim. In paragraph 4, by way of response to paragraph 8 of the points of claim in which the claimant pleaded an agreement between the parties appointing the Company its nominee for the purpose of jointly carrying out certain tolling operations, the respondent pleaded the terms of the joint venture agreement between the parties. In paragraph 4(g) it was pleaded that, in addition to the Company, the trading operations of the joint venture after October 1995 were conducted through certain named joint venture companies, including Alucor Trading S.A. (incorporated in the Bahamas on 18^th July 1997), of which the claimant and respondent are fifty per cent shareholders. In paragraph 13 the respondent pleaded that "the claimant its servants or agents and/or those controlling or interested in it" caused certain petroleum coke shipments (the property of the Company) to be diverted to Alucor Trading S.A. (Alucor BVI), a company which they had incorporated in the British Virgin Islands. Particulars were then given of this allegation in which it is alleged as follows:

(a) That in September 1997 the claimant incorporated Alucor BVI (which deliberately bore the same name as the legitimate joint venture company incorporated in the Bahamas) in order to divert assets away from the Company and the other joint venture companies;

(b) That two consignments of petroleum coke were appropriated by Alucor BVI, details being given of the agent of the claimant, Dimitri Romanov, who was alleged to have given instructions in relation to filling out the bills of lading and the relevant dates thereof, the quantity involved in each consignment, the vessel used for each shipment, the sales invoices, the value of the consignments per metric tonne according to the invoices, the value of the consignments (including transport costs) per metric tonne based on figures set out in a Report of the company's auditors on an interim audit carried out in 1998, and the total value of the consignments;

(c) That certain other stocks of petroleum coke held by the Company were transferred to Alucor BVI, giving details of the quantity, the vessels, the sales invoices, the value per metric tonne according to (i) the invoices, and (ii) the interim audit, and the total value; and

(d) That the total value based on the interim audit, of the petroleum coke wrongfully diverted was US$2,110,327 (including transport costs for delivery to a plant in Russia).

(3) Notice for particulars dated 22^nd December 1999

In paragraph 7(a) of the claimant's first notice for particulars, with regard to paragraph 13 of the points of defence and counterclaim, the claimant asked the respondent to identify the assets allegedly diverted away from the Company by Alucor BVI. The respondents replied on 12^th September 2001. Following the amendment of the points of defence and counterclaim, amended replies were furnished on 17^th February, 2003. The essence of both replies was that the assets diverted were the shipments of petroleum coke shipped on the vessels named in the particulars to paragraph 13.

(4) Notice for further and better particulars dated 23^rd October 2001.

In this notice the claimant posed five questions in relation to paragraph 7(a), the first two directed to whether it was being alleged that assets of the Company or assets of some other entity were misappropriated (which, for the sake of brevity, I will refer to as "the ownership issue") and the remaining three directed to identifying by whom it was alleged assets of the Company had been misappropriated (which, for the sake of brevity, I will refer to "as the identity issue").

In relation to the ownership issue, the claimant quoted the following passage from an affidavit sworn on 14^th July 2000 by David McNeil (an officer or employee of the respondent, having previously been an audit partner in the Company's auditors, BDO International) and filed on behalf of the respondent in the proceedings:

"As I have tried to explain previously, Tradalco was acting as the nominee of the joint venture and did not, therefore, have ownership of the assets or trading profits of the joint venture. To that extent, because these items and trading profits belonged to the joint venture partners rather than to Tradalco, it would have been inappropriate to file accounts covering such assets and trading profits for Tradalco in Ireland. Instead, the correct course of action was to account for these items in the accounts of the joint venture partners."

The first question posed by the claimant was whether the foregoing view was still being maintained by the respondent. Secondly, the claimant requested that, if the respondent "still disputes the Company's ownership of any assets", the respondent identify the owner or owners of assets referred to in the reply 7(a) which were allegedly diverted from the Company.

On the identity issue, anticipating from the reply it had received to paragraph 7(a) the amendment of paragraph 13 in which it is now pleaded that the misappropriation was perpetrated by "the claimant its servants or agents and/or those controlling or interested in it", the claimant posed the question whether it was being contended that the alleged misappropriation of assets was perpetrated by the claimant or by those with an interest in or control of the claimant. If it was being alleged that the misappropriation was by the claimant, the respondent was required to identify the servants or agents of the claimant who are alleged to have acted on its behalf in that regard. On the other hand, if it was being alleged that there was a misappropriation of assets by those interested in and/or controlling the claimant, particulars were sought as to the basis, if any, upon which it was being contended that the claimant would have any liability or responsibility for the acts and omissions of such persons.

(5) Respondent's reply dated 15^th November 2001

The respondent's reply to the claimant's notice for further and better particulars was dated 15^th November 2001. Following delivery of the amended points of defence and counterclaim, an amended reply was delivered. In relation to the ownership issue, it was stated that the respondent's position was that at all material times the Company had nominal ownership of the trading assets and trading profits of the joint venture to which the joint venture partners would have been ultimately entitled. The Company was obliged and legally entitled to deal with the trading assets and to arrange for their sale and to collect the proceeds of sale into its bank account. The Company was then obliged formally to account to the joint venture, after payment of expenses and outgoings, for any profit. Reference was made to the financial statements of the joint venture and the financial statements of "the Tradalco Limited Group", both dated 31^st July 1997, which it was asserted showed that the Company owned certain other assets on its own behalf as a financing company for the joint venture, including cash and bank deposits and bank loans advanced to the joint venture as part of its working capital, and subordinated loans invested in the Company by its shareholders.

An alternative position was then set out. If it be the case that the Company has more than the mere nominal ownership of the trading assets and trading profits (other than the cash, bank deposits and so forth referred to earlier), the claims made in, inter alia, paragraph 13 are also made on the basis that the Company was the beneficial owner of the assets.

In relation to the identity issue, it was stated that it was a matter for evidence and, ultimately, an issue for the court to determine whether the claimant's wrongs were committed by it or by its servants or agents and/or those interested in it or controlling it on its behalf. Mr. Romanov was named as having been involved in the misappropriation at issue in paragraph 13 on behalf of, inter alia, the claimant and on the instructions of Mr. Oleg Deripaska and Mr. Alexandre Boulygine. In this connection, it had been pleaded in the amended points of defence and counterclaim that the claimant has at all material times being owned and/or controlled by Mr. Deripaska. The reply also adverted to the possibility that there might be others responsible whom the respondent was unable to identify pending the provision of full and proper discovery by the claimant. The respondent declined to particularise the basis on which the claimant would have liability or responsibility for the acts and omissions of those interested in and/or controlling the claimant.

(6) Respondent's further replies dated 7^th March 2003.

Following the order made by this Court (Lavan J.) on 19^th November 2002, that the respondent deliver the particulars requested at, inter alia, paragraph 7(a), the respondent furnished further replies dated 7^th March 2003.

In relation to the ownership issue, the respondent committed to still maintaining the view expressed in the quotation from the affidavit of Mr. McNeil but indicated that it was pleading that the Company was entitled to the assets in an alternative capacity. However, it was asserted that whether the Company was the beneficial owner of the misappropriated assets or held them as nominee for the joint venture is irrelevant to the duties owed by the claimant to the Company, whether such duties were breached and what loss resulted to the Company. It was stated that the capacity in which the Company held or was entitled to hold the misappropriated assets was not straightforward, referring to the position adopted by the claimant in the Petition – that Company was the nominee of the claimant and the respondent for the performance of the business of jointly carrying out certain tolling operations.

Further, in relation to the ownership issue, it was pointed out that the respondent does not "dispute" the ownership of the misappropriated assets. The respondent's case was restated: as nominee, the Company was entitled to the assets for and on behalf of the joint venture partners; the trading operations of the Company were for the ultimate benefit of the joint venture partners and therefore the trading assets and trading profits of the Company to which the Company was entitled were ultimately for the benefit of the joint venture; but, unless and until distribution of profits was made by agreement of the joint venture partners, the Company was entitled to those assets and was required to use them to carry on business and trade and to have the assets accounted for to it and to be valued accordingly; any money or profits realised were to be paid into the Company's account and be paid out as necessary in the course of its trading activities and operations.

On the identity point, the respondent, in a reply to which counsel for the claimant drew particular attention, particularised the persons whom it is alleged perpetrated the misappropriation of assets as follows:

(a) the claimant through its servants or agents; and/or

(b) the claimant (through Mr. Deripaska as owner and controller, and as such, its directing mind); and/or

(c) those who control the claimant or who have an interest in it or are its servants or agents acting in their own right; and/or

(d) the claimant conspiring with those in (c) above.

Earlier, in a reply to paragraph (1)(f), the respondent described the claimant as Mr. Deripaska's alter ego. The relevant servants or agents of the claimant were identified as Mr. Deripaska, Mr. Boulygine, Alucor BVI, Mr. Romanov, Mr. Gueraskine and Mr. Joseph Karam or one or more of them, who were stated to have acted on their own behalf in addition to acting on behalf of the claimant or its servants or agents.

On the question as to the basis, if any, upon which it is contended that the claimant would have any liability or responsibility for the acts and omissions of those interested in and/or controlling the claimant (rather than by the claimant itself), the response of the respondent was that the distinction between the claimant and its owners and controllers is, in the context of the matter, unsustainable. Mr. Deripaska was the claimant's owner and controller and its directing mind. The respondent incorporated in this reply a detailed reply given earlier in response to paragraph 1(f) which set out the respondent's "best particulars", pending full discovery, with regard to Mr. Deripaska's role as the claimant's directing mind and the claimant's alter ego, which I do not consider it necessary to record.

In outlining the request for particulars and the responses, I have not recorded pleading points made by the parties.

Respondent's Submissions

Counsel for the respondent contended that, in effect, the claimant is challenging the manner in which the respondent's case is pleaded, rather than the adequacy of the particulars which have been furnished per se. The matters raised on this application, it was asserted, amounted to a complaint that the respondent has not elected between alternative pleas and the objective is to coerce the respondent into electing at this stage. It was submitted that it is not open to the claimant to coerce the respondent to elect between alternative pleas, either in relation to the ownership issue or in relation to the identity issue. On the identity issue, it was made clear that the respondent is not seeking, nor could it seek, any order against or in respect of a person or company not a party to the action. However, in order to understand the affairs of the Company it is necessary that the factual background be part of the proceedings. Indeed, Counsel for the respondent pointed to replies furnished by the claimant to requests for particulars in which the claimant, because of the complicated nature of the commercial nature of the relationship underlying the dispute between the two shareholders in the Company, has been constrained to plead involvement of, and activities by, entities other than the respondent. For example, in a reply, the claimant has pleaded an alleged agreed term that "the Respondent and those principals controlling the Respondent" would be primarily responsible for certain purchases and sales on behalf of the Company. In the claimant's response to a request to identify precisely what was meant by "those principals controlling the Respondent", it has pleaded that the agreement "included an element of flexibility as to which entity or entities would be responsible" for the purchases and sales in question on the Company's behalf and that the activity might be undertaken by the respondent itself or "by other companies controlled by the same persons as control the Respondent; i.e., by other companies in the Trans-World Group".

In relation to the replies furnished by the respondent on the requests in issue on this application, the respondent submitted that it has satisfied the test laid down by the Supreme Court in McGee v. O'Reilly. In relation to its alternative pleas, it was urged that the proper course for the claimant is to respond to the pleas either by way of reply or by way of defence to the respondent's counterclaim and additionally, or alternatively, to argue the legal issues at the trial of the action.

Conclusions

In dealing with this application I have only gained a superficial insight into the complexity of the contractual relationships which determine the proper conduct of the affairs of the Company, a corporate vehicle in this jurisdiction chosen by the claimant and the respondent to conduct aspects of their business which is carried on a world wide basis and through a web of legal entities. However, I have gained sufficient insight to conclude that to suggest that the ownership issue is analogous to a situation in which a plaintiff pleads that his goods or the goods of O were converted either by the defendant or by X is too simplistic.

As the example I have chosen, paragraph 7(a), illustrates, there is a wealth of detail on the pleadings as to the assets of the Company, the assets alleged to have been diverted from the Company and the persons alleged to be implicated in the alleged diversion. I am satisfied that in its replies the respondent has furnished sufficient particulars to enable the claimant to know at this stage the broad outline of the case the claimant will have to meet at the trial.

It is true that, as matters stand on the pleadings, the respondent has made inconsistent assertions as to the capacity in which the Company was and is entitled to the alleged diverted assets and as to the prime mover in the alleged diversion. It is open to the claimant to plead, by way of reply and by way of defence to the respondent's counterclaim, to these assertions. It is beyond question that there is now, and that if the claimant pleads, there will remain, a range of issues arising on the pleadings which are going to add to the complexity, duration and cost of the trial unless resolved in advance. I mention, by way of example, the following issues which would appear to be relevant to resolving the fundamental matters identified by counsel for the claimant in relation to the particular allegations to which paragraph 7(a) is directed:

(a) whether, as contended by the claimant, the respondent is attempting to import into these proceedings matters which are not within the jurisdiction of the Court, particularly in the context that both the claimant and the respondent are invoking the statutory protection afforded by the Act of 1963;

(b) whether, as contended by the respondent in its reply of 7^th March 2003 in relation to paragraph 7 (a), it is irrelevant whether the company was the beneficial owner or a nominee owner of the assets alleged to have been misappropriated; and

(c) whether, as contended by the respondent in the reply dated 7^th March 2003 to paragraph 7 (a), drawing a distinction between the claimant and its owners and controllers is unsustainable in the context of the matter, particularly having regard to the apparent broadening of the categories of alleged perpetrators of misappropriation in that reply.

Neither the fundamental matters identified by counsel for the claimant nor such issues can be resolved on this application. It may be that they require to be dealt with as preliminary issues before trial. That is a matter for the parties.

Two orders were made by this Court (Lavan J.) on 19^th November 2002: an order that the respondent be at liberty to amend its points of defence and counterclaim in the terms of the amended points of defence and counterclaim subsequently delivered on 17^th January 2003; and an order that the respondent deliver the particulars in issue on this application. It was submitted on behalf of the respondent that this Court has, by virtue of the former order, permitted the case to be pleaded in the alternative and that there has been no appeal from that order. In making my decision, I have not had regard to that submission. It seems to me that the claimant has raised fundamental issues, which have to be resolved. However, they cannot be resolved on this application.

Finally, it was submitted on behalf of the complainant that the respondent should not be permitted to reserve its position to furnish further particulars following full discovery, on the basis that the respondent has not brought any application to court alleging deficiency in discovery made by the claimant or the Provisional Liquidator, against whom discovery was ordered. I do not think it would serve the interests of justice at this stage to preclude the respondent from furnishing further particulars if it becomes necessary to do so before the trial. However, the factual situation discloses a pressing need for thorough case management of these proceedings.

Decision

The claimant's application is refused.