Jersey Unreported Judgments

Companies - re: stay - discovery.

[2020]JRC127

Royal Court

(Samedi)

2 July 2020

Before     :

J. A. Clyde-Smith OBE., sitting alone

 

Advocate R. O. B. Gardner for the Plaintiff.

Advocate J. D. Kelleher for the Second - Fourth Defendants.

judgment

the commissioner:

1.        The second to fourth defendants apply by way of cross summons for a stay of these proceedings unless and until the plaintiff ("Alpen") provides full discovery by the plaintiff in associated proceedings. 

2.        The application concerns two sets of proceedings currently before the Court:

(i)        The first are brought by the liquidators of Alpen against the first defendant ("Mr Al-Amiri") and the second to fourth defendants (together "the Defendants") in these proceedings under Court reference 2019/157. 

(ii)       The second and earlier proceedings ("the BPC proceedings") are brought by a number of plaintiffs (the "BPC Plaintiffs") against Alpen under Court reference 2018/023.  In the BPC proceedings, judgment has been entered against Alpen with respect to liability with quantum to be determined. 

3.        By way of background, Alpen was originally the general partner and subsequently asset manager of a limited partnership ("the Fund") in which four of the five BPC Plaintiffs were investors.  The first BPC Plaintiff is the successor and current general partner to the Fund. 

4.        The BPC Plaintiffs' claims against Alpen and in turn, Alpen's claims against the Defendants relate to two property acquisitions made by the Fund in 2008, which are alleged to have been acquired for significantly more than their value and to the calculation of management and other fees paid from the Fund to Alpen, Mr Al-Amiri and others. 

5.        On 20^th September, 2017, the dissolution of Alpen, which had occurred in September 2016, was declared void, pursuant to Article 213 of the Companies (Jersey) Law 1991 in proceedings under Court reference number 2017/144 (the "Representation Proceedings").  The Defendants were all directors of Alpen prior to its dissolution and resumed office upon the dissolution being declared void. 

6.        On 24^th January, 2018, the BPC Plaintiffs brought the BPC Proceedings against Alpen and a company called Zada Capital Limited ("Zada"), which had provided real estate consultancy services to the Fund, by way of Order of Justice.  The crux of the allegations in the BPC Proceedings was that Alpen was in breach of its duties by causing two investment properties to be brought at inflated prices and charged a management fee for its services based on those inflated prices. 

7.        In March 2019, the directors of Alpen (the Defendants and another) formed a view that it was insolvent due to funding difficulties in relation to the continued defence of the claim and Alpen was placed into a creditors' winding up on 2^nd April 2019, with the BPC Plaintiffs' choice of joint liquidators being appointed. 

8.        On 8^th April, 2019, judgment was given against Alpen on liability with damages to be assessed, and by the same order, the Court stayed the BPC proceedings under the insolvency moratorium provision at Article 159(4) of the Companies (Jersey) Law 1991.  Although not directly relevant to the cross summons, the Court subsequently gave judgment on liability against Zada with damages to be assessed. 

9.        On 12^th June, 2019, Alpen brought these proceedings against the Defendants by way of Order of Justice.  The present proceedings arise out of the same underlying factual matrix as the BPC proceedings and the loss and damage claimed in both Orders of Justice is the same.  The crux of Alpen's claim is that inter alia the Defendants, as former directors, breached their duties to Alpen in allowing Alpen to breach its own duties as former general partner to the Fund.  Alpen's claim is for loss and damage representing damages claimed by the BPC Plaintiffs, comprised of:

(i)        the difference between the inflated price of the properties bought by the Fund and their true market value;

(ii)       payment of inflated management fees based on committed capital (i.e. the inflated purchase price of the properties) not the net asset value;

(iii)      overpayment of directors'/consultancy fees;

(iv)      interest.

10.      On 19^th August, 2019, Mr Al-Amiri filed his answer and on 21^st August, 2019, the second to fourth Defendants filed their answer and a third party claim against Mr Al-Amiri.  I will refer to the second to fourth Defendants as "the Carey Olsen Defendants".  On 4^th October 2019, Alpen filed its reply. 

11.      Discovery has yet to be ordered, but on 29^th January, 2020, Alpen provided the Carey Olsen Defendants with access to a documents room containing discovery relevant to the BPC Plaintiffs' attempts to sell the properties since.  Furthermore, Alpen has provided the Carey Olsen Defendants with an affidavit from Mr Ryan John Taylor, a director of the general partner to the Fund, sworn on 27^th May, 2020, in response to the cross summons, in which he deposes that the BPC Plaintiffs have applied the principles in relation to discovery to the issue of quantum in the BPC proceedings on a voluntary basis, and that the Carey Olsen Defendants have now been provided with all the relevant documents and communications in their custody or control which relate to the issue of the potential marketing, sale or development of the properties (including the additional information as set out in his affidavit). 

12.      Mr Al-Amiri took no part in this application.  He does not oppose the relief sought by the Carey Olsen Defendants and rests on the wisdom of the Court. 

Position of the Carey Olsen Defendants

13.      The position of the Carey Olsen Defendants in summary is as follows:

(i)        The Carey Olsen Defendants are seeking for the BPC Plaintiffs to give discovery in relation to the quantum in the BPC proceedings, and for this material to be disclosed and made available for use in the current proceedings.  The issue of quantum is a common issue relevant to both sets of proceedings, because Alpen is suing the Defendants for the damages it would be liable to pay to the BPC Plaintiffs pursuant to the BPC proceedings.  Because the Carey Olsen Defendants are not parties to the BPC proceedings, their seeking of discovery from the BPC Plaintiffs in relation to quantum has necessarily been undertaken indirectly and they say with only intermittent and limited success. 

(ii)       The quantum of damages which the BPC Plaintiffs are entitled to, do not depend merely on expert evidence as to the value of the properties at the time of their acquisition.  The issue of whether the BPC Plaintiffs have taken adequate steps to mitigate their claimed losses would be a live issue at the trial of the BPC proceedings if properly defended and mitigation will therefore be an issue in these proceedings. 

(iii)      Material received from Alpen to date suggests that the BPC Plaintiffs should have still further documents which would be discoverable in the BPC proceedings, which would undermine their claim to quantum and suggest the claimed losses are considerably overstated. 

(iv)      The duty to mitigate (a bar on recovery) is important, as in relation to Alpen it limits the extent of the BPC Plaintiffs' ability to recover for losses which they could have mitigated and in relation to the Carey Olsen Defendants, it limits the extent of Alpen's ability to recover for losses which it could have mitigated as against the BPC Plaintiffs. 

14.      The principal legal premise on which the Carey Olsen Defendants rest is that of fairness.  They say the BPC Plaintiffs should not be able to withhold relevant information from the Court in these proceedings by hiding behind the liquidators of Alpen, where there are common issues in relation to quantum which have not been resolved in the BPC proceedings, and in circumstances where the BPC Plaintiffs are funding this litigation and are the only parties that stand to benefit from a successful outcome (there being no other material creditors of Alpen).  The end result for the Carey Olsen Defendants is likely to be unjust. 

15.      Whilst documents have been voluntarily disclosed by the BPC Plaintiffs, they are not parties to these proceedings and are not subject to the discovery obligations placed upon parties under Practice Direction 17/07, and the Carey Olsen Defendants do not have the benefit of the policing requirements that would apply if formal discovery was ordered directly against the BPC Plaintiffs. 

Position of Alpen

16.      Alpen's position is that the cross summons is fundamentally flawed for the following reasons:-

(i)        The Carey Olsen Defendants are now in possession of the relevant material;

(ii)       The Carey Olsen Defendants misunderstand how Alpen's case against them, the heart of which is based on losses caused by overpayment for two properties, will be proved.  This will principally be a matter of expert, not documentary evidence, as to the properties' historic market value, which will be deducted from the actual consideration paid for the properties in 2008.  Thereafter, the parties will be able to calculate the correct management fee and deduct that from the actual management fee paid.  The current market value of the properties would be irrelevant, save to the extent that the experts take it into account when giving evidence as to their historical values. 

(iii)      The evidential value of what the cross summons seeks (expressions of interest and inquiries into the properties) is highly dubious.

(iv)      The Carey Olsen Defendants are incorrect when referring to the need for quantification of losses in the BPC proceedings.  Determining quantum in the BPC proceedings is not a necessary precursor to liability of the Carey Olsen Defendants.  The BPC Plaintiffs' claim against Alpen will be dealt with through the adjudication of proofs of debt process as is the usual course in insolvency proceedings if and when moneys have been recovered from the Defendants in the current proceedings.  Accordingly, neither the BPC Plaintiffs nor the joint liquidators of Alpen propose to apply to lift the stay of the BPC proceedings. 

(v)       The Court will not lift a liquidation stay except in very specific prescribed circumstances set out by the Court in Belgravia Asset Management [2010] JLR 247.

(vi)      Even if the Court was minded to grant the Carey Olsen Defendants the relief sought, the joint liquidators of Alpen would be prevented from disclosing documents produced through discovery in the BPC proceedings as a result of the implied undertaking given in the usual course of discovery (Mayo Associates S.A. v Anagram (Bermuda) Limited [1998] JLR Note 4C.

17.      The application by the Carey Olsen Defendants was misguided and the proper way to ventilate their concerns is by specific inquiries which Alpen can pass to its funding creditors (the BPC Plaintiffs) and the current general partner. 

18.      The mitigation of loss argument is fundamentally flawed in that the loss arising out of the alleged original 2008 overpayments, plus interest on that loss and the overstated management fees paid as a result of the ongoing overstatement of value, can never be mitigated through a sale of the properties.  Conversely, a decision not to sell can never be a failure to mitigate. 

Decision

19.      In my view, an issue of fairness does arise here.  It is clear that Alpen is a conduit through which the BPC Plaintiffs are funding a claim for damages against the Defendants from which they will benefit.  Moneys recovered from these proceedings would not inure for the benefit of Alpen's shareholders, but will, as Advocate Gardner states in his skeleton argument, be paid to the current general partner of the Fund for distribution to the limited partners (and any other creditors) or alternatively, divided pari passu according to the capital contributions of the former limited partners of Alpen (and any other creditors).  I am told that there are no other material creditors of Alpen, other than the BPC Plaintiffs. 

20.      The reality, therefore, is that the real plaintiffs in these proceedings are the BPC Plaintiffs, but they are not party to these proceedings and so not amenable to the usual orders for discovery, full compliance with which is an exercise fundamental to a fair trial. 

21.      I make no finding that the BPC Plaintiffs, through Alpen, are withholding relevant information from the Court, and I am not in a position to gainsay Mr Taylor's assertion that the discovery process has been properly undertaken by the BPC Plaintiffs on a voluntary basis and everything relevant disclosed. 

22.      The fact of the matter is that the BPC Plaintiffs are not parties to these proceedings and therefore the Carey Olsen Defendants cannot enforce their rights as to discovery and its policing against them directly.  It is not appropriate, as a matter of perception at least, for those rights to be enforced indirectly through the joint liquidators of Alpen, who are appointed and funded by the BPC Plaintiffs. 

23.      The only fair solution is to find a mechanism by which the Carey Olsen Defendants can enforce their rights as to discovery against the BPC Plaintiffs directly.  Both parties agreed that this could not now be achieved through consolidation pursuant to Royal Court Rule 6/11, essentially because Alpen is the defendant in the BPC proceedings and the plaintiff in these proceedings (see paragraph 3.1.9 of the CPR 2018). Quoting from the CPR, this bar applies "....unless one claim can be ordered to stand as a pt. 20 claim in the ......".  As Advocate Kelleher points out, a part 20 claim includes at RCR part 20.5, counter-claims against parties other than the claimant, i.e. a third party claim.  He submitted that but for the BPC Plaintiffs having already obtained judgment on liability against Alpen and were the liquidators and the BPC Plaintiffs truly separate and independent of each other (which he says they are not) the current proceedings and BPC proceedings would otherwise have been a paradigm example of when consolidation would have been ordered. 

24.      I raised therefore with counsel the possibility of the BPC Plaintiffs being made parties to these proceedings, pursuant to Royal Court Rule 6/36(b)(i) which is in these terms:-

"At any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application-

(a)...

(b)       order any of the following persons to be added as a party, namely-

(i)         any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon".

25.      Advocate Gardner submitted that joining the BPC Plaintiffs would disproportionately and unfairly burden them, which would be counter to the overriding objective of dealing with cases justly and at proportionate cost.  He said the BPC proceedings were only necessitated in the first place because the (then) directors refused to step aside in favour of independent liquidators, a failure which is now being used to force the BPC Plaintiffs to incur further costs.  Furthermore, they had already been put to significant cost in an attempt to address the Carey Olsen Defendants' concerns about discovery.  

26.      Under Rule 6/36(b)(i) joinder can only take place if it is "necessary" to do so, and Advocate Gardner referred me to the judgment of the Court of Appeal in the case of In the matter of Bastiaan Broere Trust [2003] JLR 509, where it said at paragraph 35:

"As the Royal Court emphasized in Re Abacus (CI) Ltd (1), for a party to be joined in administrative proceedings pursuant to the provisions of r.6/29, it must be proper and necessary for the party to be joined.  It is not enough merely that it is convenient or desirable to do so."

27.      In his view joining the BPC Plaintiffs would fall on the wrong side of this line but if the Court were minded to join them, the following threshold question arises, namely, what role will the BPC Plaintiffs play in the present proceedings?  Parties generally adopt the status of plaintiffs, defendants, third parties or parties cited (where there is an injunction).  All parties in the current litigation need to know what role the BPC Plaintiffs will fulfil. Furthermore: 

(i)        A suggestion that the quantum of the BPC Plaintiffs' claim against Alpen should be determined in these proceedings would present problems in that:

(a)       Alpen cannot accept any obligation to oppose the BPC Plaintiffs' quantum claim as that would place them in an impossible position, and

(b)       the mitigation of loss argument was fundamentally flawed and the joint liquidators of Alpen cannot assume in the present proceedings any of the obligations which are incorrectly said to arise in the BPC proceedings to argue that the BPC Plaintiffs have not mitigated their loss. 

(ii)       These concerns would not arise if the quantum element of the claim being brought by Alpen in the present proceedings is to be the subject matter of the discovery obligations of the BPC Plaintiffs. 

28.      To address the threshold questions posed above, he accepted that the BPC Plaintiffs could be joined for the limited purpose of providing an undertaking to the Royal Court to provide any additional discovery over and above what they have already provided, relating to the quantum of Alpen's claim against the Carey Olsen Defendants, including, but not limited to any further sale negotiations in respect of the properties.  They could also be asked to undertake to provide discovery of all further documents not already disclosed coming into their possession, custody or power in respect of all matters at issue relating to quantum as between Alpen and the Carey Olsen Defendants.  Taylor Wessing could conduct the discovery exercise, subject to Bedell Cristin's oversight, and an advocate of Bedell Cristin could sign the advocate's confirmation.  Should it become necessary that advocate would represent the BPC Plaintiffs in any discovery applications brought by the Carey Olsen Defendants.

29.      An order joining the BPC Plaintiffs would be an unusual order, and Advocate Gardner submitted that provision should be made at this stage for the additional costs they would incur to be payable by the Carey Olsen Defendants in any event.  

30.      Advocate Kelleher for the Carey Olsen Defendants could see no reason in principle why the Court should not join the BPC Plaintiffs as parties and that doing so may have other advantages for the just and effective disposal of both claims.  Quantum and mitigation remain to be determined in both sets of proceedings with the amount of the BPC Plaintiffs' claim against Alpen establishing the effective upper limit of any liability on the part of the Carey Olsen Defendants.  It makes practical sense, he said, for these common factual and legal issues in relation to quantum and mitigation to be dealt with simultaneously.  This was especially so in circumstances where, in the absence of an order joining them under Rule 6/36(b)(i), the liquidators' proposed course of action during a subsequent proof of debt stage would mean that the quantum of Alpen's claim against the Carey Olsen Defendants would be determined first, and the BPC Plaintiffs' claims against Alpen would never effectively be determined or adjudicated on at all. 

31.      In my judgment it is necessary to join the BPC Plaintiffs as third parties for the purpose of discovery and for the purpose of being bound by any order/judgment of the Court and this in order to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon.  The cause or matter would not be effectually determined if the real plaintiffs, namely the BPC Plaintiffs, are not made directly amenable to the usual orders for discovery.   A process by which the real plaintiffs are able to fund and pursue an action without being so directly amenable is not fair and so it is more than a matter of mere convenience or desirability. 

32.      Proceeding in this way is preferable to the granting of a stay, as it enables the proceedings to continue.  A stay on the terms put forward would lead to an indeterminate delay which would not be fair to Alpen and ultimately to the BPC Plaintiffs. 

33.      In making the BPC Plaintiffs parties for the purpose of discovery and being bound by any order/judgment of the Court, it is not the case that the quantum of the claim in the BPC proceedings will now be formally determined in these proceedings, although in practice, that will be the outcome.  To limit the purpose for which discovery is to be given in the manner suggested by Advocate Gardner is artificial; it is difficult to see how the BPC Plaintiffs can give discovery of Alpen's claim for quantum without extending that to their own claim for quantum against Alpen, because it is the same loss in both cases. The BPC Plaintiffs must therefore give discovery in relation to the quantum of their loss, as it is that loss which Alpen is claiming against the Defendants. 

34.      Advocate Gardner talks in terms of the BPC Plaintiffs being joined for the purpose of giving undertakings in relation to discovery, but they will be joined so that orders in relation to discovery can be made directly against them and directly enforced by the Carey Olsen Defendants. 

35.      I am not minded for the Court to extend the role of the BPC Plaintiffs in these proceedings any further, certainly at this stage, but make the following observations-

(i)        I agree with Advocate Gardner that the Carey Olsen Defendants' liability as directors can be determined in advance of the BPC proceedings, but in the event that they are found to be liable, then for the moment I find it difficult to see how that liability can be quantified without the Court having regard to the liability of Alpen to the BPC Plaintiffs, because it is the same loss.  At the moment, all Alpen has is an unquantified liability to the BPC Plaintiffs which forms the basis of its own claim against the Defendants, a claim that is limited to and co-extensive with that liability.  Advocate Gardner submits that determining quantum in the BPC proceedings is not a necessary precursor to the liability of the Carey Olsen Defendants and in a formal sense I accept that may be the case, but in practice little may turn on the point.  

(ii)       I am not suggesting that the stay over the BPC proceedings should be lifted so that as a matter of formality both sets of proceedings are heard at the same time with the additional costs and possible complications that would incur, but subject to any issues of conflict, to which reference has been made by Advocate Kelleher which he concedes are a matter for Bedell Cristin, it seems to me that all of the necessary parties will now be present and represented at the trial of these proceedings, which can proceed on the basis of the current pleadings (subject to any permitted amendments).  In assessing the quantum of Alpen's claim against the Defendants, the Court will in practice have regard to Alpen's liability to the BPC Plaintiffs because it is the same loss and it is inevitable, therefore, that the Court's findings on quantum in these proceedings will be determinative of the BPC Plaintiffs' claim against Alpen in the subsequent insolvency process. 

(iii)      I note Advocate Gardner's arguments in relation to mitigation, but in the context of the cross summons, it would not be appropriate to make any findings in that respect.  That will be a matter for argument at trial. 

(iv)      Whilst I have yet to hear arguments as to the costs of this cross summons, I do not regard it as appropriate to give the BPC Plaintiffs a pre-emptive costs order in relation to their ongoing costs as third parties.  The issue of their costs will be dealt with in the usual way at the termination of the proceedings and will take into account the usual factors, including their conduct as parties and the ultimate outcome.  

36.      In conclusion the BPC will be joined as third parties to these proceedings for the purpose of giving discovery as to the quantum of their claim against Alpen and for the purpose of being bound by any order/judgment of the Court.  Advocate Gardner acts for the BPC Plaintiffs and I assume therefore that he is or will be instructed to accept service on their part. 

37.      The management of this case will remain with the Master. 

Authorities

Companies (Jersey) Law 1991.

Belgravia Asset Management [2010] JLR 247

Mayo Associates S.A. v Anagram (Bermuda) Limited [1998] JLR Note 4C

In the matter of Bastiaan Broere Trust [2003] JLR 509