Jersey Unreported Judgments

Companies - discovery

[2021]JRC254

Royal Court

(Samedi)

19 October 2021

Before     :

Advocate Matthew John Thompson, Master of the Royal Court

 

Advocate R. O. B. Gardner for the Plaintiff and the Third Parties.

Advocate N. M. C. Santos-Costa for the First Defendant.

Advocate J. J. McCormick for the Second to Fourth Defendants.

CONTENTS

 

		Paras
1.	Introduction	1
2.	Background	2-10
3.	The scope of discovery from the third parties and the plaintiff's searches	11-28
4.	The first defendant's discovery	29-31
5.	The second defendant's discovery	32
6.	Miscellaneous	33

judgment

the master:

Introduction

1.        This judgment contains my detailed written reasons in relation to the scope of electronic discovery to be provided by the parties following a decision reached at a directions hearing on 6^th October 2021. 

Background

2.        The general background to this dispute is set out in a judgment of Commissioner Clyde-Smith dated 2^ndJuly 2020 reported at Alpen Partners Limited v Al-Amiri and Ors [2020] JRC 127.  I therefore gratefully rely on and adopt paragraphs 2 to 10 as follows:-

"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 20th 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 24th 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 2nd April 2019, with the BPC Plaintiffs' choice of joint liquidators being appointed. 

8.        On 8th 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 12th 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 19th August, 2019, Mr Al-Amiri filed his answer and on 21st 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 4th October 2019, Alpen filed its reply.  "

3.        I am also familiar with this case having previously dealt with a security for costs application dated 12^th August 2020 reported at Alpen Partners Limited v Al-Amiri and Ors [2020] JRC 132.

4.        Subsequent to Commissioner Clyde-Smith's judgment the allegation that one of the properties was acquired for significantly more than its value has been withdrawn.  The order of justice has been amended accordingly and amended pleadings filed in response.  However the plaintiff still seeks to recover what it alleges are inflated management fees and a repayment of directors/consultancy fees for both properties. The third parties have also been awarded compound interest against the plaintiff which award in turn is therefore claimed from the defendants. 

5.        The application before Commissioner Clyde-Smith brought by the second to fourth defendants urgently sought a stay of the present proceedings until the plaintiff provided full discovery from the third parties. Commissioner Clyde-Smith summarised the second to fourth defendants' concerns at paragraphs 19 to 20 of his judgment in this way:-

"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."

6.        Although a stay was not granted, the third parties were joined for the purposes of discovery and for the purpose of being bound by any order or judgment of the court.  This is recorded in paragraph 31 of Commissioner Clyde-Smith's judgment as follows: -

"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."

7.        His final conclusion was at paragraph 36 as follows: -

"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."

8.        Notwithstanding the decision of management of the case was then left with me (see paragraph 57).  It is on this basis that the present application has come before me. 

9.        The issues I had to determine were as follows: -

(i)        discovery orders against the third parties and what searches the plaintiff should carry out;

(ii)       how email accounts of the first defendant might be searched for; and

(iii)      how searches of the second defendant's laptop were to be carried out.

10.      These issues emerged as a result of the parties exchanging correspondence where each party had set out their intended approach to discovery pursuant to Practice Directions RC17/07 RC17/08.  This initial exchange of information and subsequent correspondence allowed the issues to be distilled so that it was only necessary for the parties and the court to focus on the certain discreet issues I have summarised above.  I am grateful to the parties for the approach they took.  The level of detail in the correspondence and the list of issues provided consequently enabled the parties and the court to focus on the central issues of concern.  I will deal with each of these issues in turn.

The scope of discovery from the third parties and the plaintiff's searches

11.      Advocate Gardner for the plaintiff argued that fundamentally the dispute turned on expert evidence as to whether there had been overpayment for properties and therefore whether fees had also been overpaid.  The knowledge of either the general partners or the limited partners was irrelevant to the allegations against the first defendant that he had persuaded Knight Frank to change their valuation to material ways.

12.      In relation to the argument that the plaintiff or the third parties had not mitigated their loss, the question of mitigation was not relevant to the Gardeners Property where a claim for overpayment was still being pursued.  If the plaintiff had overpaid for this property, even if it was later sold at a profit a later sale was irrelevant because the plaintiff had still suffered a lost profit namely the amount of any overpayment.

13.      To the extent that the defendants were relying on whether any offers were made, there was no evidence of any such offers.  In any event the third and fourth defendants were aware of any expressions of interest.

14.      What the expert valuers would do was to look at any actual sale price of the property and work backwards to determine what should have been paid.

15.      Advocate Gardner accepted however that his clients had agreed to provide any documents in the possession of the general partner where there was any discussion of offers in 2013.  This was to be carried out by searching key email accounts. Insofar as the individuals to be searched were dealing with the limited partner and the general partner apparently, they used the same email address so if the email accounts to be searched contained any reference to any expression of interest or an offer that would be disclosed. 

16.      Advocate Gardner did not object to the insertion of the insertion of two additional names, Mr Al-Dabbous and Mr Fahad, for 2013.

17.      Likewise, he did not object to the insertion of Karuvelil as an additional search term because Mr Karuvelil had written correspondence on behalf of Mr Al-Dabbous.  He could not however search Karuvelil's email account because it was not controlled by the plaintiff or the third parties. 

18.      Advocate Santos-Costa for the first defendant argued that the general partner should make discovery of all offers.  This was relevant to why the fund purchased the properties at the value they did and whether they believed that the property would be worth far more in the future.  He also argued that the fund had significant cash reserves and was looking to make speculative investments.  Why any offers or expressions of interest may have been rejected was therefore all relevant to the present claims and the third parties' view of the value of the properties. 

19.      Advocate McCormick's concern, for the second to fourth defendants, was that the plaintiff was not looking at the documents held by the limited partners; this was not what Commissioner Clyde-Smith expected. 

20.      What offers or indications of interest might have been received was a relevant comparable for an expert to consider in deciding what was the value of the property.  What weight might be attached to those offers was a matter for the expert.  The fact that an expert might only attach limited weight or even none was not a reason not to provide discovery so that the expert could be asked whether any offers or expressions of interest were of relevance on the facts of this case. 

21.      He also pointed out the contradictions in relation to the plaintiff's abandoning their claim for loss of profit in the Tring Property.  Yet the same claim will still be made in respect of the Gardeners Property. Details of offers or expressions of interest coupled with the third parties' own views of what the properties were worth would allow this inconsistency to be explored. 

22.      He also argued that it was difficult to understand the fund's approaches to selling the properties as in 2016 the fund was offering to sell at a discount below the valuations recorded in the accounts at that time and now the subject of the present claim.  By this time the plaintiff had received the valuation from Savills challenging the valuations previously produced and relied upon by the fund.  Yet, the general partner at the same time was still suggesting values much higher than those contained in the Savills' valuation.  In the present case the third parties rely on the Savills valuation as set out at paragraph 19 of the affidavit of Ryan John Taylor sworn on 27^th May 2020 on behalf of the general partners and the limited partners. Advocate McCormick therefore wanted to test what the third parties believed the properties were worth  .

23.      There was also evidence in the documentation before the court of other offers from Angle Properties outside the period the plaintiff wished to search the account of Mr Al-Dabbous. 

24.      The question of the limited partners and general partner's views on the value of the properties was also relevant to the claim for compound interest.  The court had a discretion whether to allow such a claim which might be affected by the belief or knowledge of the general partner and the limited partners. 

25.      The decision I reached was that as Mr Al-Dabbous had been a significant figure throughout his email account and that of Mr Fahad should be searched.  This search was for the entire period of interest in relation to the fund.  Coupled with the other searches that were being carried out of individuals who were responsible for the general partners and, coupled with the addition of Mr Koshy Karuvelil as an additional search term, searches of these accounts at this stage was proportionate to see what offers or expressions of interest the general partner was considering and why those responsible for the running of the general partner appeared to regard the properties as having a much higher value than the figures contained in the Savills's valuation now relied upon. 

26.      While I agreed with Advocate Gardner that it is a matter for any expert as to what weight the expert might place on any such offers or views expressed, what the key persons acting for the general partner were thinking about the value of the properties throughout their involvement meant that the discovery threshold was met to enable searches to be required for a wider period than the plaintiff argued for.  The defendants' arguments therefore justified looking beyond one offer made in 2013.

27.      I also made it clear that the plaintiff was to look for any documents in the accounts to be searched relating to any offers or expressions of interest or anything concerning the general partner's view of the properties' worth.  This point is relevant because, if the general partner's position was to make speculative investments as the defendants suggested, and key individuals dealing with or for the general partner appreciated that the investments in the properties were of a speculative nature, such evidence might be relevant to the plaintiff's claim and the defence of that claim.  I also accepted that such documents would also be relevant to any discretion the court might exercise in relation to the claims for compound interest.

28.      However, I also accepted at this stage it was not necessary to search for documents held by the limited partners only.  The key relationship was the general partner and its actions.  This conclusion was not to say that a more focused application might not be made once general discovery had occurred, but at this stage it was the knowledge of the general partner and those at the heart of its operations (apart from the defendants) that was key rather than any particular views of the limited partners which were not passed on to the general partner.  I also was able to reach this conclusion because the email accounts used by the custodians to be searched would capture any communications they received, whether they were acting for the general partner or dealing with a limited partner because the email accounts used were the same.  To that extent the searches to be carried out by the plaintiff will therefore capture some documents received by the limited partners or one of them which were passed to the general partner or received by individuals whose accounts had to be searched.  However, that was as far as I was prepared to go.  Any further application is a matter for specific discovery once general discovery has occurred.  To that extent the door was not completely closed to further applications in respect of discovery from the limited partners on a more focused or precise basis. The present request for general discovery was too broad and disproportionate given what I required from the general partner.

The first defendant's discovery

29.      This issue can be dealt with in short order as during the course of submissions of the matter was largely agreed.  In summary, I extended the date range for the defendant's discovery to the date when he first acquired the property which was sold to the fund. 

30.      Secondly, Advocate Santos-Costa explained the approach that the first defendant was taking in relation to emails from a BT Internet.com account.  I indicated that, so long as the explanations were confirmed in the affidavit of discovery to explain why any emails sent using such an account could not be recovered, then the first defendant would have met his discovery obligations. 

31.      I also made an order requiring the first defendant's laptop to be provided to an independent e-discovery provider to extract relevant emails or other data on the laptop which was relevant to the present proceedings.  This was because the other parties had expressed concern about the methods to be used and by whom for such data to be extracted.  Again, I indicated I expected the affidavit of discovery to explain the process that was followed.

The second defendant's discovery

32.      The parties agreed that searches by the second defendant should be relevant emails only and that extraction of the second defendant's emails would be supervised by Ernst & Young London.  As with the first defendant, to the extent that any deleted emails could not be recovered, then the second defendant's affidavit was to provide an explanation as to why this was the case. 

Miscellaneous

33.      Following discovery, I then stayed matters for mediation.  I indicated that I did not consider witness statements were necessary in this case to enable a mediation to take place once a significant discovery exercise had occurred. While during the hearing I explored with the parties whether expert evidence was required prior to mediation, I accepted that informal expert input for a mediation was sufficient at this stage.  This therefore leftover the question of what issues expert valuers might be required to explore for another day. 

Authorities

Alpen Partners Limited v Al-Amiri and Ors [2020] JRC 127

Alpen Partners Limited v Al-Amiri and Ors [2020] JRC 132

Practice Directions RC17/07 RC17/08