Jersey Unreported Judgments

Companies - reasons for declining the interim injunction sought

[2021]JRC276

Royal Court

(Samedi)

10 November 2021

Before     :

Mr T. J. Le Cocq, Esq., Bailiff

 

Advocate H. Sharp Q.C. for the First Plaintiff.

Advocate J. D. Kelleher for the Fourth and Fifth Defendants.

judgment

the bailiff:

1.        On 1^st October 2021, Hunters Investments Limited ("HIL" or the "Plaintiff") made an ex parte application before me for interim injunctions.  The application was made in the context of an Order of Justice already before the Court and a proposed amended form of that Order of Justice was placed before me.  The effect of any order would have been to prevent the disposal by Sanne Holdings Limited ("Sanne Holdings") and Sanne Fiduciary Services Limited ("Sanne Fiduciary") (collectively "Sanne") from redomiciling by changing their place of incorporation from Jersey, and/or disposing of dealing with or diminishing the value of any of their assets situate in Jersey or outside up to a value of £170m, and requiring them to provide information to the Plaintiffs advocate in writing within 10 working days of all of their assets. 

2.        In the skeleton argument that accompanied the application for an interim injunction, the Plaintiff said that it was making the application ex parte because of the urgency of the matter and the fact that no court date was available.  It was, however, suggested that were an early court date available, then an inter partes application would be acceptable.

3.        I declined to grant the interim injunction on an ex parte basis and instead the Court sat on the 4^th October 2021 to determine the Plaintiff's application for an interim injunction on an inter partes basis.  I reserved the judgment having been assured by Sanne's legal advisers that no steps were imminent which would defeat the injunction were I to grant it. 

4.        It is not in my view necessary to set out the background to this matter in any detail.  Proceedings before this Court between these parties have been ongoing for a significant period and the background has been referred to at varying lengths in at least two judgments of this Court.  Suffice to say that HIL claims against Sanne Holdings and other parties very substantial damages and makes allegations of fraud and misrepresentation in and about a transaction as a result of which, it is alleged, HIL sold its shares in Sanne Holdings at, so it transpired, a substantial under value.  Those allegations, and the inferences that HIL seeks to draw on otherwise admitted facts, are rigorously defended by Sanne and the other Defendants. 

5.        The context of the application, therefore, is that from HIL's perspective the Defendants or a combination of them have behaved fraudulently towards it and further have obstructed the claims of HIL by various improper means.  Accordingly, there is a significant measure of mistrust. 

6.        The application was brought before the Court at short notice because of the plans of Sanne Group PLC ("the Group") of which Sanne Holdings and Sanne Fiduciary are a part to be taken over into private ownership by the Apex Group ("Apex", "the Scheme").  The Royal Court had already sat on a court meeting application it was anticipated in the application before me that there would shortly be a sanction application before the Royal Court (it was suggested as early as 5 October 2021) and if the Royal Court approved the takeover and the Group was delisted from the London Stock Exchange there would be a real risk of dissipation of assets currently held by Sanne Holdings and Sanne Fiduciary. 

7.        HIL wrote to Sanne seeking undertakings on 3^rd September 2021 and 28^th September 2021 but in response to that correspondence, a without prejudice meeting was offered on the 4/5^th October 2021 on the basis that there was still a reasonable amount of time before the Scheme, assuming the bid been successful, would complete.

8.        The basis upon which a court will grant an interim injunction is well travelled and although a number of authorities have been put before me, I do not propose to refer to any of them at any length.  Suffice it to say that the matters that fall to me to consider would generally have been the ex parte nature of the application, whether the Plaintiff had a good arguable case, what the evidence was of a risk of dissipation of the assets, whether there should be cross undertaking in damages and whether it was just and convenient in all the circumstances to grant the freezing and disclosure orders sought by HIL. 

9.        The issue of the ex parte nature of the application has to an extent been superseded by the fact that the application has now been dealt with on an inter partes basis. 

10.      HIL claims that it has a good arguable case and points out that it does not need to show that it would win at trial, merely that it must satisfy the court that its claim has a plausible evidential basis.  The HIL Order of Justice is pleaded at some length and as I have indicated above, contains allegations of wrongdoing.  It points out that all of the Defendants have admitted in their Answers that Sanne Holdings accounts were misstated for the year 2010 and subsequently and that this was in breach of the Companies (Jersey) Law 1991.  HIL further alleges that the Defendants realised that Sanne Holdings was balance sheet insolvent and this was hidden from the Plaintiff notwithstanding that it was the largest single shareholder in Sanne Holdings. 

11.      From this it is alleged that loss flowed because HIL was thereby (and for other reasons that I will not refer to) induced to sell its shares in Sanne Holdings under a false understanding procured by the misstated accounts.  In essence, had it been not so misled, it would have remained as a shareholder, the financial position of Sanne Holdings would have been corrected and HIL's shares could have been sold thereafter for a substantially improved value. 

12.      I do not suggest that in the preceding paragraphs I have done justice to HIL's claim.  As I have said it has been referred to in a number of cases before the Court, most recently in judgment Banks v Sanne Holdings Ltd and Hunters Investments Limited v Crill and Ors [2021] JRC 273 and I will not repeat the characterisation of HIL's claim in those judgments.  In addition to the misstatement of accounts mentioned above there are also other allegations of dishonesty and that a number of statements made by Sanne Holdings legal advisers at, it is asserted, the behest of Sanne Holdings, were in the event untrue.  Those statements were repeated in a complaint against HIL's legal advisers to the Law Society arising out of allegations of fraud in another related case against Sanne Holdings. 

13.      In essence, the main thrust of HIL's claim however, is as set out at paragraph 35 and 36 of its skeleton argument which is in the following terms:

"35.   The D4 balance sheet insolvency issue was deliberately kept from P in order to enable the Ds to proceed to insist on acquiring P's valuable voting control and equity shares in D4. The Ds did not wish the true financial position of D4 to become apparent to P because it would have demonstrated an inability to proceed with:

(i)        the Ivegill 2010 Transaction without P's financial assistance. P could have given up some/all of its considerable existing 6% preference shares, totalling £2,214,777 paid up, and/or dividends in exchange for P receiving Ivegill's equity shares or part thereof in order to resolve D4's insolvency.

(ii)       the P 2011 Transfer Deal. D4 could not proceed in connection with the proposed transfer deal since with a deficit of net assets it would not have been in a position to proceed (or pay dividends). Therefore, the Ds could not produce lawful D4 2010 accounts in accordance with Generally Accepted Accounting Principles and International Audit Standards if they wished the P 2011 Transfer Deal to go ahead.

36.   On P's case, that is why the Ds kept D4's balance sheet insolvency from P. If P had been told the truth, the P 2011 Transfer Deal would not have proceeded and instead P would have retained its interests and/or strengthened them by rescuing the Ds from their unlawful course of conduct."

14.      With regard to the question of a risk of dissipation, authority was put before me as to what kind of evidence might amount to evidence of such a risk.  I accept that where an allegation of dishonesty is central to a case that may provide support for an argument that there is a risk of dissipation.  That cannot, of course, be determinative and all relevant factors must be taken into account in determining whether that risk is real. 

15.      Sanne's statement of 26^th August 2021 to the London Stock Exchange includes the following passage:

"In considering the recommendation of the Acquisition to Sanne's Shareholders, the Sanne Board has given due consideration to Apex's intentions regarding the employees of Sanne, and in particular the intentions to make no material change in the balance of their skills and functions and to make no proposed redeployment of Sanne's asset base. Whilst the Sanne Board recognises that Apex expects some changes to certain operational and administrative roles may be required to reduce duplication between the two businesses, it is pleased to note that Apex proposes to invest in the best people, training programmes and new technology and that it has no plans to undertake any material restructurings or change in the locations of Sanne's places of business. The Sanne Board is also pleased to note Apex's confirmation that, following the completion of the Acquisition, the existing contractual and statutory employment rights, including in relation to pensions, of all Sanne employees will be fully safeguarded in accordance with applicable laws and that it anticipates that the total number of employees will not vary materially across the Sanne Group."

 "Apex expects that, in order to achieve the expected benefits of the transaction, some operational and administrative restructuring may be required following completion of the transaction. The synergy work carried out to date has confirmed the potential to reduce the duplication of roles, in particular as a result of the overlap in central and support functions between Apex and Sanne, as well as efficiencies from combining operations. However, when combined with future investments for future growth, it is anticipated that the total number of employees will not vary materially across the Sanne Group. However, it should be noted that the geographical spread of these employees will likely alter due to Apex's use of its global operational footprint. The detailed steps for such a restructuring are subject to further review and will be subject to any required consultation with employees and/or their representatives. It is expected that, where possible, Apex will seek to review opportunities to reallocate staff from discontinued roles arising from the restructuring to other appropriate new roles that may be created from organic growth in the combined group. Within this context, Apex does not expect any material change in the overall number of employees of Sanne, after taking into account the projected new roles, and also does not expect any material change to the conditions of employment and balance of skills and functions of the employees and management of the Sanne Group. In addition, Apex has no intentions to redeploy the fixed assets of the Sanne Group." Emphasis added.

16.      In summary, HIL argues that there is a real risk of dissipation because:

(i)        the nature and extent of the allegations of fraud in the case.  Whilst it is acknowledged that Sanne have not up to now dissipated assets in the absence of an injunction, it is argued that that has to be seen in the context of its regulation by the London Stock Exchange which will shortly be brought to an end if the Scheme is approved;

(ii)       The takeover by a company of the size of Apex would give rise to the risk of restructuring of the Sanne business.  It is argued that Sanne Holdings and Sanne Fiduciary may be redomiciled or restructured as part of that process with the loss of their valuable assets necessary to satisfy any judgment;

(iii)      The statement to the London Stock Exchange suggests that some restructuring will take place;

(iv)      The assertion that there will be no redeployment of Sanne's fixed assets, does not preclude some form of restructuring;

(v)       Sanne Holdings is historically the parent company of the Sanne business and its not regulated by the JFSC and, so it is argued, it would not take much for it to be redistribute its assets without strictly speaking redeploying them. 

17.      In response, Sanne argues that it was completely inappropriate for the Plaintiff to make an ex parte application.  It was argued that it was plain from the reading of the Scheme documentation that the Royal Court sanction of the Scheme would take some time and there was simply no urgency.  The Scheme document itself stated that completion of the acquisition was not likely to happen until sometime during the first half of 2022.  A simple checking of the Royal Court List would have shown that no date had been fixed for the Court sanction hearing. 

18.      Sanne confirms that in the face of a request by HIL for undertakings that Sanne's legal advisers had suggested a meeting and indicated "there is still a reasonable amount of time before the Apex transaction (if the bid is successful) actually completes".  HIL acted precipitously and did not bring this exchange to the full attention of the Court and proceeded on ex parte application on short notice when the case was not urgent.  This had the potential of seriously misleading the Court and this in itself should bar HILs application. 

19.      With regard to the question of whether or not there is a good arguable case that is resisted by Sanne.  However in its skeleton argument, the following is stated:

"It is also accepted that an applicant is not required to show it will win at trial.  In any event, comment in the context of hundreds of pages of pleadings which cover an extended period of time, the Court is obviously unable to consider in detail every single point for and against."

20.      Although I acknowledge that Sanne resists the argument that there is a good arguable case in this matter, it is clear that there has been a potentially material mis-statement of the accounts of Sanne Holdings for 2010 as a result of which, so it is pleaded, damage has been caused to the Plaintiff.  It appears to be agreed that there was such a mis-statement (although it is not agreed that it was fraudulent or dishonest) and that indeed allegations made in a complaint to the Law Society about HILs legal advisers contained the same mis-statements.  It is possible on the material that I have seen that the trial Court might find that the misstatements were other than inadvertent.

21.      In my judgment, for these purposes HIL is able to plead a good arguable case. 

22.      As to the matter of a risk of dissipation, the principles, so it appears to be accepted by both sides, are to be found in the case of Les Ambassadeurs Club Limited v Albluewi [2020] EWHC 1313 (QB).  In paragraph 30 of that judgment the Court said:

"30.  The relevant principles were brought together usefully by Popplewell J (as he then was) in Fundo Soberano de Angola v Jose Filomeno dos Santos ('FSDA v Dos Santos") [2018] EWHC 2199 (Comm) (approved in Lakatamia Shipping Co Ltd v Morimoto [2019] EWCA Civ 2203 subject to the amendment marked in square brackets below) at [86]: "The relevant principles have been summarised in a number of recent authorities, themselves referring to many earlier authorities including National Bank Trust v Yurov [2016] EWHC 1913 (Comm) at paragraph [70] per Males J; Holyoake v Candy [20187] 3 WLR 1131 at paragraphs [34] and [59] per Gloster LJ; a`1nd  Petroceltic Resources v Archer [2018] EWHC 671 (Comm) at paragraph [21] per Cockerill J.  the following aspects are of particular relevance to  the current applications:

(1)       The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets.  In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2)       the risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3)       The risk of dissipation must be established separately against each respondent.

(4)       It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets [may] be dissipated.  It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5)       the respondent's former use of offshore structures is relevant but does not itself equate to risk of dissipation.  Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets.  Such legitimate reasons may properly include tax planning, privacy nd the use of limited liability structures.

(6)       What must be threatened is unjustified dissipation.  The purpose of a freezing order is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing assets otherwise than in the normal course of business in a way which will have the effect of making it a judgment proof.  A freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business.  Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate.  If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment.  That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7)       Each case is fact specific and relevant factors must be looked at cumulatively."

23.      Sanne argues that there are three reasons for which HIL must fail in its application under the heading of a risk of dissipation.  They are:

(i)        There is no relevant connection between the dishonesty/fraud allegations contained in HILs Order of Justice and the risk of dissipation;

(ii)       The matters raised by HIL do not establish a plausible evidential base for risk of dissipation; and

(iii)      HIL has not satisfied the burden of showing a real risk of a future judgment obtained by HIL going unsatisfied because of an unjustified dissipation of assets.

24.      It is argued, and I accept, that HILs allegations are dishonesty/fraud whilst of relevance are not of themselves sufficient to establish the risk of dissipation.  Sanne advances a number of arguments as to why the alleged dishonesty is irrelevant to a risk of dissipation.  Amongst those reasons Sanne, in its skeleton argument, states:

"The dishonesty alleged in HILs claim took place between 2009 and June 2011 and is said to have been undertaken by Mr Young, Mr Machon and Mr Crill, each of whom was a director of SHL and STCL at the relevant time (save for a brief hiatus in Mr Crill's case).  No allegations of dishonesty are made against any other director of either entity in that time period.  Mr Young and Mr Machon resigned from both positions on 2 April 2015.  Mr Crill resigned as a director of SHL on 18 January 2013 and as a director of STCL on 22 January 2013."

25.      In paragraphs 26 and 27, Sanne said this:

"26.   STCL is regulated by the Jersey Financial Services Commission (JFSC) for both Trust Company Business and Fund Services Business, and it owns a number of subsidiaries which are also regulated by the JFSC.  Its directors are approved by the JFSC. SHL is not regulated by the JFSC, but three of its four directors are regulated in their capacity as directors of STCL.

27.  Plainly, none of today's directors were involved in the conduct complained about between 2009 and 2011 and none of them have any obvious reason to misconduct themselves in relation to the Banks Proceedings or the HIL Proceedings.  Which is why HIL is now driven to make further allegations of dishonest conduct against SHL and STCL and, implicitly against these directors.  It does so in relation to Carey Olsen's reply to the letter before action dated 4 September 2018, Sanne's complaint to the Law Society of Jersey and Sanne's approach to the summary judgment application brought by Mr Banks."

26.      Sanne goes on to point out that the reasons now asserted for HILs change of mind from no risk of dissipation to "real risk of dissipation" is the prospect of the change of ownership of Sanne to a privately owned group Apex.  In other words, so it is put, it is that dishonesty alleged against Sanne as conducted by certain of its officers between 2009 and 2011 and then further perpetuated by the dishonesty by certain of its other officers after September 2018 that now (and only now) gives rise to that risk of dissipation because ownership and control of those companies is being transferred to a third party which is not connected with the claims in any way and against which no allegations of dishonesty or other bad faith is alleged. 

27.      This, it is argued is "a preposterous thesis".  The third-party purchaser is a very substantial business within the financial services world and operates in a large number of well-regulated jurisdictions.  Apex is aware of the proceedings as part of the disclosure surrounding the Scheme and both Apex and Sanne are large and complex groups and its regulated directors will need to be mindful of their respective liabilities and duties and indeed all of Sanne Fiduciary's directors are approved by the JFSC.  The nature of Sanne Holdings, the fact that the current officers of Sanne are not connected with the allegations of wrong doing and the position of Apex makes it in the round, so it is argued, highly unlikely that any steps would be taken to dissipate Sanne assets to the detriment of HIL's claim. 

28.      The HIL application is also criticised by Sanne on the basis that the allegations of a risk of dissipation are simply generalised statements as to what might be theoretically possible but not evidence that those theoretical possibilities will come to fruition.  The fact that Apex and Sanne operate in the offshore world does not of itself equate to a risk of dissipation.  In Holyoake v Candy [2018] CH 297, Gloster L. J. stated at paragraph 59:

"(i)   I agree that - if the appellants had shown that there was a risk of the appellants dissipating their assets - the appellants' links to complex and offshore corporate structures and the potential to transfer value rapidly and invisibly through corporate reorganization could contribute to that risk. This is because a complex corporate structure or corporate reorganization could enable a party who is minded to dissipate assets to do so.

(ii)   However the mere possibility of a party using a complex corporate structure or corporate reorganisation to dissipate assets, without more, does not equate to a risk of dissipation.  Otherwise, the burden of proof would be reversed: parties subject to a freezing order application will be compelled to show they would not dissipate assets in that way. 

(iii)   This emphasis is important.  An applicant must show a risk of dissipation as opposed to it being merely being possible (without more) that the Respondent could dissipate in that way."

29.      Sanne also goes on to argue that a cross undertaking in damages should have been offered but I do not need to deal with that argument in light of the view that I take from the application

Conclusion

30.      I do not think that there is anything of concern in the arguments put forward by Sanne that this should not have been an ex parte application.  As I have already indicated, the Plaintiff in the skeleton argument that it put before me anticipated that, were dates available for an inter partes hearing, then it would be comfortable with proceeding on that basis - in other words it did not try at all costs to make this ex parte.  The Plaintiff feared that the transfer by Sanne may be imminent and it would remain unprotected should it eventually succeed in its case.  As it transpired in the hearing before me, no corporate takeover was in fact imminent and on the best information nothing was likely to happen until well into 2022 but, at the time, that does not appear to have been clear to HIL. 

31.      However, I am concerned that the timing in the Scheme documentation was not more clearly put before me at the ex parte stage.  The fact that the timing may have been buried in lengthy documentation would not to my mind be a sufficient excuse and it does not appear that HIL had noted that position.

32.      In any event, however, I do not think that the Plaintiff has met the high evidential threshold to justify an application of the draconian nature sought by it.  There is no sufficient evidence to suggest that Sanne or Apex would act with impropriety.  Sanne Holdings and Sanne Fiduciary are not run by the same governing minds who were in place at the time relevant to the more serious allegations made by HIL and it remains the fact that the purchaser of the shares under the scheme, namely Apex, and at least one of the Sanne entities remain governed by the JFSC.  Indeed Apex, as has already been stated, maintains a substantial international fiduciary business and there is no reason to suppose that it will do anything other than maintain its and Sanne's presence in Jersey or act in any way improperly in the face of the action of which it is aware.

33.      Not being satisfied that the burden of establishing a risk of dissipation has been discharged, I decline to grant the injunction sought by HIL and the application is dismissed.

Authorities

Companies (Jersey) Law 1991. 

Banks v Sanne Holdings Ltd and Hunters Investments Limited v Crill and Ors [2021] JRC 273

Les Ambassadeurs Club Limited v Albluewi [2020] EWHC 1313 (QB). 

Holyoake v Candy [2018] CH 297.