The Judicial Committee of the Privy Council Decisions

Walsh & Ors v. Deloitte & Touche Inc (Bahamas) [2001] UKPC 58 (17 December 2001)

Privy Council Appeal No. 37 of 2000

Jeanette Walsh (as executrix of the estate of David G.

Walsh) and Others Appellants

v.

Deloitte & Touche Inc., Trustee of the estate of Bre-X

Minerals Ltd., a bankrupt Respondent

FROM

THE COURT OF APPEAL OF THE BAHAMAS

JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 17th December 2001

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Present at the hearing:-

Lord Slynn of Hadley

Lord Hoffmann

Lord Rodger of Earlsferry

Sir Martin Nourse

Sir Kenneth Keith

[Delivered by Lord Hoffmann]

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1. Bre-X Minerals Ltd is a company which was incorporated in Alberta in 1988 with its head office in Calgary. Its founder, chief executive and principal shareholder was a Mr David Walsh. The company obtained a quotation on the Alberta Stock Exchange in 1989 and carried on business exploring for gold in Canada and abroad. Until 1993 it was not particularly successful. But in April of that year Mr Walsh renewed acquaintance with a geologist he knew named John Felderhof, who was employed by a company called Montague Gold NL to prospect for gold in the rain forest of Borneo. Through the good offices of Mr Felderhof, Bre-X acquired an option to buy for US $80,000 an 80% interest in the project with which he was concerned (referred to as Busang I) from a company associated with Montague Gold NL. (The remaining 20% was held by Indonesian interests). On 10 May 1993 Mr Walsh issued a press release announcing that Bre-X had agreed in principle to acquire an "80% working interest" in Busang I.
2. In July 1993 Bre-X announced that it had completed the acquisition of an 80% interest in Busang I and from time to time during 1994 it issued statements about the results of exploratory drilling on the site. These were said to be very encouraging. Thus encouraged, Bre-X decided to acquire an interest in an adjoining area which has been called Busang II. In October 1995 it announced that it held a 90% interest in the joint venture company entitled to prospect in Busang II. A stream of announcements indicating that Busang was, as stated in the Bre-X annual report dated 30 November 1995, "the world's largest gold deposit ever to be discovered", drove up the share price. During 1995 it rose from $2.85 to $53. In 1996 listings were obtained in the Toronto Stock Exchange and NASDAQ and by May, just before a 10-1 stock split, the shares were trading at $286.50.
3. Between October 1996 and March 1997 various rumours circulated to the effect that Bre-X's rights to exploitation of the Busang gold were being challenged in Indonesia, both by Indonesian parties involved in the joint ventures and by the Indonesian government. It was also rumoured that Mr Walsh and other insiders had sold substantial numbers of shares without revealing these difficulties to the market. Mr Walsh issued press releases saying that the challenges to Bre-X's title were without substance and that it was about to enter into a joint venture agreement with a large and reputable mining company for working the deposits and winning the gold.
4. In March 1997, however, the disputes about title were overtaken by an announcement that independent surveys on behalf of the prospective new mining partner had revealed that there was no gold at all. The drilling samples had been fraudulently salted. Mr Walsh commissioned an independent inquiry by a firm called Forensic Investigative Associates Inc ("FIA") into how the salting had occurred, who was responsible and who knew about it. The report found no evidence to implicate him.
5. Meanwhile, however, the share price collapsed and on 5 November 1997 the company made a voluntary assignment in bankruptcy. Deloitte & Touche Inc, the respondent to this appeal, was appointed Trustee.
6. Following the spectacular collapse of Bre-X, a number of law suits were commenced. In October 1997 shareholders commenced a derivative action in Ontario, in the name of the company, against several defendants, including Mr Walsh and his wife, alleging among other things breach of their fiduciary duties by making improper use of the company's information about its title and regulatory problems in Indonesia in order to sell shares to a total value of about $25m each. The conduct of this action was taken over by the Trustee on their appointment. The same and other allegations were made in class actions, also brought in Ontario, on behalf of persons who had bought shares in the market, claiming the losses they had sustained on their purchases.
7. In about April 1996, Mr and Mrs Walsh moved from Calgary to The Bahamas. On 24 April 1998, when the Ontario proceedings had been on foot for some six months, the Trustee commenced proceedings against Mr and Mrs Walsh in The Bahamas. The substantive relief claimed was damages for breach of fiduciary duty or an account of money received from the sale of shares. But the main purpose of the proceedings was to obtain interlocutory relief in the form of a Mareva injunction restraining Mr and Mrs Walsh from dealing with their assets world-wide and an order for disclosure of the value, location and other particulars of such assets. On 1 May 1998 Mr Acting Justice Evans made such an order until trial or further order with liberty to the defendants to apply to discharge. On 4 June 1998 Mr Walsh died. An application to discharge was made by Mrs Walsh as his personal representative and on her own behalf. It came before Strachan J. on 17 December 1998. He discharged the order against Mrs Walsh but maintained the order against Mr Walsh's estate, limited to assets in The Bahamas. The Trustee appealed against the discharge of the one order and the limitation of the other and Mr Walsh's estate cross-appealed against the refusal of the judge to discharge the order against it. The Court of Appeal allowed the appeal, reinstating the order against Mrs Walsh personally and the world-wide application of both orders. It dismissed the cross-appeal.
8. The case against Mrs Walsh personally has since been settled and their Lordships need say no more about it. As Mr Walsh's personal representative, she appeals to the Privy Council against the maintenance of the Mareva injunction against his estate. Pending appeal, the part of the order prohibiting dealing with assets has remained in force but the parties have agreed that the order for disclosure of their whereabouts should be suspended.
9. The jurisdiction of the courts of The Bahamas to grant Mareva injunctions is based upon section 21(1) of the Supreme Court Act 1996, which provides that the court may grant an interlocutory injunction "in all cases in which it appears to the court to be just and convenient to do so." The language is the same as that of section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925 which formed the basis of the creation of the Mareva jurisdiction in England before that section was replaced and amplified by section 37 of the Supreme Court 1981. The Bahamas legislature has not enacted the equivalent of subsection (3) of section 37, which gives the court express power to grant Mareva relief in respect of assets within the jurisdiction, whether or not the defendant is "domiciled, resident or present" within that jurisdiction. Nevertheless, their Lordships consider that the jurisdiction to grant such relief in respect of assets within or without the jurisdiction and against residents or foreigners was well established in England before the 1981 Act was passed: see Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 and Barclay-Johnson v Yuill [1980] 1 WLR 1259 (jurisdiction against residents) and Derby & Co Ltd v Weldon [1990] Ch 48 (world-wide restraints). The courts of The Bahamas have a similar jurisdiction.
10. Interlocutory jurisdiction is ordinarily ancillary to substantive jurisdiction and in Siskina (Owners of cargo lately laden on board) v Distos Compania Naviera SA [1979] AC 210 the House of Lords decided that a court could not (in the absence of express statutory authority) grant Mareva interlocutory relief unless the defendant was "amenable to the jurisdiction of the court" in respect of a substantive cause of action. As the proceedings are interlocutory, it is not necessary for the applicant to show that he is likely to succeed in establishing such a cause of action. For the purposes of the threshold requirement it is sufficient if, upon the material before the court, he appears to have a good arguable case: see The Ninemia Maritime Corporation v Trave Schiff-ahrtsgesellschaft MbH Und Co KG [1983] 1 WLR 1412. It is then a matter for the court to decide as a matter of discretion, taking into account among other matters the strength or otherwise of the applicant's case, whether it is "just and convenient" to grant an injunction.
11. Both Strachan J. and the Court of Appeal considered that the Trustee had shown an arguable case against the late Mr Walsh. Their Lordships would be reluctant to interfere with a concurrent view of the facts in an interlocutory matter unless it could be shown that the lower courts had misdirected themselves in law or misunderstood the evidence. Lord Grabiner QC, who appeared for Mr Walsh's estate, said that they had failed in both respects.
12. On the law, Lord Grabiner said that the information alleged to have been used by Mr Walsh when selling his shares was neither confidential nor the property of Bre-X. It could not be called confidential because the Trustee itself was claiming that it should have been made public. Nor was it property, even in the most extended sense of that expression. Knowledge of a business opportunity which could be turned into money might be regarded for this purpose as property, as in Phipps v Boardman [1967] 2 AC 46. But this was simply information which, if true, must have been equally well known to (at the least) many people in Indonesia. That could not be property of Bre-X.
13. It appears to their Lordships to be arguable that whether or not information can be categorised as "property" an officer of a company owes a fiduciary duty to the company not to use his knowledge of its affairs by making a profit from dealing in what he knows to be a false market in its shares. It is likewise arguable that one of the remedies available to the company for breach of this fiduciary duty is an account of the profits he has made, despite the fact that the company itself could not have made such profits: see Reading v Attorney General [1951] AC 507. In Diamond v Oreamuno (1969) 301 NYS 2d 78, CJ Fuld, speaking for a unanimous New York Court of Appeals, considered the liability of directors who were alleged to have used inside information to make profits from selling their shares. He said (at pp. 80-81):

"It is well established, as a general proposition, that a person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit but must account to his principal for any profits derived therefrom…The primary concern, in a case such as this, is not to determine whether the corporation has been damaged but to decide, as between the corporation and the defendants, who has the higher claim to the proceeds derived from the exploitation of the information. In our opinion, there can be no justification for permitting officers and directors, such as the defendants, to retain for themselves profits which, it is alleged, they derived solely from exploiting information gained by virtue of their inside position as corporate officials."

14. This is of course a statement of the law of New York, but entitled to great respect as expounding doctrines of equity which are common to the legal systems of New York and The Bahamas as well as of England. It has been cited in support of the existence of a similar equitable cause of action in English law by Professor Davies in his 6th edition of Gower's Principles of Modern Company Law (1997) at p. 445 and by Mr Ben Pettet in his recent Company Law (2001) at p. 393. Their Lordships therefore agree with the courts of The Bahamas that such a cause of action is arguable.
15. As for the facts, their Lordships do not think it desirable to say more than is absolutely necessary by way of agreement that a good arguable case has been shown. They will advert to only one of the matters relied upon. One of the apparent set-backs suffered by Bre-X in its relationship with the government of Indonesia was the cancellation on 15 August 1996 of the preliminary survey permit ("SIPP") which entitled the joint venture in respect of Busang II to set out the boundaries and confirm the content of exploration samples. No public announcement of this event was made in Canada to shareholders or the market. In a press statement issued on 26 February 1997, in response to rumours of insider dealing by himself and other officers of the company, Mr Walsh said that the cancellation of the SIPP had not been a material event because the position of Bre-X was protected by mining authorisations which "supersede the legal status of the SIPPs". That may or may not have been the case, but their Lordships think that a trial court may find it striking that in the week after cancellation, Mr and Mrs Walsh each sold about $7m worth of shares. These and other facts are of course open to explanation but their Lordships think it impossible to say that the threshold requirement of a good arguable case was not satisfied.
16. Since their Lordships consider that the courts of The Bahamas had jurisdiction to grant Mareva relief, it follows that (with one exception) Lord Grabiner's remaining grounds of appeal were complaints about the way in which they exercised their discretion. The difficulty of mounting such a challenge is well known. Their Lordships can therefore deal relatively briefly with these discretionary matters.
17. The first was that the Trustee failed to make full and frank disclosure to Evans J (Ag) of all the material facts. They did not disclose the FIA report. The existence of the report and its terms of reference were mentioned and it could be inferred from the affidavit in support of the application that it did not provide any material against Mr Walsh. It might therefore also have been inferred that he had been exonerated from complicity in the salting, which was the only matter within FIA's terms of reference. But the affidavit nowhere expressly said so.
18. On the application to discharge the injunction, Strachan J. (in a careful judgment to which their Lordships would pay tribute) was scathing about the failure to disclose the FIA report. Although it was not strictly material, because on a careful reading of the affidavits the Trustee essentially relied upon insider trading based upon knowledge of the title and regulatory problems known to Mr Walsh before the salting was discovered, the affidavit made free with prejudicial references to the fraud. Indeed, even in conducting the appeal before the Board, Mr Moree (who appeared for the Trustee) was unable to resist salting his argument with similar remarks. It was therefore necessary to make it clear to Evans J (Ag) that FIA had exonerated Mr Walsh. Nevertheless, as a matter of discretion, Strachan J. did not on this ground discharge the injunction. The Court of Appeal likewise exercised its discretion in favour of the Trustee, saying that the salting was not a material fact.
19. In Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, 1357, Ralph Gibson LJ, after explaining that the power to discharge an injunction irrespective of the merits on the ground of failure to make full disclosure was penal and disciplinary in character, said that the court had a discretion:

"notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms."

20. Strachan J. and the Court of Appeal took into account the nature and strength of the case against Mr Walsh and do not appear to have erred in principle in the exercise of their discretion. This ground of appeal cannot therefore succeed.
21. Secondly, Lord Grabiner said that although the writ issued in The Bahamas made substantive claims, the Trustee had made it clear that after obtaining Mareva relief it intended to stay the action and proceed with the action in Ontario. There is no doubt that the court has jurisdiction to make an order in such circumstances: see Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334. But Lord Grabiner said that, as a matter of discretion, the Bahamian court should not have made a world-wide order solely in aid of proceedings in Canada.
22. Their Lordships do not consider that any objection in principle can be made to the exercise of the jurisdiction in this way. It is commonplace that the most convenient forum may not be the place where it is desirable to obtain Mareva relief, either because the defendant resides there and is amenable to the enforcement jurisdiction of the local court, or because the assets are there and notice can be served upon persons (such as banks) who have them under control. As long ago as 1983, in the early days of the English Mareva jurisdiction, Vinelott J. granted an order in aid of proceedings in Ireland: see House of Spring Gardens Ltd v Waite [1984] FSR 277 and more recently in Crédit Suisse Fides Trust SA v Cuoghi [1998] QB 818 the Court of Appeal made a similar order in aid of proceedings in Switzerland. Their Lordships consider that such international judicial co-operation should be encouraged.
23. Thirdly, Lord Grabiner said that the order should have been confined to assets in The Bahamas and not extended world-wide. Strachan J. refused to continue the order in respect of assets abroad because, he said, he did not have information which would enable him properly to exercise his discretion. He had not, for example, been told why such an order had not been sought in Ontario.
24. Their Lordships respectfully think that the Court of Appeal was right to extend the injunction. There was evidence that in May 1997, soon after the collapse of Bre-X, Mr and Mrs Walsh had closed their accounts with a Bahamas bank and asked for the proceeds in the form of a draft made out to themselves. It could be inferred that they were removing their assets to a place where they were less likely to be found. Such a place may well be outside the Bahamas. Their Lordships consider that the omission to ask for a world-wide Mareva in Ontario needs little explanation. The sensible place in which to obtain such an order is the jurisdiction in which the defendant lives and where he is amenable to the in personam jurisdiction of the court if he disobeys.
25. Finally, their Lordships come to Mr Grabiner's last point, which does not so far involve any exercise of discretion by the lower courts. This concerns the delay in the prosecution of the Ontario action. It is now more than four years since the action was commenced and no progress has been made. When the application was before Strachan J., six months after the Ontario action had been commenced, he commented that there was no evidence that the Trustee was prosecuting it with diligence. He added a warning:

"It would plainly be wrong that a remedy, whose ultimate purpose is the avoidance of abuse and injustice, should itself become just that, and there is a real risk of that happening, if the action in Canada should not be, as I assume it will, expeditiously prosecuted."

26. In giving this warning, Strachan J. was echoing remarks made by Glidewell and Dillon L.JJ in Lloyds Bowmarker Ltd v Britannia Arrow Holdings Plc [1988] 1 WLR 1337 at pp. 1347 ("a plaintiff who succeeds in obtaining a Mareva injunction is in my view under an obligation to press on with his action as rapidly as he can") and 1349-1350 ("where a party has obtained a Mareva injunction, that party is bound to get on with the trial of the action – not rest content with the injunction.") Their Lordships have no doubt that failure to progress the action, wherever it is taking place, is a ground upon which a court may discharge an injunction previously granted. For a discussion of the considerations which may enter into the exercise of the discretion, see Mr Steven Gee QC's book Mareva Injunctions and Anton Piller Relief (4th edn 1988) at pp. 377-379.
27. Lord Grabiner said that as no explanation for the delay in Ontario had been offered, their Lordships should allow the appeal or summarily discharge the injunction. Mr Moree said that the reason why no explanation had been given was that the Trustee had no notice of the point before the printed cases in this appeal were exchanged. In any case, it was not a ground for an appeal against the original order. It depended upon events (or the absence of events) since the order had been made. In the course of the hearing Mr Moree obtained instructions from Toronto. It appears that the Trustee's action is intended to be heard with the class action, which depends upon very much the same facts. The same judge is in charge of both actions and has directed that they should proceed in step with each other. But the class action has not got out of the starting gate because there have been interlocutory applications and appeals about its status as a class action. These have only just been concluded by the refusal of leave to appeal by the Supreme Court of Canada. Meanwhile, the Trustee says, its action has been held up through no fault of its own.
28. Their Lordships consider that as their jurisdiction is purely appellate, it would be wrong to allow the appeal or discharge the order on grounds which were never considered by the lower courts. This is not simply a matter of procedural nicety. The decision as to whether or not to discharge the order for delay is a matter of discretion and their Lordships do not think that the full material for the exercise of that discretion is before them. They note, for example, that the estate has not yet been called upon to comply with the order for disclosure of information made by Evans J (Ag). That information about dealings with assets may be relevant to the exercise of the discretion if there is an application to the court in The Bahamas to discharge the injunction. Their Lordships therefore consider that they should not take cognisance of the question of delay but leave it to the appellant, if so advised, to apply to the court in The Bahamas to discharge the injunction on that ground. They will humbly advise Her Majesty that the appeal should be dismissed. The first appellant must pay the Trustee's costs before their Lordships' Board.