BAS Capital Funding Corporation and Others v Medfinco Ltd and Others

JurisdictionEngland & Wales
JudgeMr Justice Lawrence Collins
Judgment Date25 July 2003
Neutral Citation[2003] EWHC 1798 (Ch)
Docket NumberHC 03 C 02101
CourtChancery Division
Date25 July 2003

[2003] EWHC 1798 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL


Mr Justice Lawrence Collins

HC 03 C 02101

(1) Bas Capital Funding Corporation
(2) Deutsche Bank Ag London
(3) Paine Webber Capital Inc
(4) Pw Exe Lp
(5) Pw Partners 1999 Lp
(1) Medfinco Limited
(2) Abacus Holdings Limited
(3) Andreas W Gerdes
(4) Htc Inc
(5) Iworld Group Europe Holdings Limited

Mr Robin Hollington QC and Mr John Machell (instructed by Peters & Peters) for the Claimants

Mr Stephen Auld QC (instructed by Wragge & Co) for the First, Second, Third and Fifth Defendants.

(Subject to editorial correction)

This is an advance copy of the Judgment to be handed down at 10.15 am on Friday, July 25, 2003 It is CONFIDENTIAL to counsel, solicitors and clients until it is handed down

Mr Justice Lawrence Collins

I Introduction


The claimants are the investment arms of three of the largest financial institutions in the world, Bank of America, Deutsche Bank, and Union Bank of Switzerland. In the year 2000 they entered into agreements to invest in a Maltese technology company. Disputes have arisen with one of the principal founders of the company, Mr Gerdes, the third defendant, and there are proceedings pending in Malta. The shareholders agreement provides that the parties submit to the non-exclusive jurisdiction of the English court in relation to all claims arising out of in connection with the agreement.


The claimants seek to bring a variety of claims in England against the company, Mr Gerdes and other shareholders, and seek injunctions pending trial in England. The defendants challenge the jurisdiction of the English court and resist the injunctions. These applications involve, among other matters, the effect of the non-exclusive jurisdiction clause.

II The parties


The claimants are BAS Capital Funding Inc ("BAS"), which was previously known as Banc of America Equity Corporation (and which is part of the Bank of America), Deutsche Bank AG, and three Paine Webber entities, Paine Webber Capital Inc, PW Exe LP, and PW Partners 1999 LP, which are part of Union Bank of Switzerland.


The first three of the claimants, together with the fourth defendant, HTC Inc, then known as Hikari Tsushin Partners [II], LP, were parties to a Shareholders' Agreement ("the Agreement") which forms the basis of these proceedings. PW Exe LP and PW Partners 1999 LP subsequently became parties after taking a proportion of the investment of Paine Webber Capital Inc. HTC Inc has not joined the other financial institutions in these proceedings as a claimant, and therefore it has been joined as a fourth defendant, but has taken no part. In this judgment, the expression "the defendants" does not include HTC Inc.


The parties to the Agreement were the financial institutions and the other shareholders in iWORLD Group Europe Holdings Ltd ("the Company"), and the Company itself.


The principal founders of the Company were Mr Andreas Gerdes ("Mr Gerdes"), and his wife, Ms Bettina Vossberg ("Ms Vossberg"). Mr Gerdes is a German national. He is Germany's first mobile service provider, ABC Telekom. He sold the business, and left Germany to work in Asia where he advised Deutsche Telekom and other telecommunication companies. Ms Vossberg worked for Daimler Benz's telecommunications unit, and subsequently for Deutsche Telekom in Asia. Mr Gerdes and Ms Vossberg moved to Malta in 1995, where they married, and had two sons The evidence is that they are now estranged and are judicially separated. It may be (although there was no evidence on this) that the breakdown in relations in the management of the Company was linked to their matrimonial problems.


The other founders of the Company were Mr Ian Arstall (who was previously an international partner and head of corporate finance, South East Asia, of the solicitors Linklaters), Mr Malcolm Ross (formerly a senior vice-president and head of telecommunications of Arthur D Little), and Daniel Kranzler (who also had considerable experience in telecommunications).


The other shareholders were named in the Agreement as Perikles Trust, which was described as "a trust established under the laws of Jersey for the benefit of the founders of the Company" and Dolphins Trust, which was described as "a trust established under the laws of Jersey for the benefit of employees and advisers of the Company." Neither Perikles Trust nor Dolphins Trust is a legal entity, and the Agreement was signed for each trust by Abacus Holdings Ltd ("Abacus"), a Maltese trust company, as trustee.


Perikles Trust was established by Mr Gerdes and was administered by PriceWaterhouseCoopers in Malta through Abacus. The evidence was that the beneficiaries of the Perikles Trust were Mr Gerdes, his children, and Ms Vossberg. Among the assets held on trust by Abacus were shares in the Company. The first defendant, Medfinco Ltd ("Medfinco") is a Maltese company to which, in December 2002, Abacus transferred, or purported to transfer, the shares in the Company which were held on trust by Abacus.


Other persons who play a major part in the events which are the subject of these proceedings include Mr Edward McCaffrey, who is a managing director of the first claimant ("BAS") and chief investment officer of Banc of America Equity Partners; Mr Kevin Valenzia, who is a director of, and the secretary of, Abacus, and a partner in the Malta firm of Price WaterhouseCoopers.

III The Company and the investment


The Company was incorporated in Malta on 19 January 2000 and was formed to carry on the business of "business incubation" in the e-mobile sector, that is, mobile telecommunications applications and services. It was intended that the Company would derive its income and profits from retaining a majority shareholding in ventures in this sector which it had successfully "incubated".


Mr Gerdes sought finance for the project, and after discussion with several investment partners, the claimants (and HTC Inc) agreed to invest $36 million in the Company by subscription for preference shares and non-voting ordinary shares.


The claimants were shown a Business Plan which said:

"iWORLD Group will deploy its first business incubation facility in Europe within first quarter 2000 and establish an international presence in the ensuing months. By the end of 2003 the company plans to grow its capital value to a baseline figure of approximately USD3.4 billion. We offer selected strategic investors the opportunity to participate in iWORLD Group's success. To establish the first of the iWORLD Group global incubators and fund the operations of the company during the next 24 months we will raise USD35 million by offering equity in the company.

iWORLD Group offers a compelling opportunity to its investors. Within 12–18 months, iWORLD Group will position itself for an early IPO that will strengthen brand recognition, offer market valued equity incentives to its staff and provide an opportunity for investors to realise a portion of their gains. Investment partners will also benefit through the possibility of early participation in ventures emerging from the incubators, and in the eventual spin-off of iSmartMoney, iWORLD Group's seed fund, as a growth fund specialising in the mobile e-business sector."


Later in the document it is said that the iWorld Group expected that in the first four years (a) it would aggregate a capital value of approximately US$3.4 billion from its share of incubated ventures (or offspring); (b) it would incubate on average 12 ventures per annum, of which 40 out of 48 were expected to succeed. $35 million was sought to:

"• Establish Euroincubators, its full-service incubation facilities for Europe, located in Germany, Europe's largest national market, and later (3Q2001) replicate the facility by developing Asialncubators in Asia

• Establish an office network covering Sweden, Finland, UK, Italy, US, Hong Kong, and Japan to gather market intelligence and to provide its offspring with access and acumen for successful roll-out and execution

• Build an international team of recognized and experienced Internet and telecom professionals as the focus of a network of in-house and external resources and services in these international hubs, together with operational experts in the fields of marketing, business building, finance and fiscal matters, and logistics."


The process of incubation of new businesses would involve two distinct preliminary stages: (a) the Company would establish a committee called "iDeasTank" which would develop business concepts and plans for submission to another committee of the Company, namely "iSmartMoney;" and (b) the Company's iSmartMoney committee would make decisions upon whether or not to fund incubated companies for a defined incubation period.


The Agreement (together with a Subscription Agreement) was entered into by the Investors on March 31, 2000. The investors (together with Mr Keith McCaw, who invested $1m for 1,108,192 preference shares) agreed to subscribe in aggregate the sum of $37 million for 3,102,942 ordinary non-voting shares and 41,003,108 preference shares in the Company.

IV The Agreement


The principal relevant provisions were these:

"1.1 In this Agreement and its recitals and the Schedules save where otherwise expressly provided or unless the context provides otherwise:

'Incubation Period' Means the period of up to twelve (12) months from the formation of an Incubated Company.

'Initial Funding' Means the initial investment by the Company in an Incubated Company pursuant to Clause 8.1

'iSmart Money' Means the investment committee of the Company responsible, inter alia, for making the decision whether to fund Incubated Companies

4.1 The principal purpose of the Company is to develop, invest in and own...

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