Bronze Monkey LLC and Another v Simmons & Simmons LLP and Another
| Jurisdiction | England & Wales |
| Judge | Mr Andrew Henshaw |
| Judgment Date | 01 December 2017 |
| Neutral Citation | [2017] EWHC 3097 (Comm) |
| Date | 01 December 2017 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000446 |
[2017] EWHC 3097 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice Strand, London, WC2A 2LL
Mr Andrew Henshaw QC
(sitting as a Judge of the High Court)
Case No: CL-2016-000446
James Collins QC (instructed by Dorsey & Whitney (Europe) LLP) for the Claimants
Patricia Robertson QC and Rupert Allen (instructed by Humphries Kerstetter LLP) for the First Defendant
The Second Defendant did not appear and was not represented
Hearing date: 3 November 2017
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Andrew Henshaw QC
Mr Andrew Henshaw QC:
(A) Introduction
The First Defendant (" S&S") applies by notice dated 31 January 2017 for summary judgment and/or to strike out the claim against it.
The claim against S&S is for declaratory relief, and arises out of correspondence sent by S&S on 12 July and 14 July 2016, while acting for the Second Defendant (" UIT"), in connection with a dispute between UIT and the Second Claimant (" Mr Gregg") about the ownership and management of the First Claimant (" Bronze Monkey").
S&S contends that the claim against it is hopeless, abusive, serves no useful or proper purpose and should never have been brought. S&S argues that it did no more than set out its client's case, on instructions, in respect of matters that were and are in dispute between UIT and Mr Gregg; and that the recipients of the relevant letters correctly understood them in those terms.
S&S further argues that there is no justification for any declaratory relief against it, since such relief would risk inhibiting S&S's ability to represent the interests of its client UIT in its ongoing dispute with Mr Gregg. The underlying issues as to the ownership and management of Bronze Monkey should be left to be litigated as between UIT and Mr Gregg in the normal way.
The Claimants' position is that S&S in its letters of 12 and 14 July 2016 purported to write on behalf of Bronze Monkey and to demand that a payment due to Bronze Monkey be made into S&S's client account; that S&S had no authority to do so; that both UIT (before proceedings were commenced) and S&S (after proceedings were commenced) refused to provide appropriate undertakings; and that S&S therefore remains a proper defendant to the claim for declaratory relief. The Claimants say they seek such relief in order to prevent further representations being made, and that the question of who is entitled to represent Bronze Monkey may continue to be an issue of real significance (including in the context of a separate claim brought by two third parties against Mr Gregg, UIT and Bronze Monkey in the Chancery Division, in which Dorsey currently represent Bronze Monkey).
(B) The underlying transactions
Bronze Monkey is a limited liability company incorporated in Delaware in September 2014. It entered into transactions which, according to the Particulars of Claim were as follows:
"4. By a loan agreement dated 30 September 2014 (the "Dewarson Loan Agreement") Bronze Monkey agreed to loan Dewarson Limited ("Dewarson") €1,300,000 (the "Dewarson Loan"). The purpose of the Dewarson Loan was to enable Dewarson to fund the exercise, by it, of an option to acquire another loan referred to as the "CDHC Loan".
"5. Pursuant to Clause 7 of the Dewarson Loan
Agreement:
5.1 the Dewarson Loan was to be repaid by Dewarson using the repayment proceeds of the CDHC Loan (the "CDHC Receipts");
5.2 the CDHC Receipts were to be used by Dewarson to repay the Dewarson Loan within 3 business days of receipt by Dewarson; and
5.3 "all payments due under this Agreement to the Lender shall be made to such account as notified to the Borrower from time to time."
"6. Dewarson is and was at all material times owned and/or controlled by Clermont Trust (Switzerland) SA, which is represented by inter alia Clermont Corporate Services Limited ("Clermont").
"7. By a further agreement dated 30 September 2014 (the "Call Option Agreement") Clermont Trust (Switzerland) SA granted Bronze Monkey an option to purchase 8 ordinary shares in Dewarson, representing 80% of the issued share capital of that company, or US$1 (the "Call Option")."
A dispute subsequently arose between Mr Gregg and UIT as to their respective rights and interests in, and authority to act on behalf of, Bronze Monkey. It is common ground between Mr Gregg and UIT that the investors in Bronze Monkey included Mr Gregg and UIT and that they funded Bronze Monkey's loan to Dewarson with the intention of acquiring a stake in Bronze Monkey. However, there is a dispute as to whether UIT had the authority to take certain steps on behalf of Bronze Monkey, namely to exercise the option to acquire Dewarson shares and to give instructions about where the proceeds of the CDHC loan should be remitted.
UIT's position is that those steps were necessary to preserve the value of the investment on behalf of the investors, in circumstances where it suspected Mr Gregg of breach of fiduciary duty and of intending to divert the proceeds of the CDHC loan away from Bronze Monkey.
Mr Gregg denies this and also denies that UIT had authority to act on behalf of Bronze Monkey; he claims to be the sole manager and member of Bronze Monkey. UIT's position is that, under Delaware law:
i) in the absence of a written operating agreement, UIT is a managing member of Bronze Monkey with authority, as such, to act (alone) on Bronze Monkey's behalf;
ii) further or alternatively, the investors with a majority interest in Bronze Monkey are entitled to act (together) on Bronze Monkey's behalf.
On or about 19 July 2016 UIT filed proceedings in Delaware (" the Delaware proceedings"), on behalf of itself and derivatively on behalf of Bronze Monkey, naming Mr Gregg and Bronze Monkey as defendants, for "declaratory relief, fraud, breach of fiduciary duty, removal of [Mr] Gregg as a manager of Bronze Monkey and for dissolution of the company" (§ 6).
(C) Correspondence up to the issue of the present proceedings
The claim against S&S is primarily based on two letters it wrote on 12 July 2016 to Clermont and to Morrison & Foerster (who act for Clermont and Dewarson), and a letter of 14 July 2016 to Dorsey & Whitney (Europe) LLP (" Dorsey"), who act for the Claimants in the present proceedings.
S&S was instructed by UIT in February 2016, shortly after UIT gave, or purported to give, notice of exercise of the option to acquire Dewarson shares.
In July 2016, UIT learned that Morrison & Foerster would soon receive the proceeds of the CDHC loan.
On 12 July 2016, S&S wrote to each of Clermont and Morrison & Foerster on UIT's instructions to request that the proceeds of the CDHC loan be paid into a designated client account at S&S. These letters were copied to the other investors in Bronze Monkey including Mr Gregg.
S&S's letter of 12 July 2016 to Morrison & Foerster began as follows:
"We are writing on behalf of Bronze Monkey LLC ("Bronze Monkey") in relation to the First Call Option Agreement and the [Dewarson] Loan Agreement. Our firm represents United Investment Trading Limited ("UIT"), a managing member of Bronze Monkey. The positions set forth herein represent those of the members who own a majority of the interests in Bronze Monkey and therefore are to be regarded as Bronze Monkey's positions."
After alleging a breach by Clermont of the First Call Option Agreement, the letter stated:
"Our client and Bronze Monkey reserve the right to pursue any claim for the breach and for the avoidance of doubt do not waive any rights under either the First Call Option Agreement or the Loan Agreement."
As regards the Loan Agreement proceeds, the letter included these passages:
"We understand that Dewarson will shortly be receiving the CDHC Receipts … in the amount of approximately €9,296,073
…
"Pursuant to clause 7.1 of the Loan Agreement, Dewarson must, within three Business Days of the receipts of the CDHC Receipts, repay the €1,300,000 to Bronze Monkey plus accrued unpaid interest in the amount of €345,123. In accordance with clause 7.3, we put Morrison & Foerster (UK) LLP on notice to make such payment to Bronze Monkey, on behalf of your client, to the following account:
…
Account name: Simmons & Simmons LLP Client Account
…
As soon as practical after Dewarson's receipt of the CDHC Receipts, and in any event no later than within two weeks of such receipt, the balance of the CDHC Receipts must be made available for pro rata distribution to Bronze Monkey as the majority shareholder (80%) of Dewarson … Accordingly, please remit Bronze Monkey's pro rata share in the amount of €6,120,760 to the account above as soon as practical after receipt of the CDHC Receipts, and in any event no later than within two weeks. …
UIT's interest in the payments and distributions from the CDHC Receipts due from Dewarson to Bronze Monkey is no less than €1,553,117."
The letter continued:
"By seeking to delay the Completion, Clermont Trust would be in breach of its obligations under the First Call Option Agreement and would be wrongly depriving Bronze Monkey of its interests. This would both be a breach of contract and a breach of trust. …
Please therefore confirm that Morrison & Foerster (UK) LLP, acting on behalf of Dewarson and/or Clermont Trust, will not release or distribute any of the CDHC Receipts, either prior to Completion (except to repay the sums referred to above) or following Completion, until further notice is received from our firm.
Furthermore, it has...
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