Naibu Global International Company Plc v Daniel Stewart & Company Plc
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Bacon |
| Judgment Date | 14 October 2020 |
| Neutral Citation | [2020] EWHC 2719 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2018-000734 |
| Date | 14 October 2020 |
[2020] EWHC 2719 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building
Fetter Lane
London EC4A 1NL
Mrs Justice Bacon
Case No: BL-2018-000734
Nicholas Davidson QC and Daniel Lewis (instructed by PGB Gitlin Baker) for the Claimants
Christopher Smith QC and Bibek Mukherjee (instructed by Clyde & Co LLP) for the Second Defendant
Hearing dates: 20–21 May 2019, 21 September 2020
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.
Introduction
The claim in these proceedings arises from the dissipation of the assets of a Chinese sportswear company, Naibu (China) Co Ltd (“Naibu China”). The Second Claimant (“Naibu HK”), a Hong Kong company, is the parent company of Naibu China, and the First Claimant (“Naibu Jersey”) is a Jersey company and the holding company for the Second Claimant. Naibu Jersey had been floated on the Alternative Investment Market (“AIM”) in London, but the subsequent disposal of the assets of Naibu China rendered the Claimants' shares in that company valueless, and Naibu Jersey was accordingly de-listed.
The claim was issued on 28 March 2018, alleging breaches of duty and/or negligence on the part of the Defendants in conducting due diligence and preparing Naibu Jersey for its IPO on AIM, and claiming damages in an amount equivalent to almost £185 million.
On 4 July 2018 the Second Defendant, Pinsent Masons, applied to stay the claim brought by Naibu HK pursuant to section 9 of the Arbitration Act 1996. As against Naibu Jersey, Pinsent Masons applied for the claim to be struck out or summarily dismissed. In the alternative it applied for Naibu Jersey's claim also to be stayed pursuant to section 9 of the Arbitration Act.
The Claimants accept that Pinsent Masons is entitled to a stay of the claim brought by Naibu HK, but dispute the applications against Naibu Jersey. On 19 December 2018 the Claimants applied to amend their Particulars of Claim to address, among other things, the position of Naibu Jersey. The hearing on 20–21 May 2019 was therefore the hearing of Pinsent Masons' alternative applications against Naibu Jersey, along with the Claimants' application to amend, which raised essentially the same issues as the applications for strike out or summary judgment.
One of the submissions made by Pinsent Masons in support of its applications against Naibu Jersey was that Naibu Jersey's loss was not recoverable, on the basis that it was purely reflective of the loss claimed by Naibu HK. At the time of the May 2019 hearing, however, the question of the scope of the rule against recovery of reflective losses was pending before the Supreme Court in the case of Sevilleja v Marex Financial. I therefore adjourned judgment on the respective applications to await the judgment of the Supreme Court in that case, which was handed down on 15 July 2020: [2020] UKSC 31. Thereafter the parties made submissions on the implications of the Marex judgment, in writing and at a further hearing on 21 September 2020. In the course of those submissions the Claimants made a further application to amend their Particulars of Claim (replacing the previous draft amended Particulars of Claim; I will refer to the new draft as the “revised amended Particulars of Claim”), and Pinsent Masons formally applied to amend its original application notice to include the reflective loss point.
Pinsent Masons applications are supported by two witness statements from Ms Sarah Clover, the partner at Clyde & Co who is acting for Pinsent Masons in these proceedings. The Claimants rely on three witness statements from Mr Giles Elliott, who is a director and the Chairman of Naibu Jersey, and is also a director of Naibu HK. Between them, the witness statements set out the chronology of events described further below, and exhibit the contemporaneous documentation that forms the basis of the opposing applications. In addition, in relation to the revised amended Particulars of Claim, the Claimants rely on a witness statement from Mr Ian Baker, a partner in the firm of PGB Gitlin Baker, solicitors for the Claimants.
Factual background
Naibu China was established in 2002 by Mr Huoyan Lin and his family. In around 2005 Naibu HK was incorporated as its parent company. In turn, Naibu Jersey was incorporated in December 2011 to hold 100% of the share capital of Naibu HK, for the purpose of enabling the business carried on by Naibu China to be floated on AIM.
The Claimants retained the First Defendant (“Daniel Stewart”) to act as their Nominated Adviser (“NOMAD”) in relation to the AIM flotation. The original retainer was agreed by Naibu HK in August 2011; that was replaced in March 2012 by a written agreement between Daniel Stewart and Naibu Jersey, which provided for the original retainer to be terminated and replaced with the new agreement. The status of that retainer is not in issue in the present applications.
It is common ground that Pinsent Masons was retained to act as the legal advisor to both Naibu China and Naibu HK, in accordance with letters of engagement dated 16 August 2011. At that time, which predated the incorporation of Naibu Jersey, it was envisaged in the letters of engagement that a parent company (referred to in the letter of engagement as “FloatCo”) would be incorporated for the purposes of the AIM flotation, and that Pinsent Masons would advise that company and its board of directors.
In particular, the letter of engagement from Pinsent Masons to Naibu HK stated that the services provided by the firm would include:
“conducting a due diligence exercise and preparing a legal due diligence report on FloatCo; …
commenting on the AIM admission document (the primary responsibility for the preparation of which will lie with the FloatCo and the Nomad); …
commenting on and negotiating the placing/floatation agreement and advising the FloatCo upon it; …
preparation of legal advice to the directors of the FloatCo on the AIM admission process, including advice on the directors' responsibilities and duties, and confirming to the Nomad that we have done so;
drafting/reviewing any existing or proposed new service agreements for executive directors and letters of appointment for non-executive directors, if required, to be entered into by FloatCo; and
preparing secondary legal documents, including minutes of meetings of the board of directors convened in relation to the AIM admission, and advising on such other documents, where responsibility for such documents rests with [Naibu HK].”
Both letters of engagement set out the fees that would be payable by Naibu China and Naibu HK respectively, and both letters provided for Pinsent Masons' total liability to be limited to US$50 million.
In addition to the specific matters set out in the respective letters of engagement, both letters incorporated a set of “standard” terms and conditions which included, in clause 14, the following limitation of any third party rights:
“ Third party rights
14.1 In reference of ‘ Contracts (Rights of Third Parties) Act 1999’ in England and Wales, we hereby confirm that we provide services only for the rights and interests of your company as our customer and our legal service agreement may only be enforced by your company and us, not any third party.
14.2 Even if the purpose of customer instructions is to authorise rights and interests to any third party, Pinsent Masons LLP shall not bear any obligation or any liability for any matter towards such third party (unless such third party is also a customer of Pinsent Masons LLP on such matters).”
The terms and conditions also included a governing law and arbitration clause which stipulated that the contract was to be governed by “laws in the United Kingdom”, but which went on to provide at clauses 20.2 and 20.3 as follows:
“20.2 In the event that your company or Pinsent Masons LLP (‘Petitioner’) wishes to escalate the resolution of any disputes, conflicts, or claims (‘Claims’) arising from contracts between your company and Pinsent Masons LLP, the Petitioner shall first send a written notice to the other party and specify the following facts and matters.
20.3 All Claims shall first be submitted to the Hong Kong International Arbitration Centre (‘HKIAC’) for mediation according to its mediation rules. In the event that a mediator gives up the mediation or the mediation is ended in other ways without resolving the Claims, such Claims (and all counterclaims raised thereby) shall be submitted to HKIAC for arbitration according to its local arbitration rules.”
Naibu Jersey was duly incorporated as the FloatCo and its flotation on AIM took place on 30 March 2012; this went on to raise around £6m. The Claimants' allegations as to what subsequently occurred are set out in the Particulars of Claim (in both the original and amended versions). In summary, Naibu China began to experience trading difficulties, and concerns were raised regarding the performance of the group. It appears that at some point in 2014 Mr Lin ceased cooperating with the non-executive directors of the Claimant companies, failed to respond to communications sent to him, and has since been untraceable. What exactly happened is not known, but the Claimants believe that Mr Lin disposed of all of the assets of Naibu China and closed its factory in Jinjiang. He was able to do so, the Claimants say, because he was in sole possession of Naibu China's “chop”, which the Claimants allege is the seal of a Chinese...
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...should instead have referred to his account with Metro Bank. I was satisfied that I had the power to do so: see Naibu Global International Company Plc v Daniel Stewart & Company [2020] EWHC 2719 (Ch) at [41] to [43] per Bacon 4 Whilst Mr Shelley voiced no objection to the amendment, I was ......