S v VB
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton,Lady Justice Macur,Sir Timothy Lloyd |
| Judgment Date | 31 March 2014 |
| Neutral Citation | [2014] EWCA Civ 399 |
| Docket Number | Case No: A3/2013/2099 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 March 2014 |
[2014] EWCA Civ 399
THE CHANCELLOR OF THE HIGH COURT
Lady Justice Macur
and
Sir Timothy Lloyd
Case No: A3/2013/2099
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE MORGAN
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Robert Miles QC, Ms Louise Hutton and Mr James Sheehan (instructed by Herbert Smith Freehills LLP) for the Appellants
Mr Daniel Lightman, Mr Paul AdamsandMr Thomas Elias (instructed by Mishcon de Reya LLP) for the 1 st to 5 th and 7 th Respondents
Hearing dates : 12 th and 13 th March 2014
The Chancellor ( Sir Terence Etherton):
This is an appeal from the order of Mr Justice Morgan dated 11 July 2013 by which, among other things, he dismissed an application by the appellants, the claimants in the proceedings, to continue until judgment or further order a proprietary injunction and worldwide freezing injunction granted by Christopher Clarke J on 15 May 2013 on the appellants' ex parte application.
The appellants' claims
The following is a brief summary of the appellants' case.
In early 2008 the second respondent, Sanjit Talukdar ("Sanjit"), proposed a business venture to the first appellant, Pavel Sukhoruchkin ("Pavel S"), and the third appellant, Pavel Novoselov ("Pavel N") (together "the Pavels"). The proposal was that the Pavels, Sanjit and the first respondent, Marc Giebels van Bekestein ("Marc"), would create and operate a fund of funds business. It was agreed that the four of them (together "the founders") would share equally in the benefits of the joint venture. Sanjit also proposed the structure to be used in the joint venture. It would involve an offshore investment advisory company, as both voting shareholder in and investment advisor to a fund company. The fund company which they decided to use was a Cayman Islands company, Hadar Fund Limited ("Hadar Fund"). The investment advisory company was another Cayman Islands company, Hadar Investment Advisers Limited ("HIA"). The founders often referred to themselves as "the Partners" in emails and other communications between themselves and with third parties.
It was understood and agreed from the outset that the companies in the fund structure would have professional nominee directors. It was also understood that those directors would look to the founders for directions about the running of the business of the fund companies. The founders agreed that Marc and Sanjit would have primary responsibility for communicating with the directors on behalf of all of them, that is as their representative or agent. That is what happened, with Sanjit taking prime responsibility. In many instances Sanjit communicated with the directors without communicating first with the Pavels and without copying them in on the relevant communication. The Pavels were content to allow Sanjit to do this as the relationship between the founders was one of trust and confidence.
The corporate framework was established and operated in the following way. HIA received management and performance fees from Hadar Fund. The sole shareholder in HIA was a BVI company, Haysom Limited ("Haysom"). The shares in Haysom were held by Veltro Limited ("Veltro"), another BVI company. Veltro held 25 per cent of the shares in Haysom on trust for each of four companies which were each ultimately beneficially owned by Pavel S, Pavel N, Marc and Sanjit respectively. Those companies were (1) the second appellant, Hurley Investment Holdings, which was ultimately beneficially owned by Pavel S, (2) the fourth appellant, Vickgram Holdings, which was ultimately beneficially owned by Pavel N, (3) the seventh respondent, Ametista Patrimonial SA ("Ametista Andorra"), which was beneficially owned by Marc and his family, and (4) the fourth respondent, PNT Capital Advisors ("PNT"), which was beneficially owned by Sanjit. Ametista Andorra's beneficial holding was subsequently passed to the third respondent, Ametista Patrimonial (Mauritius) Limited ("Ametista Mauritius"), which itself was beneficially owned by Marc and his family.
There was further elongation of the structure in respect of the companies ultimately beneficially owned by the Pavels in that Veltro was interposed again as holder of the shares in the second and fourth appellant companies on trust for each of the Pavels.
None of the Pavels, Marc or Sanjit was a director of the offshore companies. The companies in the structure had professional nominee directors.
The money received by HIA in respect of its management and performance fees was passed through the corporate structure by way of dividend. The ultimate result was that the individuals (or entities ultimately beneficially owned by them) would each be entitled to 25 per cent of the fees received by HIA.
In February 2011 Hadar Fund and HIA entered into an agreement ("the Distribution Agreement"), which provided for two-thirds of the sums which would have been paid by Hadar Fund to HIA referable to a particular US$1 billion investment to be paid instead to the fifth respondent, Blue Pearl Advisors Limited ("Blue Pearl"). That is a company incorporated in Mauritius which is owned by Ametista Mauritius and PNT (in turn beneficially owned by Marc and his family and by Sanjit respectively).
The appellants claim that the Distribution Agreement was entered into without their knowledge or consent and was "bogus". The appellants allege that the Distribution Agreement stated untruthfully that the payments were in compensation for Blue Pearl introducing the investor, when in fact none of the respondents had anything to do with such an introduction. The appellants allege that the relevant US$1 billion investment was made by an investor introduced by the Pavels and with whom the respondents had almost no contact. In the 21 months that the Distribution Agreement was in place Blue Pearl was paid about US$41.3 million. In addition the respondents received between them half of the remaining one third payable to HIA (through the agreed four way split of income).
The appellants claim that Blue Pearl also received secret payments of another US$1.9 million under arrangements in relation to a further fund company within the same structure, Rio Capital Fund. They claim that those were also fees that were wrongly diverted to Blue Pearl pursuant to a written distribution agreement ("the Rio Agreement").
Finally, the appellants allege that Marc and Sanjit wrongfully procured Hadar Fund to invest US$22 million in Telnic Limited ("Telnic"), a private dotcom company, for the payment to Blue Pearl of a secret US$4.4 million "finder's fee" which was not disclosed to the Pavels (or Hadar Fund) at the time of the investment.
The appellants allege that the founders, as partners in the joint venture, owed each other, among other things, fiduciary duties of loyalty and good faith and that, by wrongly diverting profits away from the venture to their own vehicle, Blue Pearl, Marc and Sanjit acted in breach of their fiduciary duties to the appellants. The appellants claim, among other things, (1) a declaration that the respondents and each of them are liable to account to the appellants for all unauthorised benefits they have received from or in respect of the joint venture; (2) a declaration that the respondents and each of them hold all such unauthorised benefits and their proceeds or assets representing the same as constructive trustees for the appellants; (3) equitable compensation; (4) damages for breach of contract; and (5) damages for conspiracy.
The order of Christopher Clarke J
The order of 15 May 2013, on the ex parte application of the appellants, took the form of a proprietary injunction and a worldwide freezing injunction. The proprietary injunction restrained dealings with what were referred to as Trust Assets. That phrase was defined so as to refer, essentially, to sums received by Blue Pearl from the Distribution Agreement and the Rio Agreement and any money derived from such sums. The freezing injunction was a worldwide injunction restraining dealings with assets up to a value of £13 million.
The application to Morgan J
The application to Morgan J was essentially to continue the order made on 15 May 2013 until judgment or further order in the meantime but with some enlargement. He was asked to extend the definition of Trust Assets, the subject of the proprietary injunction, so that the definition would include any sum received directly or indirectly by Blue Pearl from Telnic. He was also asked to increase the value of the assets frozen from £13 million to £14.5 million.
The Judge's judgment
The hearing before the Judge took place over four days. He handed down a careful and comprehensive written judgment three days later.
The Judge set out the applicable tests for a freezing injunction and a proprietary injunction. As to a freezing injunction, he said (at paragraph [6]) that the appellants had to show that (1) they have a good arguable case both in relation to the legal propositions on which they rely and as to the facts which they allege will entitle them to judgment at the trial; (2) there are relevant assets to be made the subject of the order; (3) there are...
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