Shaker v Al-Bedrawi ;Shaker v Masry ; Shaker v Steggles Palmer (A Firm)
| Jurisdiction | England & Wales |
| Judgment Date | 18 October 2002 |
| Neutral Citation | [2002] EWCA Civ 1452 |
| Docket Number | Case No: CHANF/A3/2001/2033 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 October 2002 |
[2002] EWCA Civ 1452
Lord Justice Peter Gibson
Lady Justice Arden and
Mr. Justice Buckley
Case No: CHANF/A3/2001/2033
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Lawrence Collins J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Alan Steinfeld Q.C. and Mr. Adrian Francis (instructed by Messrs Amhurst Brown Colombotti of London) for the Appellant
Mr. Michael Roberts (instructed by Messrs Dawson & Co. of London) for the 1 st Respondent
Mr. Michael Lyndon-Stanford Q.C. and Mr. Guy Newey Q.C. (instructed by Messrs Lovells of London) for the 4th Respondents
Peter Gibson L.J. (giving the judgment of the court):
A Introduction
In Prudential Assurance v Newman Industries (No. 2) [1982] Ch. 204 this court (Cumming-Bruce, Templeman and Brightman L.JJ.) referred to "the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C." The court said that C was the proper plaintiff because C was the party injured and therefore the person in whom the cause of action was vested. This, the court said, was sometimes referred to as the rule in Foss v Harbottle (1843) 2 Hare 461 when applied to corporations but commented that it had a wider scope and was fundamental to any rational system of jurisprudence. The court added (at 222):
"But what [a shareholder] cannot do is to recover merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a "loss" is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only "loss" is through the company, in the diminution in the value of the net assets of the company …."
This principle ("the Prudential principle") has recently been affirmed and further explained by the House of Lords in Johnson v Gore Wood & Co. [2002] 2 AC 1. This appeal is concerned with the applicability, asserted by the Defendants but denied by the Claimant, of the Prudential principle to the particular facts of this case.
It is an appeal by Ghassan Shaker, the Claimant in three actions arising out of a business venture into which he and a friend entered with Mohammed Al-Bedrawi ("Mr. Bedrawi"), the First Defendant in the first action. The appeal is from the order of Lawrence Collins J. on 26 July 2001 determining as a preliminary issue that the Prudential principle precluded Mr. Shaker proceeding against any of the Defendants in any of the three actions. The appeal is brought with the permission of the judge after hearing the points which leading counsel other than the counsel who had argued the case for Mr. Shaker before the judge wished to take on the appeal. Originally it was brought against all the Defendants. But as against two Defendants it has now been withdrawn: Dr. Abdullah Masry, who is the Second Defendant in the first action and is the First Defendant in the second action, and MBC Ltd. ("MBC"), the Second Defendant in the second action.
The preliminary issue arose because the Defendants took the point that Mr. Shaker had no claim against them by reason of the fact that his interest in the business venture was in a corporate vehicle established by Mr. Bedrawi. The Defendants applied for a number of preliminary issues to be determined, principally relating to the applicability of the Prudential principle. The Master declined to order a preliminary issue and there was no appeal from his decision. At the commencement of the trial the Defendants took the point that the judge should determine as a preliminary issue whether the Prudential principle applied to defeat Mr. Shaker's claims. Counsel then appearing for Mr. Shaker opposed that application on the ground that there were three matters giving rise to disputed questions of fact requiring resolution at the trial: (1) the scope of the investment agreement; (2) whether the alleged loss to Mr. Shaker and Mr. Adham was reflective of the loss suffered by ANA Inc.; (3) what causes of action might be open to ANA Inc. The judge thought it plain that the second and third questions were essentially questions of law. On the investment agreement the Defendants were content for the purpose of the preliminary issue to accept Mr. Shaker's evidence in the documents and to argue the legal consequences, and the judge said that he retained a discretion to order oral evidence should it be necessary. He pointed out that if the preliminary issue were decided in favour of the Defendants there would be an enormous saving in costs for all parties and in court time. He therefore ordered a preliminary issue in these terms: whether in the light of (a) Mr. Shaker's statements of case in the three actions, (b) his witness statement dated 6 April 2001 and (c) an answer in May 2001 to a notice to admit facts, Mr. Shaker could proceed against the Defendants or any of them in relation to the proceeds of sale referred to in those statements of case.
Unusually for a preliminary issue some oral evidence was heard by the judge. But the only application for oral evidence was from Mr. Shaker and the only evidence which the judge heard was that of Mr. Shaker and that was limited to the question whether the investment by him was in shares of a company or in a business. The judge said that the nature of the investment was the only matter he had to decide on the facts. He held that the investment was in shares, and there is no appeal from that decision. The facts therefore set out in section B of this judgment are those assumed by the judge for the purposes of the preliminary issue. We emphasise that there has been no trial to determine whether the assumed facts are true.
B The facts
Mr. Shaker is a national of Saudi Arabia and a distinguished businessman and diplomat. He collaborated with a friend, Kamal Adham, who had been the head of Saudi external intelligence, in a number of business ventures. Mr. Bedrawi is Mr. Adham's nephew. In about June 1989 Mr. Adham contacted Mr. Shaker to ask if he would be interested in investing in a business project which Mr. Bedrawi was setting up. Mr. Shaker and Mr. Adham then met Mr. Bedrawi who invited them to provide funding for a satellite/cable television and radio station business in the U.S.A. providing a programming service for the Arab American population and catering for Arabic speaking consumers ("the Business"), the proposal being that Mr. Shaker and Mr. Adham would provide all the capital while Mr. Bedrawi would manage and control the Business. Mr. Adham and Mr. Shaker were supportive but made clear that they did not want an active role in the Business and would not serve as directors of any company through which the Business was operated. Mr. Bedrawi by letter dated 19 June 1989 sent Mr. Shaker a draft subscription agreement which referred to two companies being set up: ANA Holdings Ltd. ("ANA Ltd."), an Isle of Man company, and ANA Inc., an American company. ANA is the acronym for Arab Network of America. ANA Ltd. was said to be the holding company and ANA Inc. was to be the operating company. The draft subscription agreement formed the basis for the parties' subsequent negotiations. After a number of meetings in June and July 1989 they entered into an oral agreement on the lines proposed by Mr. Bedrawi. There is a dispute, which the judge found unnecessary to resolve, as to whether Mr. Shaker and Mr. Adham took a 70% interest, as Mr. Shaker claims, or only 37.5%, as Mr. Bedrawi asserts, in the Business.
Mr. Shaker and Mr. Adham advanced in total US $3,840,000, the earlier payments being to ANA Ltd., and from 1990 onwards the remainder to Arab Network of America Inc. ("ANA Inc."), which is a company incorporated on 24 April 1989 in Pennsylvania. Mr. Shaker's pleadings in the three actions suggest that ANA Ltd. was the holding company of ANA Inc. and it may be that initially ANA Inc. was owned by ANA Ltd., Mr. Bedrawi as late as 1991 telling Coopers & Lybrand that ANA Inc. was a subsidiary of ANA Ltd. But the shares in ANA Inc. are held by Mr. Bedrawi and his wife as his nominee and he has at all material times been the sole director.
ANA Ltd. was struck off the Isle of Man companies' register and dissolved on 24 August 1992. ANA Inc. began radio broadcasting in September 1989 and television broadcasting in March 1992. It had two wholly owned subsidiaries incorporated in Virginia on 29 September 1993, ANA Radio Network Ltd. ("ANA Radio") and ANA Television Network Inc. ("ANA TV"), through which ANA Inc.'s business thereafter was operated.
MBC ran a business called Middle East Broadcasting Centre of which Dr. Masry was the Chief Executive. In 1993 Mr. Bedrawi had discussions with MBC for the sale of ANA Inc. to MBC. MBC offered $10 million. In September 1993 a letter of intent was signed for an agreement in principle for the sale of ANA Inc. for $9 million. Ultimately it was agreed that MBC would buy from ANA Inc. ANA Radio and ANA TV, to which the relevant parts of ANA Inc.'s business were hived down in anticipation of the sale. In the sale agreement of 25 November 1993 ("the Sale Agreement") between ANA Inc. and the purchaser, ANA Holdings Inc., which is an associated company of MBC, the ostensible price was $3 million; but a side-letter of the same date evidenced the purchaser's payment to ANA Inc. of an additional $6 million in consideration of what ANA Inc. was granting to the...
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