Algosaibi Bros v Saad Invs

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 12 June 2012
• Court: Grand Court (Cayman Islands)
• Date: 12 June 2012

Grand Court, Financial Services Division

(Smellie, C.J.)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED and FORTY THREE OTHERS

D. Quest and G. Keightley for the plaintiff;

Mr. Al Sanea did not appear and was not represented;

M. Crystal, Q.C. and Ms. C. Wilkins for the GT liquidators;

Ms. B. Lucas and I. Lambert for the liquidators of the AWALCos;

D. Herbert for the liquidators of SIFCO #5.

Cases cited:

(1) Gill v. Walker, English C.A., January 26th, 1993, Transcipt No. 1993 WL 13725862, unreported, referred to.

(2) Kok Hoong v. Leong Cheong Kweng Mines Ltd., [1964] A.C. 993; [1964] 2 W.L.R. 150; [1964] 1 All E.R. 300, considered.

(3) Lunnun v. Singh, English C.A., July 1st, 1999, Transcript No. 1999 WL 477360, unreported, referred to.

(4) New Brunswick Ry. Co. Ltd. v. British & French Trust Corp. Ltd., [1939] A.C. 1; [1938] 4 All E.R. 747, considered.

(5) Pugh v. Cantor Fitzgerald Intl., [2001] C.P. Rep. 74; [2001] C.P.L.R. 271; [2001] EWCA Civ 307, referred to.

(6) Schott Kem Ltd. v. Bentley, [1991] 1 Q.B. 61; [1990] 3 W.L.R. 397; [1990] 3 All E.R. 850, referred to.

(7) Shearson Lehman Bros. Inc. v. Maclaine, Watson & Co. Ltd., [1987] 1 W.L.R. 480; [1987] 2 All E.R. 181, referred to.

Legislation construed:

Grand Court Rules 1995, O.29, r.10: The relevant terms of this rule are set out at para. 21.

O.29, r.11: The relevant terms of this rule are set out at para. 21.

O.37, r.1(1): The relevant terms of this sub-rule are set out at para. 17.

O.37, r.3: The relevant terms of this rule are set out at para. 17.

Civil Procedure-interim payments-conditions of availability-if action to proceed against other defendants, usual not to award damages against defaulting defendant separately (GCR, O.37, r.3), but court retains discretion to order otherwise-to consider, inter alia, whether pleadings/verifying evidence provides rational and safe basis for interim award and avoids risk of inconsistent outcomes-no requirement in breach of fiduciary duty cases that applicant establish need, but court may consider relevant

Civil Procedure-interim payments-measure of award-court may award just sum, not exceeding reasonable proportion of damages ‘likely,’ i.e. proved on balance, to be ultimately recoverable (GCR, O.29, r.11(1))-to take account of any contributory negligence, set-off, cross-claim or counterclaim if respondent ‘entitled to rely’ in present proceedings-clear basis for assessment must be apparent from pleadings/verifying evidence (O.29, r.10(3)(a))

Civil Procedure-judgments and orders-default judgment-judgment in default of defence conclusively determines liability-no admission by defendant of every allegation in statement of claim, but only those which judgment necessarily, directly and conclusively decides

AHAB brought claims against Mr. Al Sanea and companies controlled by him in respect of an alleged fraud.

Mr. Al Sanea had been the manager of one of AHAB”s businesses-‘the Money Exchange.’ AHAB alleged that while Mr. Al Sanea was in control of the Money Exchange, he fraudulently caused US$9bn. of loss to the company, by making unauthorized borrowings and misappropriating funds. AHAB brought a personal claim against him for dishonest breach of fiduciary duty and conspiracy, and a proprietary claim against his Cayman companies in respect of money they had allegedly obtained or its traceable proceeds. In proceedings in London against AHAB, brought by a syndicate of creditor banks, new files were disclosed which suggested that significant borrowings by Mr. Al Sanea were authorized. Consequently, in

the present proceedings, AHAB accepted that it had authorized certain borrowings and expressly agreed to amend its pleaded case to reflect this. From the outset, Mr. Al Sanea challenged the jurisdiction and orders of this court joining him as a defendant to these proceedings. The Grand Court (Smellie, C.J.) ordered him to file and serve a defence by an extended and final deadline, which he failed to do, and AHAB obtained a default judgment against him, with damages to be assessed.

AHAB sought interim damages in respect of Mr. Al Sanea”s deemed liability for breach of fiduciary duty-it did not seek to rely on his deemed liability for conspiracy, as a claim for damages to be assessed on its conspiracy claim would be untenable before judgment had been obtained against his alleged co-conspirator defendants. The application relied solely on the misappropriation of funds-i.e. actual transfers of money to, or for the benefit of, Mr. Al Sanea-allegedly totalling US$4.7bn., as distinct from the unauthorized borrowings, and AHAB”s expert accountancy evidence was unchallenged insofar as it detailed specific payments. Mr. Al Sanea did not respond to the application, but a number of his Cayman companies now in liquidation (the defendants), opposed it. Consequently, the Grand Court (Smellie, C.J.) adjourned AHAB”s application for further consideration, giving appropriate directions.

AHAB submitted that (i) the court was able to assess the appropriate quantum of interim damages-although it conceded that its pleaded case had not yet caught up with the present state of the evidence; (ii) the approximate amount of US$2.5bn. would be an appropriate and safe award, being less than half the US$4.7bn. claimed; (iii) by relying solely on the claim for breach of fiduciary duty, the application was not dependent in any way on the claim against the defendants and there was therefore no risk of inconsistent findings; and (iv) without an interim damages award with which to negotiate its position with its creditor banks, AHAB faced the risk of bankruptcy and/or being unable to continue to prosecute its claim.

The defendants submitted that (i) Mr. Al Sanea was not liable at all and/or substantial damages would not ultimately be recoverable against him-they contested the allegations of fraud and misappropriation and further submitted that the breach of fiduciary duty had not been proved as a matter of Saudi law (the applicable law); (ii) an interim award risked inconsistent outcomes in the event that their defences, which relied in part on a denial of Mr. Al Sanea”s liability, were successful; (iii) it further risked damage to their reputation, which would be harmful to their orderly winding down; (iv) it would be unjust for the same judge determining the interim relief claim to hear AHAB”s claim against them, and assigning a different judge to the case would have wasteful costs consequences; (v) on the present state of AHAB”s pleadings and evidence, the court could not properly assess what a just amount of interim damages might be; and (vi) if an interim award were appropriate, the court was required, pursuant to GCR, O.29, r.11, to take into account any set-off or cross-claim on which Mr. Al Sanea was ‘entitled to rely’-this referred not merely to claims

pleaded in the present proceedings, but claims which may have been asserted anywhere, of which the court was aware; hence, the court was required to take into account proceedings in Switzerland brought by Mr. Al Sanea against certain AHAB partners.

Held, granting the application:

(1) The court would not refuse the application on the basis of the defendants” denial of fraud and misappropriation. The default judgment conclusively determined Mr. Al Sanea”s liability-he was not to be taken, however, to have admitted every allegation in the statement of claim, but only those which the judgment necessarily, directly and conclusively decided. It was implicit in AHAB”s claim that the dishonest breach of fiduciary duty was established as a matter of Saudi law and this fact was to be regarded as necessarily concluded by the default judgment, whereas AHAB was required to prove all matters going to quantification, including any question of loss or causation (paras. 28–33).

(2) The court would award interim damages. Although GCR, O.37, r.3 made it clear that when an action was to proceed against other defendants, the usual practice was not to award damages against the defaulting defendant separately, the court retained a discretion to order otherwise. In exercising its discretion, the court would consider whether the state of the pleadings and/or verifying evidence provided a rational and safe basis for an interim award-and, in particular, avoided any risk of inconsistent outcomes. In the present circumstances, an interim award was justified as (i) AHAB”s claim for breach of fiduciary duty was not dependent in any way on its related claim against the defendants, hence there was no risk of inconsistent outcomes; and (ii) whilst there was no general requirement in breach of fiduciary duty cases that a plaintiff establish need for funding, in the light of the potentially dire consequences for AHAB, the court would take its financial position into account. The court would not give weight to the defendants” concerns for their reputation as (i) the defendants were not the subject of the default judgment and should not therefore be perceived as having any liability for damages recoverable pursuant to it; (ii) they were being wound up under court supervision and therefore no steps could be taken against them without leave of the court; and (iii) they were unlikely to continue to operate as going concerns. Further, whilst the court would take account of the possible need to assign a different judge to the case, this was not a decisive consideration and would have to be resolved as a case management issue (para. 12; paras. 14–16; paras. 18–20).

(3) The interim damages would be in the amount of US$2.5bn. GCR, O.29, r.11(1) empowered the court to award a just sum, not exceeding a reasonable proportion of the damages ‘likely’-meaning proved in accordance with the civil burden-to be ultimately recoverable, after taking into account any relevant contributory negligence, set-off, cross-claim or counterclaim on which the...