Autumn Holdings Asset Inc. v Renova Resources Private Equity Ltd (suing as a shareholder of the Second Defendant/Respondent, Pallinghurst (Cayman) General Partner LP (GP) Ltd)
| Jurisdiction | Cayman Islands |
| Judge | Sir John Chadwick |
| Judgment Date | 12 September 2017 |
| Court | Court of Appeal (Cayman Islands) |
| Docket Number | FSD 0061 of 2009 CICA 22 of 2012 |
| Date | 12 September 2017 |
and
The Rt Hon Sir John Chadwick, Justice of Appeal
The Hon Elliott Mottley, Justice of Appeal
The Hon Ian Forte, Justice of Appeal
(The Hon Justice Angus Foster)
FSD 0061 of 2009
CICA 21 of 2012
CICA 22 of 2012
IN THE COURT OF APPEAL OF THE CAYMAN ISLANDS
Mr Michael Bloch QC with Mr David Butler of Appleby (Cayman) Ltd for Autumn Holdings Asset Inc (Appellant in Appeal No 21 of 2012) and Brian Patrick Gilbertson and Autumn Holdings Asset Inc (Respondents to Appeal No 22 of 2012)
Mr Richard Millett QC with Mr James Eldridge of Maples and Calder for Renova Resources Private Equity Limited and the other Respondents to Appeal No 21 of 2012 and for Renova Resources Private Equity Limited and the other Appellants in Appeal No 22 of 2012
Sir John Chadwick, Justice of Appeal:
1. This appeal and cross-appeal are from an order made on 6 November 2012 by Justice Foster in proceedings brought in the Financial Services Division of the Grand Court by Renova Resources Private Equity Limited (“Renova”) against Brian Patrick Gilbertson (“Mr Gilbertson”), Autumn Holdings Asset Inc (“Autumn”) and others.
2. Renova is (or was at the material time) a company incorporated in the Bahamas. It is a wholly owned subsidiary of Renova Holding Limited (“Renova Holding”), also a company incorporated in the Bahamas. Renova and Renova Holding are members of the Renova group of companies, described by the judge as “a very large Russian owned conglomerate, consisting of some one hundred or so corporate and other entities, incorporated or established in various jurisdictions” and as having “a range of major commercial business interests, particularly, although not exclusively, in oil and metals in Russia and elsewhere”. At the relevant time the chairman and principal beneficial owner of the Renova group was Mr Viktor Vekselberg, whom the judge described as “a well-known, very successful and influential Russian billionaire businessman, based in Moscow”. The overall management of the Renova group was carried on from Zurich through a Swiss company, Renova Management AG (“Renova Management”). The Chief Investment Officer of the Renova group was Mr Vladimir Kuznetsov, a Russian national based in Zurich. Mr Vekselberg, Mr Kuznetsov and Renova Holding were, with Renova, defendants to the counterclaim in the proceedings.
3. The judge explained that one of Mr Vekselberg's major interests during the relevant period, held through the Renova group, was a substantial share in a large Russian Aluminium producing company, Siberian Urals Aluminium Company (to which the judge referred as “SUAL”). At the relevant time Mr Vekselberg was the chairman of SUAL. Mr Gilbertson was Chief Executive Officer of SUAL between 2004 and 2007. The judge went on to say this (at paragraphs 3.1 and 3.2 of his judgment):
“3.1 During the later part of 2004 and 2005 Mr. Gilbertson discussed with Mr. Vekselberg a proposal by Mr. Gilbertson to set up a private equity fund, which Mr. Gilbertson would establish and manage and which would be financed by Renova, with the profits effectively to be shared equally between them. The fund was to invest in assets with potential in the mining sector, and the fund by Mr. Gilbertson was to have responsibility for sourcing and proposing opportunities for investment by the fund. This proposal developed into what was in effect a joint venture in which, as Mr. Vekselberg described it, he and Mr. Gilbertson would be partners.”
3.2 After a lengthy period of negotiation the terms of the arrangement were set out in a letter from Renova Holding to Mr. Gilbertson known as the Letter Agreement. It was signed by Renova Holding on 20th January 2006 and by Mr. Gilbertson on 24th January 2006, although the letter itself was dated 24th November 2005… .
3.3. … The Letter Agreement then defined “Investment Fund” as an investment fund in a jurisdiction and legal form agreed between Mr. Gilbertson and Renova Holding. The “Fund Management Vehicle” was to be the vehicle charged with establishing, marketing and managing the Investment Fund and the “Initial Capital” meant a founding capital of US$4m in cash at the establishment of the Fund Management Vehicle. The “Investment Committee” meant a committee comprising Mr. Gilbertson or his nominated representative on the one hand and the CEO of Renova Management or its nominated representative on the other hand. In the event the Investment Committee comprised Mr. Gilbertson and Mr. Kuznetsov… .”
4. The judge explained in his judgment that the structure established pursuant to the Letter Agreement comprised three Cayman Islands entities: Pallinghurst Resources Management LP (“the Master Fund”), a Cayman Islands exempted limited partnership established on 19 May 2006; Pallinghurst (Cayman) General Partner LP (“GPLP”), a Cayman Islands exempted limited partnership established on 19 March 2006; and Pallinghurst (Cayman) General Partner LP (GP) Limited (“the Company”), a company incorporated in the Cayman Islands on 15 March 2006. The Company was the general partner of GPLP; and GPLP was the general partner of the Master Fund. Together the three entities were known as “the Pallinghurst Structure”.
5. Renova is (or was at the material time) the owner of 50% of the issued shares in the Company. The other 50% of the issued shares in the Company were held by Fairbairn Trust Limited (“Fairbairn”), a Jersey based trust company, as trustee of the Brian Patrick Gilbertson Settlement (“the BPG Settlement”), a settlement established by Mr Gilbertson. At the material time the two directors of the Company were Mr Gilbertson and Mr Kuznetsov. These proceedings were brought by Renova as a shareholder of the Company; and so are, in form, a derivative action. The Company, GPLP and the Master Fund were joined as co-defendants (with Mr Gilbertson and Autumn). The judge referred, in his judgment, to Renova, the Company, GPLP and the Master Fund (collectively) as “the Renova Parties” and to Mr Gilbertson and Autumn (collectively) as “the Gilbertson Parties”: it will be convenient if I adopt those descriptions in this judgment.
6. The background against which these proceedings were brought was explained by the judge at paragraphs 1 and 5.1 of his judgment:
“1. This case concerns the well-known Fabergé brand, renowned for high quality jewellery and originally for the famous Fabergé jewel encrusted eggs made in Imperial Russia. The brand name and business have changed hands since then on several occasions and in 1989 the brand and business were acquired by the large English company, Unilever Plc. The brand and business were then sold by Unilever Plc in early January 2007 to a consortium of investors, which included indirectly and which was arranged and set up by Mr Brian Gilbertson. He is the principal beneficial owner and controller of Pallinghurst Resources Limited, an English company which is now the largest investor in Fabergé Limited, the owner, developer and manager of the Fabergé brand and business… .”
“5.1 Project Egg was the name given to the project for the acquisition of the Fabergé brand and business from the then owner, Unilever Plc. The evidence of Mr. Gilbertson, which was not disputed in this respect, was that from about 2002, he had identified the Fabergé brand as an asset and business which was not then being exploited to its full potential and which he thought would make a good investment for profitable development and exploitation. Although the Fabergé brand was not obviously an investment project “in the metal and mining industry” as contemplated by the Letter Agreement, Mr. Gilbertson, after meeting Mr. Vekselberg, correctly thought it would be of considerable interest to him. Mr. Vekselberg was a collector of Fabergé items and had recently acquired a very significant and expensive collection of imperial Fabergé eggs, which had been very well received in Russia. He was very interested in Fabergé and its Russian heritage. Accordingly, Mr. Vekselberg was enthusiastic when Mr. Gilbertson, early in his proposals with regard to a private equity fund, suggested the Fabergé brand and business as a potential investment for the private equity fund which subsequently became the Master Fund within the Pallinghurst Structure. From the start, therefore, Project Egg was one of a number of investment opportunities sourced and put forward by Mr. Gilbertson as potential Investment Projects.”
7. As I have said, the defendants to Renova's claim in these proceedings included Mr Gilbertson and Autumn. Autumn, a company incorporated in the British Virgin Islands, was owned by Fairbairn, the trustee of the BPG Settlement (and other Gilbertson family trusts). It was a member of the “consortium of investors” (“the Consortium”), to which the judge made reference in paragraph 1 of his judgment (in the passage which I have set out). Other members of the Consortium were Dr Milan Jelinek, an acquaintance of Mr Gilbertson, and K-M Investment Corporation (“K-MIC”), the...
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