Autumn Holdings Asset Inc. v Renova Resources Private Equity Ltd

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, Mottley and Forte, JJ.A.)
• Judgment Date: 12 September 2017
• Court: Court of Appeal (Cayman Islands)
• Date: 12 September 2017

Court of Appeal

(Chadwick, Mottley and Forte, JJ.A.)

AUTUMN HOLDINGS ASSET INC

and

RENOVA RESOURCES PRIVATE EQUITY LIMITED (as a shareholder of Pallinghurst (Cayman) General Partner LP (GP) Ltd.), PALLINGHURST (CAYMAN) GENERAL PARTNER LP (GP) LIMITED, PALLINGHURST (CAYMAN) GENERAL PARTNER LP and PALLINGHURST RESOURCES MANAGEMENT LP

RENOVA RESOURCES PRIVATE EQUITY LIMITED (derivatively on behalf of Pallinghurst (Cayman) General Partner LP (GP) Ltd., Pallinghurst (Cayman) General Partner LP and Pallinghurst Resources Management LP) and OTHERS

and

GILBERTSON and AUTUMN HOLDINGS ASSET INC

M. Bloch, Q.C. with D. Butler for Autumn Holdings Asset Inc. and Gilbertson;

R. Millett, Q.C. with J. Eldridge for Renova Resources Private Equity Ltd. and the other respondents/cross-appellants.

Cases cited:

(1) Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., Grand Ct., November 28th, 2011, unreported, considered.

(2) Arthur v. Att. Gen. (Turks & Caicos Islands), [2012] UKPC 30, considered.

(3) Att. Gen. (Hong Kong) v. Reid, [1994] 1 A.C. 324; [1993] 3 W.L.R. 1143; [1994] 1 All E.R. 1; (1993), 143 N.L.J. 1569, referred to.

(4) Bank of Credit & Commerce Intl. (Overseas) Ltd. v. Akindele, [2001] Ch. 437; [2000] 3 W.L.R. 1423; [2000] 4 All E.R. 221; [2000] Lloyd’s Rep. Bank. 292; [2000] BCC 968; [2000] WTLR 1049; (2000), 2 ITELR 788, referred to.

(5) Banks v. Arch, 2004–05 CILR 441, referred to.

(6) Barrett v. Duckett, [1995] BCC 362; [1995] 1 BCLC 243, referred to.

(7) Belmont Fin. Corp. Ltd. v. Williams Furniture Ltd. (No. 2), [1980] All E.R. 393, referred to.

(8) Bhullar v. Bhullar, [2003] EWCA Civ 424; [2003] 2 BCLC 241; [2003] WTLR 1397; sub nom. Re Bhullar Bros. Ltd., [2003] BCC 711, dicta of Jonathan Parker, L.J. referred to.

(9) Boardman v. Phipps, [1967] 2 A.C. 46; [1966] 3 W.L.R. 1009; [1966] 3 All E.R. 721, referred to.

(10) Bristol & West Bldg. Socy. v. Mothew, [1998] Ch. 1; [1997] 2 W.L.R. 436; [1996] 4 All E.R. 698, referred to.

(11) Charter plc v. City Index Ltd., [2007] EWCA Civ 1382; [2008] Ch. 313; [2008] 2 W.L.R. 950; [2008] 3 All E.R. 126; [2008] 2 All E.R. (Comm) 425; [2007] 2 CLC 968; [2008] P.N.L.R. 16; [2008] WTLR 1773, referred to.

(12) Commonwealth Oil & Gas Co. Ltd. v. Baxter, [2009] CSIH 75; 2010 S.C. 156; 2009 SLT 1123; 2009 S.C.L.R. 898; 2009 G.W.D. 35–592, referred to.

(13) Competitive Ins. Socy. Co. Ltd. v. Davies Invs. Ltd., [1975] 1 W.L.R. 1240; [1975] 3 All E.R. 254, referred to.

(14) Cook v. Deeks, [1916] 1 A.C. 554; (1916), 85 L.J.P.C. 161; 114 L.T. 636; [1916–17] All E.R. Rep. 285, referred to.

(15) Criterion Properties plc v. Stratford UK Properties LLC, [2004] UKHL 28; [2004] 1 W.L.R. 1846; [2004] BCC 570; [2006] 1 BCLC 729, considered.

(16) El Ajou v. Dollar Land Hldgs. plc, [1994] 2 All E.R. 685; [1994] BCC 143; [1994] 1 BCLC 464; [1993] N.P.C. 165, considered.

(17) Foskett v. McKeown, [2001] 1 A.C. 102; [2000] 2 W.L.R. 1299; [2000] 3 All E.R. 97; [2000] Lloyd’s Rep. I.R. 627; [2000] 5 LRC 664; [2000] WTLR 667; (2000), 2 ITELR 711, applied.

(18) Foss v. Harbottle (1843), 2 Hare 461; 67 E.R. 189, referred to.

(19) G v. G (Minors: Custody Appeal), [1985] 1 W.L.R. 647; [1985] 2 All E.R. 225; [1985] FLR 894; [1985] Fam. Law 321, referred to.

(20) Guinness plc v. Saunders, [1990] 2 A.C. 663; [1990] 2 W.L.R. 324; [1990] 1 All E.R. 652; [1990] BCC 205; [1990] BCLC 402, referred to.

(21) Gwembe Valley Dev. Co. Ltd. v. Koshy (No. 3), [2003] EWCA Civ 1048; [2004] 1 BCLC 131, dicta of Mummery, L.J. referred to.

(22) Halton Intl. Inc. (Hldgs.) SARL v. Guernroy Ltd., [2005] EWHC 1968 (Ch); [2006] 1 BCLC 78, dicta of Patten, J. referred to.

(23) Japan Abrasive Materials Pty. Ltd. v. Australian Fused Materials Pty. Ltd., [1998] WASC 60, referred to.

(24) Meridian Global Funds Mgmt. Asia Ltd. v. Securities Commn., [1995] 2 A.C. 500; [1995] 3 W.L.R. 413; [1995] 3 All E.R. 918; [1995] BCC 942; [1995] 2 BCLC 116; [1995] 4 LRC 423; [1994] 2 NZLR 291, referred to.

(25) National Trust for the Cayman Islands v. Planning Appeals Tribunal, 2002 CILR 59, referred to.

(26) Neath Rugby Ltd., Re, [2009] EWCA Civ 291; [2009] 2 BCLC 427; [2010] BCC 597, referred to.

(27) Nisbet & Potts’ Contract, Re, [1906] 1 Ch. 386; (1906), 75 L.J.Ch. 238; 54 W.R. 286; 94 L.T. 297; 22 T.L.R. 233; [1904–07] All E.R. Rep. 865, referred to.

(28) Nurcombe v. Nurcombe, [1985] 1 W.L.R. 370; [1985] 1 All E.R. 65; [1984] BCLC 557; (1984), 1 BCC 99269, considered.

(29) Nurdin & Peacock plc v. DB Ramsden & Co. Ltd., [1999] 1 EGLR 119; [1998] EGCS 123, considered.

(30) Pilmer v. Duke Group Ltd., [2001] HCA 31; (2001), 207 CLR 165; 75 ALJR 1067; 38 ACSR 122; [2001] 2 BCLC 773; [2001] 5 LRC 417, referred to.

(31) Rolled Steel Products (Hldgs.) Ltd. v. British Steel Corp., [1986] Ch. 246; [1985] 2 W.L.R. 908; [1985] 3 All E.R. 52; (1984), 1 BCC 99158, referred to.

(32) Sagicor General Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2008 CILR 482, referred to.

(33) Satnam Invs. Ltd. v. Dunlop Heywood & Co. Ltd., [1999] 3 All E.R. 652; [1999] 1 BCLC 385; [1999] 2 L.S.G. 30; [1998] EGCS 190; [1999] FSR 722, referred to.

(34) Story v. Windsor (Lord) (1743), 26 E.R. 776; 2 Atk. 630, referred to.

(35) Target Hldgs. Ltd. v. Redferns, [1996] A.C. 421; [1995] 3 W.L.R. 352; [1995] 3 All E.R. 785; [1995] CLC 1052; [1995] N.P.C. 136; [1995] 3 LRC 162, referred to.

(36) Texaco Ltd. v. Arco Technology Inc., Queen’s Bench, October 3rd, 1989, unreported, referred to.

(37) Towers v. African Tug Co., [1904] 1 Ch. 558; (1904), 73 L.J. Ch. 395; 11 Mans. 198; 52 W.R. 532; 90 L.T. 298; 20 T.L.R. 292; [1904–7] All E.R. Rep. Ext. 1583, referred to.

(38) Ultraframe (UK) Ltd. v. Fielding, [2005] EWHC 1638 (Ch); [2006] F.S.R. 17; [2007] WTLR 835, referred to.

(39) Universal Project Mgmt. Servs. Ltd. v. Fort Gilkicker Ltd., [2013] EWHC 348 (Ch); [2013] Ch. 551; [2013] 3 W.L.R. 164; [2013] 3 All E.R. 546; [2013] BCC 365; (2013), 163 N.L.J. 268, referred to.

(40) Waddington Ltd. v. Chan Chun Hoo Thomas, [2008] HKCFA 63; (2008), 11 HKCFAR 370; [2009] 4 HKC 381; [2008] HKCU 1381; [2009] 2 BCLC 82, referred to.

Legislation construed:

Grand Court Rules 1995 (Revised), O.15, r.12A: The relevant terms of this rule are set out at para. 23.

O.62, r.4(5): The relevant terms of this paragraph are set out at para. 253.

Judicature Law (2007 Revision), s.34: The relevant terms of this section are set out at para. 246.

Companies — directors — powers and duties — general principle that director of limited company owes fiduciary duties — principal duties to act in company’s best interests, avoid conflict of interest and not profit from position — may be varied by company’s articles, shareholders’ agreement or clear implication from circumstances

Trusts — constructive trusts — knowing receipt — liable to account as constructive trustee if disposal of assets in breach of fiduciary duty; beneficial receipt by defendant of traceable assets; and knowledge on defendant’s part that assets traceable to breach

Renova Resources Private Equity Ltd. brought a multiple derivative action in the Grand Court alleging breach of fiduciary duty and knowing receipt.

Renova Resources Private Equity Ltd. (“Renova”), a company incorporated in the Bahamas, was a wholly owned subsidiary of Renova Holding Ltd. They were members of a large Russian group of companies which had a range of major commercial business interests. At the material time, the chairman and principal beneficial owner of the group was Mr. Vekselberg, a Russian billionaire. The Chief Investment Officer of the Renova group was Mr. Kuznetsov.

Between 2004 and 2005, Mr. Gilbertson, an experienced businessman, and Mr. Vekselberg had agreed to set up a new private equity fund as a joint venture. Mr. Gilbertson would manage the fund and it would be financed by Renova, with the profits to be shared between them. From the start, Mr. Gilbertson had identified—and, with his son, Sean Gilbertson, had been actively exploring—the acquisition of the rights to the Fabergé luxury goods brand and business from Unilever plc as a potential investment project. Mr. Vekselberg, as a collector of Fabergé items, was enthusiastic about the project, termed “Project Egg.”

In January 2006, the terms of the joint venture were set out in a letter from Renova Holding Ltd. to Mr. Gilbertson, signed by both parties as partners (“the letter agreement”). It confirmed that Renova Holding would establish the investment fund and the fund management vehicle and that Mr. Gilbertson would be responsible for all investment projects; he would be appointed chairman of the investment fund and the fund management vehicle, with his duties being those customary for an executive chairman of a company. The letter agreement provided that approval to proceed with an investment project required the unanimous consent of the investment committee (which comprised Mr. Gilbertson and Mr. Kuznetsov). Further, it provided that the agreement would automatically terminate if the investment fund and fund management vehicle were not operating in a way reasonably satisfactory to each of the partners within 16 months.

The investment structure (“the Pallinghurst structure”) was established, which consisted of three Cayman Islands entities: Pallinghurst Resources Management LP (“the master fund”); Pallinghurst (Cayman) General Partner LP (“GPLP”); and Pallinghurst (Cayman) General Partner LP (GP) Ltd. (“the company”). The company was the general partner of GPLP, and GPLP was the general partner of the master fund. Mr. Gilbertson and Mr. Kuznetsov were appointed as the directors of the company, and the trustee of Mr. Gilbertson’s family trust (“Fairbairn”) and Renova were the two equal shareholders. Long form agreements (“the Pallinghurst agreements”) setting out the terms of the partnership between Renova and the Pallinghurst structure were agreed, but not signed.

In May, an offer was made on behalf of the master fund to purchase the Fabergé rights for US$20m., which...