Between: Fortunate Drift Ltd Plaintiff v Canterbury Securities, Ltd Defendant
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 13 December 2023 |
| Docket Number | FSD CAUSE NO. 227 of 2018 (IKJ) |
| Court | Grand Court (Cayman Islands) |
The Hon. Justice Kawaley
FSD CAUSE NO. 227 of 2018 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Hearing on quantum-application of tort of conversion to shares-relief in equity-effect of forbearance order on defence and counterclaim
Ms Katie Pearson of Claritas Legal for the Plaintiff
Mr Ben Tonner KC and Ms Sally Bowler of McGrath Tonner for the Defendant
The Plaintiff in this matter has sought of damages of the compensation following upon the judgment handed down upon this matter on the 17 August 2023, and has sought an Order in the following material terms:
“ 1. The Defendant holds the sum of US$1,764,520.62, being the Defendant's profits made in breach of fiduciary duty plus interest thereon in the sum of US$209,536.82 (a total of US$ 1,974,057.44) on trust for the Plaintiff.
2. As at 7 December 2018, the Defendant held on trust for the Plaintiff:
2.1. The proceeds of sale (the ‘ Proceeds of Sale’) of the YRIV shares held by the Defendant for the Plaintiff (the ‘ Retained Shares’) which were sold by the Plaintiff unlawfully on 6 and 7 December 2018. For the avoidance of doubt, those Proceeds of Sale were in the sum of US$19,959,397.18 as at 7 December 2018.
2.2. 2,969,155 YRIV shares (the ‘ Remaining Shares’), being the number of Retained Shares not sold by the Plaintiff on 6 and 7 December 2018.
3 Pending the resolution of the proceedings between PFS, Ltd and the Plaintiff in the state of Nevada, USA (the ‘Nevada Proceedings’), the Defendant continues to hold such of the Proceeds of Sale, the Remaining Shares, and any proceeds of sale of the Remaining Shares (to the extent they have been sold by the Defendant) as remain in the Defendant's control on trust for the Plaintiff.
IT IS ORDERED that:
4. The Plaintiff's claims for conversion and unjust enrichment succeed.
5. The Defendant's counterclaim for an indemnity is dismissed.
6. The Defendant's counterclaim for an equitable allowance is dismissed.
7. The Defendant shall pay the Plaintiff forthwith the sum of US$25,875,605.84, being the value of 45% of the shares held by the Defendant for the Plaintiff (the “Retained Shares”) as at 26 October 2023, plus interest thereon in the sum of US$3,072,728.19 (a total of US$28,948,334.03).
8. The Defendant shall pay the Plaintiff forthwith the sum of US$1,974,057.44 which is held on trust by the Defendant (the “Constructive Trust Fund”) in accordance with declaration 1 above.
9. In the event that the Plaintiff does not recover the entirety of the Constructive Trust Fund pursuant to paragraph 8 above, the Defendant shall pay damages to the Plaintiff in such sum or sums as to put the Plaintiff in the same position as if paragraph 8 had been complied with.
10. In the event that the Nevada Court finds that the Put Option contained in clause 3.11 of the Stock Purchase Agreement dated 16 August 2018 (the “Put Option”) was waived prior to 26 October 2018:
10.1. The Defendant shall pay to the Plaintiff the assets held on trust pursuant to declaration 3 above.
10.2. The Defendant shall pay to the Plaintiff further damages in the sum of US$31,625,740.48, being the value of 55% of the Retained Shares as at 26 October 2023 plus interest thereon in the sum of US$7,511,113.36 (a total of US$ 39,136,853.84) save only that such damages are to be reduced to give credit for any sums the Defendant is able to recover by way of its proprietary claim to the assets held on trust pursuant to declaration 3 above.
11. In the alternative event that the Nevada Court finds that the Put Option was not waived prior to 26 October 2018, or does not make the position clear, the parties have liberty to apply for further relief.
12. The stay of the order dated 16 June 2023 (the “Information Order”) (as varied) contained at paragraph 6 of the order dated 7 September 2023 is lifted. For the avoidance of doubt the Defendant shall within 3 days provide the Plaintiff with the documents the Defendant was ordered to provide by way of paragraph 1 of the Information Order.
13. The Plaintiff is released from the paragraph 2 of the Information Order. All documents provided to the Plaintiff's attorneys in compliance with the Information Order and this order may be provided to or shared with the Plaintiff.
14. Post-judgment interest to accrue on all sums payable by the Defendant to the Plaintiff until payment at a rate of 2 3/8 % per annum.
15. Costs payable by the Defendant to the Plaintiff.”
In the course of argument, it was indicated that the wording similar to “ save only that such damages are to be reduced to give credit when sums then cannot be recovered by way of a proprietary claim to the assets held on trust pursuant to declaration 3 above” should be added to paragraph 7. But I subsequently indicated that I will reserve for further consideration this aspect of the relief (damages for breach of contract).
I should observe at this juncture that I have not yet heard the Defendant's counsel in respect of proposed paragraphs 12, 13 and paragraph 15 (costs).
Subsequent to the Judgment on Liability being entered on the 17 August 2023, I made the following Debarring Order:
“3. Unless the Defendant has complied with the Restraining Order to the Court's satisfaction, the Defendant shall be debarred from filing any further Summonses, applications or evidence in these proceedings until further Order.”
It is common ground that the Defendant has not complied with the Restraining Order which required the Defendant to deposit with its Cayman Islands attorneys' funds representing the value of a Treasury Bill which the Defendant dissipated while the Court was hearing an application to freeze it.
Although when directions were originally given in relation to the Quantum Hearing, which I have heard yesterday and this morning, it was anticipated that the Defendant would be in a position to make positive assertions in support of, two defences and/or counterclaims. Firstly, its claims based on a purported indemnity and secondly its application for a relief in equity. Those two matters have been the subject of argument in the course of the present stage of the proceedings, as well as the question as to whether or not the Plaintiff is entitled to damages for the tort of conversion.
As far as the indemnity claim is concerned, the Defendant sought the following amounts:
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(a) firstly, there was a claim for an outstanding commission and fees pursuant to clause 6 of the Account Agreement in the amount of US$374,531.85. In my provisional views (set out in the Liability Judgment), I indicated that I felt that it appeared that the Defendant was entitled to recover $350,000 in respect of this amount;
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(b) the other head of claim was a claim for what was described as “ Partial allocation of internal costs and loss caused to Canterbury Securities by Fortunate Drift Limited in connection with the provision of the services under the Account Agreement pursuant to clause 4 thereof: USD$ 282,500.” The difficulty that the Defendant has with that item is that there is not any or any clear evidence filed (because of the Debarring Order) to substantiate that claim. And so that item must be rejected.
As far as the commission is concerned, there was in fact a claim that was supported by the evidence that was advanced at trial. Ms Pearson for the Plaintiff submitted that the Court's provisional view was based on a misapprehension of the evidence and, in part, placed too much reliance on the oral evidence of Ms Winczura as to what she felt had been agreed.
The position as a matter of law is that the terms of an agreement cannot be based on the subjective intentions of the parties but must be based on an objective analysis of the relevant evidence. In this case, the Plaintiff relies on contemporaneous emails as to the way in which the fee was to be worked out was set out in an email dated the 13 August 2018, from Mr Coleman and the workings as it is described in paragraph 52 of the Plaintiff's Skeleton Argument at the Quantum Hearing were summarised in tabular form as follows:
| Net amount to be raised (US$) | 10,000,000 | |
| VWAP (US$) | 10.72 |
| Discount | 15% | |
| CSL fee | 3.5% | |
| Total reduction (discount + CSL fee) | 18.5% | |
| Percentage of VWAP FDL to receive | 81.5% | |
| Net price/ share (81.5% of 10.72) | 8.7368 | |
| Number of shares sold (net amount/ net price) | 1,144,583.829 |
The email that was sent by Mr Coleman was seemingly agreed by Ms Winczura at the time, and doubt was not cast on this agreement until two events occurred. The first event occurred in late August 2018, when the Plaintiff frustrated at the delays in forwarding the money and was desperately keen to receive payment for the shares that were sold under the terms of the “SPA”. The Plaintiff threatened to move the shares deposited with Canterbury from the Defendant's account. In the context of those contretemps it was suggested by Canterbury that the fee payable under the SPA had not been paid. Mr Coleman responded that the amount seemed excessive, but did not refer back to the original “agreement”. When in September FDL received a statement showing an outstanding amount for the 3.5% commission, Mr Sin promptly referred back to the original agreement and protested FDL's liability to pay.
On a fair reading of the contemporaneous documentation, I am satisfied that the fee claimed by Canterbury is not in fact due and its indemnity claim is dismissed.
The question of relief in equity is a positive claim that Canterbury has to assert. On one view, by virtue of the Debarring Order, it is no longer entitled to assert that claim. And...
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