BTU Power Management Company Plaintiff v Abdul-Mohsen Hayat Defendant

• Jurisdiction: Cayman Islands
• Judge: The Hon. Mr. Justice Foster
• Judgment Date: 01 December 2009
• Court: Grand Court (Cayman Islands)
• Docket Number: Cause No: 444 Of 2007
• Date: 01 December 2009

Between:

BTU Power Management Company

Plaintiff

and

Abdul-Mohsen Hayat

Defendant

[2009] CIGC J1203-1

Coram:

The Hon. Mr. Justice Foster in Chambers

Cause No: 444 Of 2007

IN THE GRAND COURT OF THE CAYMAN ISLANDS

RULING

1 This is an application by the Defendant by summons dated 14^th January 2009 for summary judgment pursuant to GCR O. 12, r.14. The Plaintiff Company is a Cayman Islands Company with its principal place of business in Massachusetts, USA. (‘the Company’). The majority shareholders in the Company are a Mr. Al Mazeedi (‘Mr. Al Mazeedi’) and his wife. The Defendant (‘Mr. Hayat’) is also a shareholder in the Company. At the relevant times Mr. Al Mazeedi and Mr. Hayat were the only directors of the Company. Mr. Hayat has since been removed as a director.

2 The Company, under the control of Mr. Al Mazeedi and his wife, issued these proceedings on 27^th September 2007 and served an Amended Writ and Statement of Claim on 5^th February 2008. Counsel for Mr. Hayat opened his submissions by contending that these proceedings have been brought by the Company in bad faith and in an attempt to derail litigation brought by Mr. Hayat and others against Mr. Al Mazeedi, the Company and others in Massachusetts and that these proceedings are merely a device with no prospect of success. However, quite apart from the fact that such allegations are hotly disputed by the Company and there is no application to dismiss the proceeding as vexations or as an abuse, they were specifically withdrawn from Mr. Hayat's pleaded case by his Amended Defence dated 12^th January 2009 and filed on 20^th August 2009. In these circumstances, it does not seem to me that I should take such contested allegations into account in determining Mr. Hayat's application for summary judgment and I have not done so.

3 The pleadings as they currently stand are the Company'sRe-amended Writ and Statement of Claim, Mr. Hayat'sAmended Defence and Counterclaim and the Company'sReply and Defence to Counterclaim. The parties have also exchanged various Further and Better Particulars. In my view, I must, for present purposes, proceed upon the basis of the parties' pleadings and particulars as they currently stand.

4 The Company makes two unrelated claims against Mr. Hayat. There was originally a third claim but that has now been withdrawn. I shall, as did counsel,refer to the two claims as ‘the Evolvence claim’ and ‘the charitable payment claim’ respectively.

5 The legal principles and tests appropriate to an application for summary judgment by a defendant were not materially in issue. GCR O. 14, r.12 (1) provides that a defendant who has served a defence, may apply for summary judgment on the ground that ‘the plaintiff'sclaim hasno prospect of success or that the plaintiff has no prospect of recovering more than nominal damages’ (my emphasis). The equivalent test in relation to an application for summary judgment by a plaintiff has been similarly stated by various courts over the years which have made it clear that summary judgment is only intended to apply to cases where there is no reasonable doubt that the party applying is entitled to judgment. It should not be granted where there is any substantial disputed question of fact which should be tried. It has been said that ‘no prospect of success’ means no reasonable or real prospect of success (see Re Omni Securities Ltd. (No. 3) [1998] CILR 275 at 280, line 1 per Smellie CJ). It is also well established that the judge hearing a summary judgment application must not ‘usurp the position of the trial judge by embarking upon a trial of the case in chambers, on affidavits only, without discovery and without oral evidence tested by cross examination’. A summary judgment application must not become a ‘mini trial’ (see Civil Aviation Authority v Island Air [2003] CIRL 483 at 497 per Smellie CJ).

6 The Evolvence claim is based on allegations of breach of duty as a director of the Company by Mr. Hayat in connection with his participation on behalf of theCompany in contractual negotiations with another company, Evolvence Capital (‘Evolvence’), while not disclosing that he had or was negotiating to obtain a personal shareholding in Evolvence. The Company contends that Mr. Hayat had a clear conflict of interest in acting as he did and that he procured the Company to enter into an agreement with Evolvence on terms which were unduly onerous for the Company (and thus beneficial to Evolvence). It is contended that the Company could have obtained more favourable terms from other companies or entities and that the Company has therefore sustained loss and damage through being committed to Evolvence as a result of Mr. Hayat'sactions. In addition, the Company contends that Mr. Hayat consequently made a secret profit through his interest in Evolvence for which he should account.

7 Mr. Hayat'scase is that Mr. Al Mazeedi was made aware of his interest in Evolvence at early stage in the negotiations and well before the Company had no alternative but to commit to Evolvence. He says that his relationship with Evolvence, known to Mr. Al Mazeedi was beneficial to the Company and enabled the Company to reach agreement with Evolvence on terms which, he contends, are favourable to the Company and not unduly onerous. He contends that he was acting in good faith and in the interests of the Company throughout and that he assisted the Company in achieving a beneficial agreement with Evolvence which it would not otherwise have been able to do. He denies that the Company would or could have obtained any better agreement with any other company.

8 There are clearly material factual disputes between the parties, particularly as to when Mr. Al Mazeedi was first made aware of Mr. Hayat'spotential or actual interest in Evolvence, precisely when the Company became committed and/or contractually bound to Evolvence and whether the contractual terms of the agreement with Evolvence were unduly onerous for the Company and whether the Company could have obtained better terms elsewhere. There is also a clear dispute as to whether Mr. Hayat was acting in good faith. Clearly it is not for me to attempt to resolve such conflicts of evidence on the basis of affidavits filed by or on behalf of the parties at a summary judgment hearing and counsel for Mr. Hayat accepted that. He proposed that the hearing before me should proceed on the basis of certain correspondence which indicated that Mr. Al Mazeedi was aware of Mr. Hayat'sinterest in Evolvence at least by 13^th April 2003 and I accordingly proceeded upon that basis.

9 However, that does not entirely resolve the difficulty because there remains a factual dispute as to when the Company actually became committed to the deal with Evolvence, at least to the extent that it was not feasible to back out. Mr. Al Mazeedi says that was on or about 24^th April 2003, only about 10 days after it is accepted that, for this purpose, disclosure of his interest in Evolvence was made by Mr. Hayat, and Mr. Al Mazeedi points to a Company document issued at about that time which incorporates the name of Evolvence. On the other hand, Mr. Hayat contends that the Company was not contractually bound to Evolvence until 1^st July 2003, almost 2½ months later, when a letter dated 1^st May 2003 from Evolvence confirming the terms of agreement was signed by the Company. I clearly cannot and should not endeavour to resolve that conflict of evidence at a summary judgment hearing. It is, however, a material issue because if Mr. Al Mazeedi is right, Mr. Hayat did not disclose his interest in Evolvence until about 10 days before the Company became committed to Evolvence, whereas if Mr. Hayat is right he did so some 2^ months before the Company was committed to Evolvence. It seems to me that, in determining whether Mr. Hayat complied with his fiduciary duties to the Company, the length of time in advance of the Company'scommitment to Evolvence that Mr. Hayat disclosed his interest in Evolvence is likely to be a significant factor. In fact, as I have pointed out, Mr. Hayat'spleaded case is that Mr. Al Mazeedi was aware of his actual or potential interest in Evolvence considerably earlier and at least from the latter part of 2002. That is hotly by Mr. Al Mezeedi but anyway, as explained it is not the basis on which, by agreement, the summary judgment application proceeded.

10 What seems to me to be the issue of most significance raised in Mr. Hayat'sdefence, and one which his counsel submits is conclusive and therefore a basis for the grant of summary judgment against the Plaintiff, concerns the indemnity and exculpatory provisions in the Company'sArticles of Association in favour of a director, such as Mr. Hayat. Article 146 provides that every director of the Company ‘shall be indemnified out of the assets of the Company against any liability incurred by him as a result of any act or failure to act in carrying out his functions other than such liability (if any) that he may incur by his own wilful neglect or default. No such Director, agent or officer shall be liable to theCompany for any loss or damage in carrying out his functions unless that liability arises through the wilful neglect or default of such Director’ The argument for Mr. Hayat is that in negotiating with Evolvence as a director of the Company on behalf of the Company he was clearly carrying out his functions as a director of the Company. Accordingly, it is said, he is not liable to the Company for any loss or damage unless that liability arises through his wilful neglect or default. His counsel also contends that by reason of the indemnity given to Mr. Hayat by Article 146, the Company has no cause of action against him. Reference was made, in support of this proposition to Viscount of the Royal Court of Jersey v Barry Shelton and Another [1986] 1WLR 985 in which it was said, in considering similar company...