Nedgroup Trust (Jersey) Ltd (as trustee of the Brian Gilbertson Discretionary Settlement, suing as shareholder of the Fourth Defendant, Pallinghurst (Cayman) General Partner LP (GP) Ltd) Plaintiff v Renova Industries Ltd (a company incorporated under the laws of the Commonwealth of the Bahamas) Vladimir Viktorovich Kuznetsov Viktor Feliksovich Vekselberg Pallinghurst (Cayman) General Partner Lp (Gp) Ltd Pallinghurst (Cayman) General Partner Lp Pallinghurst Resources Management Lp Defendants
| Jurisdiction | Cayman Islands |
| Judge | Mr. Justice Angus Foster |
| Judgment Date | 28 February 2014 |
| Judgment citation (vLex) | [2014] CIGC J0722-1 |
| Docket Number | CAUSE NUMBER: FSD 11 OF 2013 (AJEF) |
| Court | Grand Court (Cayman Islands) |
| Date | 28 February 2014 |
Mr. Justice Angus Foster
Introduction
1.1 This Ruling concerns an application by the plaintiff pursuant to GCR 0, 15, r.12A (2) for leave to continue a multiple derivative action. The first to third defendants have given notice of intention to defend and strongly oppose the application.
1.2 The action is very closely related to the litigation:Renova Resources Private Equity Limited v Gilbertson and Four Others [2012] 2 CILR 416 (‘the Project Egg litigation’/‘the Project Egg action’). The Project Egg action involved the same named parties or closely related persons as the present action and the same investment fund and company/exempted limited partnership structure known as the Pallinghurst Structure. The Project Egg action was also a multiple derivative action brought on behalf of the same company by the other 50% shareholder. That action principally concerned breaches of fiduciary duty by Mr. Brian Gilbertson (‘Mr. Gilbertson’) as a director of the company in light of his acquisition of the rights to the well known Faberge brand by diverting them from the Pallinghurst Structure. The present action concerns the acquisition and subsequent sale for its own benefit by the first defendant of a shareholding in an Australian mining company and whether or not that acquisition was made as another investment of or for the same investment fund as part of the Pallinghurst Structure.
1.3 The background to the present action is fully set out in the judgment referred to above (‘the Project Egg Judgment’). There were also several other significant contested applications to the court in the Project Egg action, some of which are also reported. The principal such application which is most relevant for these purposes was the application by the plaintiff in the Project Egg action, Renova Resources Private Equity Limited (‘Renova Resources’), for leave to continue that multiple derivative action on behalf of the same company: see the Ruling inRenova Resources Private Equity Limited v Gilbertson and Four Others [2009] CILR 268, (‘the Renova leave to continue Ruling’).
The Parties
2.1 I shall describe the involvement of some of the parties in more detail later but, apart from the first defendant, all of the other five defendants were also named parties in the Project Egg action.
2.2 The plaintiff is the trustee of the Gilbertson family trusts and in particular the Brian Gilbertson Discretionary Settlement in Jersey, Channel Islands. The plaintiff was formerly called Fairbairn Trust Limited and was referred to as ‘Fairbairn’ in the Project Egg litigation. In order to avoid confusion I shall also refer to the plaintiff as ‘Fairbairn’ in this Ruling. Autumn Holdings Asset Inc. (‘Autumn’), which was the fifth defendant and a counterclaimant in the Project Egg action, is wholly owned by Fairbairn and is a special purpose vehicle acquired by Fairbairn for purposes of the payment for Mr. Gilbertson's acquisition of the Faberge rights. Mr. Gilbertson was the principal defendant and counterclaimant in the Project Egg litigation and according to the Project Egg Judgment he was the directing mind and will of Autumn, through Fairbairn in its capacity as trustee of the Gilbertson family trusts.
2.3 The first defendant, Renova Industries Limited (‘RIL’) is a company incorporated in the Bahamas and is a member of the Renova Group of companies (‘Renova’). RIL was not itself a party to the Project Egg action but its associated company Renova Resources was, as I have already pointed out, the plaintiff in that action and Renova was frequently referred to in the Project Egg litigation.
2.4 The second defendant, Mr. Vladimir Kuznetsov (‘Mr. Kuznetsov’) is or was at all material times the Chief Investment Officer of Renova. Mr. Kuznetsov was a party to the Project Egg action by virtue of being the second defendant to the counterclaim by Mr. Gilbertson and Autumn.
2.5 The third defendant is Mr. Viktor Vekselberg (‘Mr. Vekselberg’) who was also a party to the Project Egg action by virtue of being the first defendant to the counterclaim by Mr. Gilbertson and Autumn. Mr. Vekselberg is the principal owner of Renova and chairman.
2.6 The fourth defendant Pallinghurst (Cayman) General Partner LP (GP) Limited (‘the Company’) is an exempted limited company incorporated under the laws of the Cayman Islands. There are two shareholders of the Company, Renova Resources and Fairbairn, who each own 50% of the shares. The Company is the general partner of the fifth defendant, a Cayman Islands exempted limited partnership which is in turn the general partner of the sixth defendant (‘the Master Fund’) which is the investment fund to which I have already referred. The Company, the fifth defendant and the Master Fund together form the Pallinghurst Structure. It was as a shareholder of the Company that Renova Resources commenced and pursued the Project Egg litigation.
2.7 Apart from RIL, all of the parties in the present action, as well as Fairbairn, Autumn and Mr. Gilbertson are more fully described in the Project Egg Judgment.
The Procedural History
3.1 Fairbairn's writ in the present action was issued on 16th January 2013 which was shortly before the expiry of the relevant limitation period. The writ was subsequently amended but not served.
3.2 On 14th June 2013 Fairbairn applied ex-parte for leave to serve its amended writ out of the jurisdiction on each of RIL, Mr. Kuznetsov and Mr. Vekselberg by way of substituted service on their Cayman Islands attorneys, Maples and Calder. By order dated 9th July 2013 Henderson J. granted such leave.
3.3 The amended writ was served on 15th July 2013 and the statement of Claim was served on 2nd September 2013 some 8 months after the writ was issued.
3.4 Fairbairn's summons in the present application for leave to continue the action was filed on 23rd September 2013, which was the last possible date under the GCR for filing the application. The first supporting evidence was served on 15th November 2013.
The test for leave to continue a derivative action
4.1 The present action is brought derivatively by Fairbairn as a 50% shareholder of the Company. Pursuant to GCR 0. 15, r.12A(8) on the hearing of an application to continue such a derivative action the court may —
‘(a) grant leave to continue the action, for such period and upon such terms as the Court may think fit;
(b)subject to paragraph (11), dismiss the action;
(c)adjourn the application and give such direction as to joinder of parties, the filing of further evidence, discovery, cross examination of deponents and otherwise as it may consider expedient.’
4.2 The appropriate test for the grant of leave to continue a derivative action was considered in some detail in the Renova leave to continue Ruling at para. 31 as follows:
‘The only issue is, or should be, whether there is a prima facie case, first, that the claim falls within the exception to the rule in Foss v Harbottle (1843) 2 Hare 461 [(1843) 2 Hare 461 ; 67 E.R. 189] and, secondly, on the merits against the defendant. The purpose of this ‘filter’ as Lord Millett, N.P.J. described it, [in Waddington Limited v Chan Chun Hoo Thomas and Others, Hong Kong Court of Final Appeal, 8th September 2008 (unreported)], is to satisfy the court that there are reasonable grounds for the plaintiffs claim and that it is not vexatious or frivolous or has no real prospect of success…
32 In my opinion, the appropriate test for this court to adopt in considering an application for leave to continue a derivative action is the prima facie case test, that is, where a defendant in a derivative action has given notice of intention to defend, the plaintiff must satisfy the court that the company has a prima facie case against the defendant (and that the action falls within the applicable exception to the rule in Foss v Harbottle ).
It was agreed that the present action falls within the applicable exception to the rule inFoss v Harbottle (supra). Accordingly, the second issue in this regard is whether the Company, acting by Fairbairn, has a prima facie case against the fust and/or the second and/or third defendants on the merits.
4.3 The standard of a prima facie case was also considered in the Ruling on Renova Resource's application for leave to continue its action as follows:
‘33 There does not appear to have been any precise analysis in the English case law of the standard of a prima facie case in this context. In Prudential Assur. Co. Ltd. v. Newman Indus. Ltd . (No. 2) [[1981] Ch. 257; on appeal [1982] Ch. 284], in the passage which I have already quoted, it was made clear that the right to progress a minority action is not to be equated with the absence of grounds for a strike-out in ordinary litigation. It has also been made clear that a prima facie case is more than a good arguable case. It is also clear that the hearing of such an application for leave ‘must not be allowed to turn into a mini-trial, but the Court must nevertheless have sufficient evidence before it is able to make a careful assessment of the merits’— see Supreme Court Practice 1999, para. 15/12A, at 259.
34 Counsel for the plaintiff accepted that the plaintiff must do more than merely show that the case cannot be struck out but he also...
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