Renova Resources v Gilbertson

• Jurisdiction: Cayman Islands
• Judge: (Foster, J.)
• Judgment Date: 05 November 2012
• Court: Grand Court (Cayman Islands)
• Date: 05 November 2012

Grand Court, Financial Services Division

(Foster, J.)

RENOVA RESOURCES PRIVATE EQUITY LIMITED

and

GILBERTSON and FOUR OTHERS

R. Millett, Q.C., J. Eldridge and M. Kish for the plaintiff;

M. Bloch, Q.C. and D. Butler for the first and fifth defendants.

Cases cited:

(1) Armitage v. Nurse, [1998] Ch. 241; [1997] 3 W.L.R. 1046; [1997] 2 All E.R. 705; [1997] Pens. L.R. 51; (1997), 74 P. & C.R. D13, referred to.

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

(3) Boardman v. Phipps, [1967] 2 A.C. 46; [1966] 3 All E.R. 721, dicta of Lord Upjohn considered.

(4) Bristol & W. Bldg. Socy. v. Mothew, [1998] Ch. 1; [1997] 2 W.L.R. 436; [1996] 4 All E.R. 698, dicta of Millett, L.J. considered.

(5) Bristol Fund Ltd., In re, 2008 CILR 317, referred to.

(6) Diplock, In re, [1947] Ch. 716; [1947] 1 All E.R. 522, referred to.

(7) El Ajou v. Dollar Land Holdings PLC, [1994] 2 All E.R. 685; [1994] 1 BCLC 464; [1994] BCC 143; [1993] N.P.C. 165, dicta of Hoffmann, L.J. applied.

(8) Furs Ltd. v. TomkiesUNK(1936), 54 CLR 583; 9 ALJ 419; [1936] HCA 3, referred to.

(9) Gwembe Valley Dev. Co. Ltd. v. Koshy, [2004] 1 BCLC 131; [2003] EWCA Civ 1048, dicta of Mummery, L.J. considered.

(10) Halton Intl. Inc. (Holdings) SARL v. Guernroy Ltd., [2006] 1 BCLC 78; [2005] EWHC 1968 (Ch), dicta of Patten J. considered.

(11) Hospital Prods. Ltd. v. United States Surgical Corp.UNK(1984), 156 CLR 41; 58 ALJR 587; 55 ALR 417; [1984] HCA 64, referred to.

(12) Japan Abrasive Materials Pty. Ltd. v. Australian Fused Materials Pty. Ltd., [1998] WASC 60, considered.

(13) Lee (Joe) Ltd. v. Lord Dalmeny, [1927] 1 Ch. 300, referred to.

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

(15) New Zealand Netherlands Socy. ‘Oranje’ Inc. v. Kuys, [1973] 1 W.L.R. 1126; [1973] 2 All E.R. 1222, dicta of Lord Wilberforce considered.

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

(17) Pilmer v. Duke Group Ltd., [2001] 2 BCLC 773; [2001] 5 LRC 417, considered.

(18) Regal (Hastings) Ltd. v. Gulliver, [1967] 2 A.C. 134; [1942] 1 All E.R. 378, referred to.

(19) Towers v. Africa Tug Co., [1904] 1 Ch. 558, referred to.

(20) Waddington Ltd. v. Chan Chun Hoo, [2008] HKEC 1498, referred to.

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

Companies-directors-powers and duties-requirement for director”s consent to proceed with investment project-fiduciary duties not weakened in respect of opportunities being explored-director not to veto project to pursue for himself without company”s consent-not inferred that because company is joint venture with director he may act in own interests

Companies-directors-breach of fiduciary duty-equitable compensation payable for loss caused by breach of fiduciary duty-designed to put plaintiff back into position would otherwise have enjoyed-account of profits is alternative remedy and plaintiff to elect between them-if diversion of rights to loss-making business causes no economic loss, no compensation payable

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-flexible concept-requirement for disposal of assets not limited to pre-existing tangible assets owned by plaintiff-court to achieve fairness in particular circumstances

The plaintiff brought a multiple derivative action in respect of an alleged breach of fiduciary duty and knowing receipt of property.

Between 2004 and 2005, Mr. Gilbertson, an experienced businessman, and Mr. Vekselberg, the principal beneficiary and chairman of the large Renova Group, 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.’ 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, his duties being those customary for an executive chairman of a company. Clause 2.5 of 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, Renova”s chief investment officer). Further, cl. 8.2 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.

In March, the investment structure (‘the Pallinghurst structure’) was established, which consisted of the second defendant (‘the company’) as general partner of the third defendant (‘GPLP’), which was in turn general partner of the fourth defendant (‘the master fund’)-all Cayman entities. Mr. Gilbertson and Mr. Kuznetsov were appointed as the two directors of the company, and the trustee of Mr. Gilbertson”s family trusts (‘Fairbairn’) and the plaintiff 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 rights for US$20m., which Unilever declined. Since the maximum bid Mr. Kuznetsov could approve on Renova”s behalf (without detailed due diligence, a business assessment and various internal approvals) was US$20m., he suggested that Mr. Vekselberg consider investing his personal funds to acquire the rights. Mr. Vekselberg agreed personally to put forward US$30m., but in August that offer was also declined. It had, by that time, become apparent that Unilever was seeking about US$40m.

On December 1st, Mr. Vekselberg agreed personally to put forward up to US$40m., and a Cayman company called Project Egg Ltd. (‘PEL,’ now ‘Fabergé Ltd.’) was incorporated as a wholly-owned subsidiary of the master fund to acquire the rights. By December 15th, a purchase price of US$38m. had been agreed with Unilever and negotiations about completion were taking place. On December 20th, however, it became clear to the Gilbertsons that in return for his personal investment, Mr. Vekselberg required ownership of the Fabergé brand through the Lamesa group, which comprised his personal companies, on the basis that the management, control and economic benefits of the brand would be licensed to the master fund. The Gilbertsons ostensibly accepted Mr. Vekselberg”s requirements for restructuring and, the next day, Sean Gilbertson emailed

Mr. Kalberer, the deputy chief legal officer of Renova Management AG (‘Renova Management’) a draft ‘implementation agreement’ (‘the first draft IA’) relating to the implementation of Project Egg in accordance with them.

On December 22nd, the sale and purchase agreement (‘SPA’) was signed by Unilever and PEL on the basis that Mr. Vekselberg”s structure would be pursued (although the precise terms of the restructuring had not been finally agreed). In the following days, Sean Gilbertson sent Mr. Kalberer further draft implementation agreements (‘the second draft IA’ and ‘the third draft IA’). The third draft IA provided, inter alia, that a Lamesa group company (‘BrandCo’) would, upon the transfer to it of the Fabergé brand in return for Lamesa Arts Inc. (‘Lamesa’) procuring payment of the purchase price to Unilever, grant PEL (‘OpCo’) a licence to use and exploit the Fabergé brand, which would be valid until the winding up of the master fund pursuant to the Pallinghurst agreements, at which time BrandCo could terminate the licence on 90 days” notice.

Over the previous two weeks, however, Mr. Gilbertson had been secretly setting up a consortium of investors consisting of himself, Dr. Jelinek, Mr. Mende and Mr. Kundrun, to purchase the rights without any involvement by Mr. Vekselberg, Lamesa or Renova. On January 1st, 2007, he decided to implement this plan and ‘then negotiate with [Mr. Vekselberg] from a position of strength’; he therefore proceeded to finalize the arrangements with his consortium, pursuant to which he would contribute 25% of the purchase price from his own money.

While Mr. Gilbertson was communicating with his consortium of investors, the Gilbertsons continued to communicate with Mr. Kalberer about the third draft IA and, on January 2nd, Mr. Kalberer provided a revision of the third draft IA (‘the fourth draft IA’). This draft did not significantly change the provisions of the third draft IA-but it did insert a new cl. 2e which provided that BrandCo could terminate the licence on 60 days” notice without having to pay anything to OpCo if the master fund disposed of OpCo or if the master fund were wound up under the Pallinghurst agreements.

Also on January 2nd, Mr. Gilbertson...