Renova Resources v Gilbertson

• Jurisdiction: Cayman Islands
• Judge: (Foster, J.)
• Judgment Date: 05 August 2011
• Court: Grand Court (Cayman Islands)
• Date: 05 August 2011

Grand Court, Financial Services Division

(Foster, J.)

RENOVA RESOURCES PRIVATE EQUITY LIMITED

and

GILBERTSON and FOUR OTHERS

GILBERTSON and AUTUMN HOLDINGS ASSET INCORPORATED

and

VEKSELBERG, KUZNETSOV, RENOVA HOLDING LIMITED and RENOVA RESOURCES PRIVATE EQUITY LIMITED

A. Choo-Choy, Q.C., G. Halkerston and D. Butler for the applicants;

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

Cases cited:

(1) Arrow Nominees Inc. v. Blackledge, [2000] 2 BCLC 167; [2001] BCC 591; [2000] C.P. Rep. 59, followed.

(2) British American Tobacco Australia Servs. Ltd. v. Cowell, [2002] V.S.C.A. 197, followed.

(3) Brown v. Horvat Properties (Cayman Islands) Ltd., 1992–93 CILR N–5, followed.

(4) Compagnie Fin. et Comm. du Pacifique v. Peruvian Guano Co.ELR(1882), 11 Q.B.D. 55; 52 L.J.Q.B. 181, followed.

(5) Douglas v. Hello! Ltd., [2003] 1 All E.R. 1087 (Note); [2003] E.M.L.R. 29; [2003] EWHC 55 (Ch), followed.

(6) HSH Cayman I GP Ltd. v. ABN AMRO Bank N.V., 2010 (1) CILR 114, referred to.

(7) Landauer Ltd. v. Comins & Co.UNK, [1991] T.L.R. 382; The Times, August 7th, 1991, followed.

(8) Logicrose Ltd. v. Southend Utd. F.C. Ltd. (1988), 132 Sol. Jo. 1591; The Times, March 5th, 1988, followed.

(9) Lonrho Plc v. Fayed (No. 3), [1993] T.L.R. 347, distinguished.

(10) TMSF v. Wisteria Bay Ltd., 2008 CILR 231, distinguished.

Legislation construed:

Grand Court Rules 1995, O.24, r.20: The relevant terms of this rule are set out at para. 39.

Civil Procedure-discovery-failure to comply with order-court may, by Grand Court Rules 1995, O.24, r.20, strike out statement of case for failure to comply with discovery order-‘discovery orders’ include orders for preservation of documents, as ancillary to discovery process and related to common law discovery obligations-statement of case struck out only if substantial risk of unfairness at trial, not merely to punish blameworthy party

Civil Procedure-discovery-obligations after commencement of action-discovery obligations arise after commencement of action, whether or not discovery order made, not to dispose of potentially relevant information-statement of case may be struck out under inherent jurisdiction when potentially relevant information disposed of, creating substantial risk of unfairness at trial

The plaintiff (R) commenced a multiple derivative action in respect of alleged breaches of fiduciary duty and knowing receipt of property.

R formed part of a Russian private conglomerate, with considerable investments in natural resources. The first defendant (G), a businessman in the mining industry, agreed to create a Cayman investment structure with R”s holding company that was intended to facilitate a joint venture for the exploration, acquisition, and development of opportunities in the metal and mining industry. Investments were to be held by a master fund. G proposed that the master fund acquire rights to the Fabergé brand, through the investment structure, and for this purpose formulated ‘Project Egg.’ A dispute arose between R and G and his associates when G acquired the Fabergé rights outside the investment structure, having raised the necessary funds from (inter alia) one of his associates. R issued a writ and statement of claim against G and his associates claiming breach of the joint venture agreement in May 2008, and they in turn issued a defence and counterclaim alleging breach of the agreement by R.

After a contested hearing, the Grand Court (Foster, Ag. J.) gave leave to R to continue the action pursuant to the Grand Court Rules, O.15, r.12A(2) (in proceedings reported at 2009 CILR 268). At a further contested hearing, the Grand Court (Foster, Ag. J.) dismissed R”s application for summary judgment against G”s counterclaim (in proceedings reported at 2010 (1) CILR 344).

After contemporaneous interlocutory hearings, a consent order had been made in respect of discovery on July 20th, 2010. A dispute subsequently arose over the failure by R to preserve internal communications, including copies and back-ups of e-mails. R had previously been advised by its attorneys as early as January 2007, prior to the commencement of proceedings, of the need to preserve all relevant information. Shortly before commencement, its server in Zurich had crashed, but its I.T. staff were not made aware of the legal proceedings, or the need to preserve information, until December 2010. During the interim period, they deleted the Zurich server database, a copy of it that had been moved to a Moscow server, and its back-up tapes. After a contested hearing, a further order was made on November 30th, 2010 for the preservation of potentially relevant sources of electronic information, and for the service of further and better lists by R. In December 2010, R”s I.T. staff deleted the logical drive of the Zurich server. R and its associates served further and better lists, verified by affidavit.

G applied for R”s statements of case to be struck out, submitting that (a) R had seriously disregarded its discovery obligations, which existed in the absence of an order for discovery; (b) R”s culpable destruction of relevant information was sufficiently prejudicial to cause a substantial risk of unfairness at the trial; (c) the court was empowered to strike out a statement of case by GCR, O.24, r.20, or under its inherent jurisdiction, whenever an order for the preservation of relevant documents, which was ancillary to the discovery process, was made and breached; and (d) the

court was entitled to take into account all further affidavits and evidence filed in the application.

R submitted in reply that (a) it was not at fault, had acted reasonably, and had no obligation to preserve documents in the absence of an order for discovery; (b) the information destroyed was neither sufficiently fundamental nor prejudicial to warrant striking out the proceedings; (c) the court could not strike out a statement of case by GCR, O.24, r.20, the only basis for a strike-out, in the absence of a breach of an order for discovery, and a preservation order was not an order for discovery for those purposes; and (d) the court should not go behind R”s discovery affidavits by considering further materials.

Held, dismissing the application:

(1) The obligation to preserve relevant sources of information arose in the absence of an order for discovery, and applied to parties before and after proceedings commenced. Prior to the commencement of proceedings, the court would strike out a party”s statement of case if it had destroyed sources of relevant information in such a way as to appear to be intended to pervert the course of justice. In cases, as here, in which legal proceedings had commenced before the disposal of relevant information, the court would order a strike-out only if the prejudice of doing so was outweighed by a substantial risk of unfairness at trial (paras. 60–62).

(2) R”s destruction of relevant sources of information did not sufficiently prejudice G to justify striking out the claim. The court would not strike out a statement of case merely to punish a blameworthy party, but only if its conduct rendered a fair trial impossible, or created a substantial risk of doing so. The court would act proportionately to the seriousness of the offending party”s default and its consequences. The internal communications destroyed in the present case were not fundamental to the resolution of the issues in dispute, notwithstanding that they may have proved useful to G in cross-examination. The application for strike-out would be dismissed (paras. 68–72).

(3) The court was empowered to strike out a statement of case either by GCR, O.24, r.20, or under its inherent jurisdiction to ensure fairness between the parties, even in the absence of a discovery order. Although the wording of GCR, O.24, r.20 was narrower than RSC, O.24, r.16, the reference to non-compliance with an order for discover was apt to encompass orders for the preservation of documents, as in the present case. Such orders were clearly ancillary to the discovery process and related to the parties” discovery obligations (paras. 63–65).

(4) Moreover, although the court would not usually go behind discovery affidavits, it would have regard to all further affidavits and expert evidence filed by parties to a strike-out application. It was also possible, in principle, to order cross-examination, if required (paras. 66–67).

1 FOSTER, J.: This is an application by the first and fifth defendants/plaintiffs to the counterclaim (to whom I shall refer together as appropriate as either ‘the applicants’ or ‘the Gilbertson parties’), by a summons dated April 27th, 2011, for orders that the plaintiff”s writ and statement of claim and the defences to the counterclaim be struck out pursuant to the Grand Court Rules 1995, O.24, r.20 and/or the inherent jurisdiction of the court. I shall refer to the plaintiff/defendants to the counterclaim together as appropriate as either ‘the respondents’ or ‘the Renova parties.’ The applicants” summons also seeks the costs of the action and the counterclaim against the respondents on the indemnity basis and such other relief as the court may think fit in respect of the applicants” application, which is based on alleged failures by the respondents to comply with their discovery obligations.

2 During the course of these proceedings the court has made several orders in relation to discovery as follows:

(a) On July 20th, 2010 the court gave directions (‘the July 20th order’) inter alia as follows:

‘(i) the parties shall exchange lists of documents no later than 12.00 p.m. on September 17th, 2010; and

(ii) there shall be inspection of documents (some of which may be subject to a confidentiality regime) no later than 4.00 p.m. on September 24th, 2010.’

(b) On November 30th, 2010 the court ordered (‘the November 30th order’) as follows:

‘(i) each of the plaintiff/defendants to the...