Steven Goodman v Dawn Cummings and DMS Governance Ltd

• Jurisdiction: Cayman Islands
• Judge: Ingrid Mangatal
• Judgment Date: 13 September 2018
• Court: Grand Court (Cayman Islands)
• Docket Number: Cause No. FSD 204 of 2016 (IMJ)
• Date: 13 September 2018

Between

Steven Goodman

Plaintiff

and

(1) Dawn Cummings

(2) DMS Governance Limited

Defendants

Tangerine Investment Management Limited (In Official Liquidation)

Third Party

Before:

The Hon. Justice Ingrid Mangatal

Cause No. FSD 204 of 2016 (IMJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Company Law — Articles of Association — Indemnity provisions — Whether Articles incorporated into the terms of director's appointment — Whether the provisions of the Articles extend to former directors — Whether director entitled to rely on particular Article in circumstances — Whether director entitled to rely on particular Article as against Company in respect of expenses incurred in defending this action — Section 27 Companies Law (2011 Revision)

Appearances:

Mr. H Rees QC instructed by Mr. B Hobden of Conyers Dill & Pearman for the Plaintiff

Mr. B Valentin QC instructed by Mr. M Goodman and Ms. K Houghton of Campbells for the Defendants

Mr. M Goucke and Mr. P Kendall of Walkers on behalf of the Third Party (appearing only briefly at the Court's request)

IN CHAMBERS

Introduction

1 In December 2016 the Plaintiff Mr. Steven Goodman (“Mr. Goodman”) brought proceedings against (i) the first-named Defendant Ms. Dawn Cummings (“Ms. Cummings”) for breach of common law director duties and/or breach of fiduciary duties; and (ii) the second-named Defendant DMS Governance Limited (previously DMS Offshore Investment Services Limited (“DMS”) as being vicariously liable for the acts of Ms, Cummings and/or for breach of contract, Mr. Goodman brought the proceedings by way of assignment to him of certain causes of action of Tangerine Investment Management Limited (In Official Liquidation) (“Tangerine”).

2 The assignment took place pursuant to a Deed of Assignment dated 18 March 2014 (“the Deed”). Mr. Goodman's claim was brought against the Defendants after the Deed was sanctioned by the Grand Court, Foster J, in May 2015.

3 Mr. Goodman asserts that Ms. Cummings was a director of Tangerine, whose principal business was to act as Investment Manager to funds established by Axiom for the purpose of providing loans to English law firms, from 19 December 2011 until her resignation on 17 October 2012. In broad summary, it is alleged that, during that time, she: (i) caused Tangerine to enter into panel law firm agreements with unsuitable firms, without due diligence and outside the agreed investment criteria; (ii) caused Tangerine to pay out, or failed to challenge the payment of approximately £15 million of Tangerine's money to entities owned or controlled by Timothy Schools (“Mr. Schools”), the sole owner and a director of Tangerine; and (iii) failed to take any or any adequate steps to scrutinize Mr. Schools.

4 The allegation of vicarious liability against DMS is made on the basis that the acts and omissions of Ms. Cummings were carried out in the course of Ms. Cummings’ employment and/or agency. It is further alleged that DMS breached its contract with Tangerine by failing to ensure that Tangerine met its obligations pursuant to the relevant investment management agreement and by failing to monitor Ms. Cummings’ performance.

5 It is further alleged that these breaches on the part of Ms. Cummings and /or DMS caused the termination of the investment management agreement. The loss in facilitation fees to Tangerine have been alleged to be in the region of £55 million over a four year period.

6 Ms. Cummings, in a Defence filed 30 March 2017, denies the allegations made by Mr. Goodman and denies that her conduct caused the alleged or any loss and/or damage. She also contends that she is entitled to rely on the terms of various indemnity provisions in the Company's Articles of Association (“the Articles”), which she avers, provide her with defences to Mr. Goodman's claims, and to rights of action against Tangerine.

7 Pursuant to the Grand Court Rules 1995 (Revised Edition) (“the GCR”), GCR Order 16 Rule 1, and an order of the Court dated 28 June 2017, Ms. Cummings filed a Third Party Notice against Tangerine. By that Third Party Notice, Ms. Cummings claims against Tangerine as follows;

“(1) A declaration that [Tangerine] is obliged to indemnify [Ms. Cummings], out of its assets, in respect of all liabilities, loss, damage, cost or expense (including but not limited to liabilities under tort, and statute) and all reasonable legal and other costs and expenses on a full indemnity basis properly payable incurred by or on her behalf in providing assistance to [Tangerine] and to its liquidators in the course of the liquidation of [Tangerine], and in defending the Main Action and in respect of any actions relating thereto.

(2) An order that [Tangerine] pays to [Ms. Cummings] amounts representing such legal fees, costs and expenses, in advance of the final disposition of the Main Action, [Ms. Cummings] having undertaken to repay such amount if it is ultimately determined that [Ms. Cummings] is not entitled to be indemnified by [Tangerine].

(3) Alternatively, damages for breach of [Tangerine's] obligation to indemnify [Ms. Cummings], such damages to be assessed.

(4) Interest pursuant to s. 34 of the Judicature Law (2013 Revision) on such amount (s) which [Tangerine] is ordered to pay to [Ms. Cummings], from the date the relevant liability was incurred until the date of payment, at such rate as the Court shall deem appropriate.

(5) An order that [Tangerine] shall indemnify [Ms. Cummings] in respect of the legal fees, costs and expenses she has incurred in defending the Main Action and in respect of any actions relating thereto, save insofar as [ Mr. Goodman] has paid those costs, and in respect of the costs of her claim against [Tangerine] by this Third Party Notice.

(6) A declaration that all amounts payable by the Company to [Ms. Cummings] pursuant to the indemnity are liquidation expenses in the liquidation of [Tangerine].

…..”

8 Mr. Goodman, on behalf of and as assignee of Tangerine, filed a Defence to the Third Party Notice on 1 September 2017.

9 Tangerine's Liquidator also on 1 September 2017 filed a Defence to the Third Party Notice. This Defence adopts the Defence filed by Mr. Goodman. The Liquidator in addition pleads that if it is ultimately detennined that Ms. Cummings is entitled to any of the substantive relief sought in the Third Party Notice, such that the Indemnity Provisions are deemed to be enforceable as against Tangerine, Tangerine seeks a declaration that it shall be indemnified by Mr. Goodman in respect of any liability incurred as a result of an Order made by the Court, and in respect of all and any liability incurred.

10 Replies were filed on behalf of Ms. Cummings to the Third Party Defences, on 15 September 2017.

11 This hearing was convened to hear issues that all the parties agreed should be determined preliminarily. By a Consent Order made on 21 August 2017, it was agreed by Counsel for Mr. Goodman, Ms. Cummings and Tangerine, that the Third Party Proceedings should be listed for 3 days, for the determination of the following Preliminary Issues:

• (1) Whether the Articles were incorporated into the terms of Ms. Cummings's appointment as a director.

• (2) Whether the provisions of the Articles extend to former directors.

• (3) Whether Ms. Cummings is entitled to rely on Article 154 of the Articles in circumstances where she seeks to rely on indemnification pursuant to an implied contract as opposed to indemnification pursuant to the Articles as per the wording of Article 154.

• (4) Whether Ms. Cummings is entitled to rely on Article 154 of the Articles as against the Third Party in respect of the expenses incurred in defending this action; and

• (5) On the assumption that the above issues are determined in the affirmative, whether Mr. Goodman is obliged to provide a “back to back” indemnity in favour of Tangerine pursuant to the terms of the Deed of Assignment entered into between (1) Tangerine, (2) Mr. Goodman and (3) Ian Stokoe (in his capacity as one of the former Joint Official Liquidators of Tangerine) on 18 March 2014.

12 The hearing of the Preliminary Issues was set down for 14, 15 and 16 November 2017.

13 A summons to amend the Statement of Claim was filed on 27 June, and was amended on 23 October 2017 to seek leave to make some consequential amendments to the Reply to Ms. Cummings’ Defence. However, after argument on the first day of the Hearing, it was ultimately agreed that the applications to amend should abide the outcome and determination by the Court of the Preliminary Issues. This was because the amendments seek leave to introduce the same points involved in the Preliminary Issues. Mr. Valentin QC appeared for the Defendants. He made the, in my view, sound argument that if the Court is persuaded that the Defendants’ position is correct on Preliminary Issues 1–4 then, in addition to so determining on a final basis, it follows that it should also decline leave to amend to introduce the same points into Mr. Goodman's Statement of Claim and Reply, and dismiss the Amended Summons of 23 October 2017. During the course of argument, the validity of this position was conceded by Mr. Rees QC, who appeared for Mr. Goodman.

14 Therefore, if Mr. Goodman loses on these Preliminary Issues, or any of them, then leave to amend to raise the same points that would already have been ventilated and determined against him would be refused. On the other hand, if Mr. Goodman is successful on the Preliminary Issues, or any of them, then it would of course be in order for the proposed amendments that correspond to the points upon which he has succeeded, to be allowed.

15 In addition, and after much argument, on application made on behalf of Mr. Goodman, the trial of Issue 5 was adjourned to the first open date convenient to the parties after the ruling on Preliminary Issues 1–4 has been handed down. Counsel from...