![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales High Court (Commercial Court) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> LIC Telecommunications SARL & Anor v VTB Capital Plc & Ors [2019] EWHC 1747 (Comm) (05 July 2019) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2019/1747.html Cite as: [2019] EWHC 1747 (Comm) |
||
[New search]
[Context
]
[View without highlighting]
[Printable PDF version]
[Help]
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Fetter Lane, London, EC4A 1NL |
||
B e f o r e :
____________________
(1) LIC TELECOMMUNICATIONS SARL (2) EMPRENO VENTURES LIMITED |
Claimants |
|
| -and- |
||
| (1) VTB CAPITAL PLC (2) DELTA CAPITAL INTERNATIONAL AD (3) MAZE SARL (4) MILEN VELTCHEV (5) VIVA LUXEMBOURG (LUXEMBOURG) SA (6) SPAS ROUSSEV (7) V TELECOM INVESTMENT SCA (8) V2 INVESTMENT SARL |
Defendants |
|
And Between |
||
| V2 INVESTMENT SARL |
Claimant |
|
| -and- |
||
| (1) VTB CAPITAL PLC (2) DELTA CAPITAL INTERNATIONAL AD (3) MAZE SARD (4) MILEN VELTCHEV (5) VIVA LUXEMBOURG (LUXEMBOURG) SA (6) SPAS ROUSSEV |
Defendants |
____________________
Mr T Howe QC & Mr D Caplan (instructed by White & Case LLP) for the 1st Defendant
Mr C Orr QC & Mr S Lemer (instructed by DAC Beachcroft LLP) for the 2nd & 4th Defendants
Mr J Nadin (instructed by Mishcon de Reya LLP) for the 3rd Defendant
Mr G Chapman QC & Mr M Gregoire (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the 5th Defendant
Hearing dates: 7, 8, 9, 13, 14 and 15 May 2019
____________________
Crown Copyright ©
Mrs Justice Moulder :
Introduction
Background
LIC
Telecommunications
SARL ("
LICT")
and Empreno Ventures Limited (together the "Original Claimants").
LICT
holds a 43.3% interest in V Telecom Investment SCA ("V Telecom") and V Telecom's general partner, V Telecom Investment General Partner SA ("V Telecom GP"). An SCA is a limited partnership.
i) nominated by Crusher, Delta Capital International A.D. ("Delta") represented by Mr Veltchev and Maze SARL ("Maze") represented by Mr Bryan-Orr;
ii) nominated byLICT,
Coselux SARL ("Coselux") represented by Ms Cipriano and Europim SA ("Europim") represented by Mr Picco (together the "
LICT
Managers");
iii) nominated by the minority shareholders, Mr Reitsma.
i) the Original Claimants were precluded from bringing their claim for damages by reason of the rule of Luxembourg law preventing recovery by a shareholder of loss which is reflective of loss suffered by the company;
ii) the Original Claimants were not precluded from bringing their claim for damages for the loss of a chance or opportunity to participate in the process for the sale of the InterV shares.
LICT
Managers, purportedly acting in the name of V2, issued an application (the "Part 20 Application") in the Original Proceedings for permission to bring Part 20 proceedings. In those Part 20 proceedings the
LICT
Managers allege (in the name of V2) that the process by which VTBC sold the InterV shares was a sham and the
LICT
Managers seek damages (in the name of V2) equal to the alleged undervalue at which the InterV shares were sold. In this judgment references to the "Claimants" are to the Original Claimants and/or as the context may require, the
LICT
Managers.
LICT
Managers purportedly acting on behalf of V2 initiated Part 7 proceedings (the "Part 7 Proceedings") by which they sought the same relief as is sought under the Part 20 proceedings. The
LICT
Managers also made an application in the name of V2 seeking to have the Part 7 Proceedings consolidated with the Original Proceedings (the "Consolidation Application").
i) the Part 20 Application, the Part 7 Proceedings and the Consolidation Application be dismissed and/or struck out on the basis that:
a. the Proceedings have not been properly authorised by V2; and
b. the application constitutes an abuse of the court's process because it could and should have been brought in the Original Proceedings
ii) the court has no jurisdiction (or will not exercise its jurisdiction) over the claims made against Delta and Mr Veltchev, Maze and Viva Luxembourg respectively.
LICT
Managers purported to pass resolutions on behalf of V2 and V Telecom GP to approve and/or ratify the commencement of the Part 7 Proceedings and the Part 20 Proceedings (together the "Proceedings").
Evidence
Issues for the court
i) Authority to commence the Proceedings;
ii) Ratification of the Proceedings;
(These raise a number of sub-issues set out in the Agreed List of Issues and dealt with below.)
iii) Whether the court has jurisdiction in respect of the Proceedings;
iv) Whether the Proceedings should be struck out as an abuse of process under the principle in Henderson v Henderson; and
v) In relation to the Original Proceedings, the Removal Application and the Consolidation Application.
November Applications - the legal test
"it also does not mean that in dealing with the contention that the proceedings amount to an abuse of process in these grounds, the court approaches the evidential issues in the same way that it would approach a standard application to strike out a claim or a statement of case without a full trial. Where the issue is whether the proceedings are an abuse for want of authority the court must determine all relevant issues on the balance of probabilities, even though the questions are being determined before trial..".
Authority to commence the Proceedings
Does clause 32 of the SHA apply to the Part 7 Proceedings and the Part 20 Proceedings in respect of each of the Part 20/Part 7 Defendants? (Issue 1)
"Subject to applicable law and regulation, any right of action which a Group Company or the General Partner may have in respect of any breach or purported breach of any obligation owed to it by a Shareholder or any member of its Shareholder Group, and any action which a Shareholder or any member of its Shareholder Group may have in respect of any breach or purported breach of any obligation owed to it by a Group Company or the General Partner, may be prosecuted or defended by the members of the board of directors of the relevant Group Company or the General Partner other than those appointed by the Shareholder in question. Those directors shall have full authority to elect to pursue, not to pursue or to defend any such claim or to negotiate, litigate and settle any claim, or to exercise any right of termination, arising out of the breach or purported breach, and the Shareholders shall use their best endeavours to give effect to this clause 32 (Enforcement of Company's Rights)". [emphasis added]
i) None of the claims in the Proceedings are claims "in respect of" breaches of obligations owed to V2 by a shareholder or any member of its shareholder group. VTBC is not a defendant to the Proceedings and clause 32 does not apply where the shareholder or member of the shareholder group alleged to have breached an obligation is not a defendant to the proceedings and none of the defendants are themselves a shareholder or member of a shareholder group.
ii) The claims against Delta and Mr Veltchev are claims "in respect of" obligations alleged to have been owed to V2 by Delta and Mr Veltchev, neither of whom is a shareholder or member of a shareholder group. They are not claims that can be characterised as claims "in respect of" an obligation owed by VTBC to V2.
LICT
and one director nominated by the minority shareholders. I accept the claimants' submission that the purpose of clause 32 is to ensure that group companies which have suffered loss are able to obtain redress without being prevented from so doing by the shareholder which is at fault. It seems to me that this does not undermine the fundamental structure of the group being managed by the board of the relevant company. It provides a limited qualification to the operation of the board of the company in certain circumstances. Further there is no logic or commercial rationale for limiting clause 32 to actions against shareholders; it seems consistent with the commercial rationale behind clause 32 that a shareholder should not be able to block a claim against a third party where that arises out of a breach of an obligation owed by that shareholder. This is clearly demonstrated in the circumstances of this case where the third parties include the corporate director and the natural person representing that corporate director.
LICT
Managers to bring proceedings against it. For the reasons set out above as to the meaning of clause 32, it is irrelevant in my view, whether the third party is a party to the SHA or itself a "shareholder" or "member of the shareholder group" where the claim arises out of a breach of an obligation owed by the shareholder and thus falls within the broad language "in respect of" any purported breach of an obligation owed by a shareholder.
Conclusion on clause 32
Can claims against Maze and Delta by V2 only be authorised and initiated by the shareholder of V2? (Issue 4)
i) a claim by a company against its manager for breach of the manager's mandate may only be authorised by the company's shareholders, acting in general meeting;
ii) this is a rule of Luxembourg public policy which cannot be derogated from by agreement (whether in the company's Articles of Association or otherwise).
i) In an SA an actio mandati can only be authorised by the shareholders but this rule does not extend to an SARL; the decision in Azilis does not form part of the reasoning and would not be followed by a Luxembourg court;
ii) If it is a rule of public policy, it can be waived and this has been done in clause 32 of SHA permitting proceedings to be brought unilaterally and without shareholder approval.
i) Does the rule that an actio mandati can only be authorised by the shareholders apply to SARLs as well as SAs?
ii) If such rule does exist, is it a rule of public policy?
iii) If it is a rule of public policy can it be waived by the SHA?
Does the rule apply to SARLs as well as SAs?
The Luxembourg authorities
"the general meeting [of shareholders] controls corporate action for damages against directors, either to initiate them, or to settle them… In fact, the general meeting is the most direct emanation of the company, and is conflated with it; it is the meeting which appoints the directors, and it is to the meeting they must report, at specific times, regarding their management."
"it is a matter of principle that the company gives mandate to its directors to represent it and act on its behalf. It is to the principal, and the principal alone, that the representative must report for the execution of his mandate… and in principle the actio mandati belongs to the principal."
"It is incumbent upon the general meeting of shareholders to decide whether to institute liability action against the directors. It is the most direct expression of the company, it can be said to be one with it, and it is moreover to the general meeting that the representatives have to report for their management at determined periods. The intervention of the general meeting is therefore necessary to authorise the institution of the action" [emphasis added]
"the company is free to choose whether or not to execute actio mandati. It has the right to proceed with it or renounce it as it sees fit, on the sole condition that renunciation is not to the detriment of its creditors. Whatever its decision, the involvement of the shareholders annual general meeting is required; it can decide to take legal action or decide to renounce it."
"the action for liability against directors for faults committed under their management lies in the hands of the company alone. It is in fact the company that confers a mandate on its directors to represent it and act in its name. It is to the principal and the principal alone that the agent must report on the execution of its mandate; the actio mandati therefore belongs to the principal…
It is the general meeting that is in control of the corporate action for damages against the directors, either in order to initiate that action or to settle…
The shareholders general meeting has the monopoly on the corporate action and decides on its initiation following a vote at a meeting passed on an ordinary majority, since the general meeting is the company's most direct emanation, it is merged with it and it is the general meeting that appoints the directors; and it is to the meeting that the latter must, at specific moments, report on their management."
"The annual general meeting, which alone in a company has the power to take legal action, may resolve to do so following an absolute majority vote. In the absence of such a resolution adopted by the AGM, the legal action will be inadmissible, because only the person who has suffered the loss may take action. "
"the mandate contract exists between the company and the management, not between the shareholders and the management. The fact that the decision to take legal action rests with the general meeting is part of public policy concerning companies. Therefore, one may not contractually make the taking of corporate legal action subject to prior authorisation by specific category of shareholders. The same applies to clauses which waive in advance the exercise of legal action."
"There is no equivalent provision on this subject concerning either [SARLs] or unlimited liability companies. It is however necessary to generalise the scope of the rule, extending it to all forms of companies."
Submissions
i) the footnote in Steichen (cited above) merely states that there is no equivalent provision concerning SARLs; and
ii) the comments in Azilis are no more than obiter dicta and would not be followed by a future Luxembourg court.
i) a consistent line of case law, albeit on SAs, but the reasoning of all of those cases applies to SARLs;
ii) Luxembourg and Belgian commentary confirming that the actio mandati rule is one of general application to companies;
iii) the acceptance under Luxembourg law that the rules concerning liabilities of directors of an SA and the managers of a SARL are assimilated; and
iv) the lack of any coherent rationale for distinguishing between SAs and SARLs as regards authorisation of the actio mandati.
i) the power to bring a claim for breach of a director's mandate logically lies with the general meeting of shareholders by whom the director is appointed and to whom he is obliged to report;
ii) it is logical to vest the power to bring claims for liability against a director in the same organ that has power to discharge the director from liability;
iii) vesting power in the general meeting of shareholders ensures that the incumbent management cannot impede the institution of claims against current or former colleagues;
iv) Article 444-1 gives the general meeting of shareholders the power to appoint special agents to bring the actio mandati against a director and confirms that the power to decide upon the action is vested in the general meeting of shareholders; and
v) vesting exclusive competence in the general meeting of shareholders accords with a clear separation of powers under Luxembourg company law.
Discussion
Does it apply to SARLs? Is it the law that only the shareholders can authorise an action?
"from this it is deduced that only the shareholders can decide whether or not to bring an action for mismanagement on behalf of their company"
"the board of directors would not have sufficient powers to make a similar decision with regard to former directors; it represents the company before third parties, but does not represent it before itself"
Mr Thewes said that the court did not say that they were aware of the controversy and balanced the arguments. However, in my view his opinion as to any error on the part of the Luxembourg courts in this regard was not made out.
"the liability action against the directors for faults committed in their management is in the hands of the company alone. It is in fact the company which authorises its directors to represent it and act in its name. It is to the principal and the principal alone who the representative must report on the fulfilment of his mandate; consequently the actio mandati is the responsibility of the principal…" [emphasis added]
"the status of case law is similar to that of legal doctrine. Both influence judges without binding them."
However he accepted (at paragraph 14) that there was:
"nevertheless …a certain continuity in case law; if a given issue has been addressed in a certain manner by a court, down the line other judges may refer to and be influenced by it."
On balance it seems to me that on this issue a Luxembourg court would adopt the approach taken by the Luxembourg courts in relation to a SA, and in relation to a SARL, in Azilis.
"The general meeting which has resolved to exercise the corporate action provided for by Articles 441-9, 442-10,442-16 and 443-2, subparagraph 3, against the directors, the members of the management …may entrust the implementation of their resolution to one or more agents."
"Each manager may take any actions necessary or useful to realise the corporate object, with the exception of those reserved by law or the articles to be decided upon by the shareholders…" [emphasis added]
"directors cannot grant themselves the powers granted by law to shareholders meetings or to another entity (such as an auditor). There is a clear limitation; where the law itself grants exclusive competence to another corporate entity, it follows that the action in question is unrelated to the management of the company in a broad sense…"
Is it a rule of public policy? If it is a rule of public policy can it be waived by the SHA?
"Luxembourg law considers the fact that the decision to bring the corporate action belongs to the shareholders meeting, forms part of corporate public policy"
and referred to Professor Steichen's "Summary of Corporate Law" (fourth edition).
"public policy can also derive from the general principles of company law. These principles are not fixed by law but by case law: the hierarchy of bodies and the separation of powers…"
Dr Kinsch said that "the hierarchy of bodies" was a strange English translation but should be understood to mean separation of powers which is a general principle of corporate law.
Conclusion
i) in a SARL the power to exercise the actio mandati is vested exclusively in the shareholders;
ii) the rule that the actio mandati is attributed to shareholders of a SARL exclusively is a rule of Luxembourg public policy which cannot be waived; and
iii) the claims against Maze and Delta by V2 can only be authorised and initiated by the shareholder of V2, V Telecom.
Can claims against Mr Veltchev by V2 only be authorised and initiated by the shareholder of V2? (Issue 5)
i) The rules for a SA are clear that the same rules as govern claims for liability directly against a corporate director apply to the permanent representative;
ii) Whilst there is no express provision in the LCL which extends the rule to SARLs the courts could do so;
iii) There is good reason to apply the same rule so that managers cannot impede claims against other managers or circumvent the requirement for shareholder authorisation of claims against corporate managers;
iv) By analogy with the decision of the court in HellasTelecommunications
(Lux DC 23.12.2015) where the court held that a discharge of the corporate manager of an SCA also discharged the representatives of the corporate manager, one should conclude that the power to authorise proceedings against the representative of the corporate manager should lie with the shareholders; and
v) If shareholders have the power, it must be exclusive given the separation of powers under Luxembourg law.
i) there is no Luxembourg authority on the question of which corporate organs have power to authorise a claim against permanent representatives of an SA and the courts have not considered the position in relation to a SARL;
ii) an action against a representative of a corporate manager of a SARL should be treated as permitted applying the principle that "all that is not forbidden is permitted"; and
iii) the case of HellasTelecommunications
is about the effect of a discharge of liability to a corporate manager in relation to tort claims brought against the permanent representatives of that corporate manager and is irrelevant to the facts of this case because there has been no discharge of liability.
Telecommunications
was not relevant in this case because Delta, the corporate manager, is a Bulgarian company. I do not accept this evidence. In my view (as stated by Dr Kinsch (paragraph 64 of his supplemental report)) the issue of which organ of the Luxembourg company has power to bring proceedings against the representative of the corporate manager is a matter of Luxembourg law which is independent of the internal organisation of the corporate manager.
"that is something that, in my view is important because it shows that it's not a matter of strictly legal analysis between which persons does the mandate exist."
Conclusion
The decision by the
LICT
Managers in July 2018 to bring the Proceedings: Claims against Viva Luxembourg and Mr Roussev
LICT
Managers falls to be determined:
i) in order to determine the validity of the Proceedings against Viva Luxembourg and Mr Roussev; and
ii) if I am wrong in relation to the requirement for shareholder approval for the actions against Delta and Maze and/or Mr Veltchev, in relation to the validity of the Proceedings against those defendants.
Does clause 32 require that the directors or managers who are designated by the clause as having "full authority to elect to pursue, not pursue or to defend" a claim, must act unanimously in order for the proceedings to be brought? (Issue 2)
"… any right of action which a Group Company … may have in respect of any breach … of any obligation owed to it by a Shareholder or any member of its Shareholder Group… may be prosecuted…by the members of the board of directors of the relevant Group Company … other than those appointed by the Shareholder in question. Those directors shall have full authority to elect to pursue, not to pursue … any such claim…"
"… All resolutions of the directors shall be decided by a simple majority of the votes of the participating eligible directors. Each director shall have one vote."
Conclusion on Issue 2 - unanimity
Was it nevertheless necessary as a matter of Luxembourg law for a meeting of V2's board of managers to be called and a resolution passed by the board in order for the claims made in the Proceedings to be validly commenced? (Issue 6)
i) there was no requirement to convene a board meeting given that decisions could be adopted by a simple majority of the managers present and represented and thus any resolution could pass notwithstanding the objections of the minority representative;
ii) on the proper construction of V2's Articles (in particular Article 11), V2's Articles permit managers to act unilaterally in accordance with the default position under Article 710 -15 of the LCL; and
iii) if, however it is implicit in the Articles that there is a requirement for a resolution of the board, the Articles are subject to the shareholders agreement and clause 32 permits unilateral action in the circumstances of this case.
i) there was no express provision in Article 11 of the Articles which requires corporate decisions to be taken by a board and that whilst subparagraphs (4) –(8) set out the conditions required to convene a board meeting, the Article is silent on the question whether a board meeting is required; and
ii) the default rule is that Luxembourg law permits unilateral decision-making by each the managers of an SARL under Article 710–15 of the LCL and there is no reason to imply into Article 11 a requirement that decisions be taken by the board of managers: the SHA already provides in clauses 4.1 and 7.6 that V2 shall be managed by its board.
i) it is evident from V2's articles (in particular Article 11) that they establish a board that is intended to have exclusive power to take management decisions on behalf of the company;
ii) if clause 32 applies, that requires the quorum requirements in clauses 6.5 and 6.6 of the SHA to be amended so as to remove the need for the shareholder appointees to be present and participate in the board meeting at which the clause 32 claim is considered; however the convening requirements were not modified and a board meeting was still necessary; and
iii) on this basis there is no conflict between the SHA and V2's Articles.
"45. The role of foreign law experts in relation to issues of contractual interpretation is a limited one. It is confined to identifying what the rules of interpretation are.
46. It is not the role of such experts to express opinions as to what the contract means. That is the task of the English court, having regard to the foreign law rules of interpretation."
"Each manager may take any actions necessary or useful to realise the corporate object, with the exception of those reserved by law or the Articles to be decided upon by the members. Subject to subparagraph 4, the Articles may however provide that in case of several managers, these shall form a board…." [Emphasis added]
Subparagraph (4) reads (in material part):
"the day-to-day management of the business of the company and the power to represent the company with respect thereto may be delegated to one or more managers, officers and other agents, who may but are not required to be shareholders, acting either alone or jointly…"
"(1) The company is administered by five managers…they are appointed and removed from office by simple majority decision of the general meeting of the shareholders…
(2) Except as otherwise provided by the general meeting of shareholders, in dealing with third parties the manager or managers have extensive powers to act in the name of the company in all circumstances and to carry out and sanction acts and operations consistent with the company's object.
(3) The company will be bound in all circumstances by the signature of the sole manager or, if there is more than one, by the single signature of one manager…
(4) One or more managers may participate in a meeting by means of a conference call… Such participation shall be deemed equal to a physical presence at the meeting…
(5) Meetings of the board of managers ("Board Meetings") may be convened by any manager. A Board Meeting shall be held at least once every three months.
(6) At least five business days' notice in writing of a Board Meeting shall be given to all managers entitled to receive notice…
(7) A shorter period of notice of a Board Meeting… may be given if all managers, entitled to attend and vote agree in writing to a shorter period of notice…
(8) The board of managers may validly debate and take decisions (subject to any shareholders' agreement entered into by the shareholders of the company) at a Board Meeting without complying with all or any of the convening requirements and formalities if all the managers have waived the relevant convening requirements and formalities…
(9) The board of managers can only validly debate and take decisions (subject to any shareholders agreement entered into by the shareholders of the company) with the following quorum:
-one class V manager and one class C manager and the class E manager (if any), if any of the Board Reserved Matters is to be considered at the meeting; or
-one class V manager and one class C manager, in all other cases …
(12) Decisions of the board managers shall be adopted by simple majority of the managers present or represented…
(13) Any manager may act at any meeting by appointing in writing by letter… another manager as his proxy.
(14) A written decision, signed by all the managers, is proper and valid as though it had been adopted at a meeting of the board of managers, which was duly convened and held… " [emphasis added]
"[the] management board set up by the articles of association of SARLs function strictly in accordance with the rules contained in the articles of association. If these rules are lacking, the default rule in a SARL is that "each manager may take any actions necessary or useful to realise the corporate object."" [emphasis added]
"The board of managers may validly debate and take decisions (subject to any shareholders' agreement entered into by the shareholders of the company) at a Board Meeting without complying with all or any of the convening requirements and formalities if all the managers have waived the relevant convening requirements and formalities…"
Article 11(9) provides:
"The board of managers can only validly debate and take decisions (subject to any shareholders agreement entered into by the shareholders of the company) with the following quorum…"
It seems to me that it would defeat the effective operation of the board if individual managers retained the power to take decisions which potentially could conflict with or reverse decisions of the board. In particular it would arguably make provisions such as Article 11(8) unnecessary and nullify the protection of the quorum requirements of Article 11(9). In the context of these particular proceedings, as pointed out to Mr Thewes in cross examination by counsel for the second and fourth defendants, the proposition that individual managers retained the authority to authorise proceedings would mean that Delta could immediately stop the Proceedings because it has the power to take that decision outside the board. The consequence of such an argument is in my view relevant when the court seeks to establish the common intention of the parties being illustrative of the effect of this alternative construction referred to above.
"the Parties agree that the Board [of Directors of the General Partner] shall be responsible for the supervision and management of [V Telecom GP] and its operations…"
Clause 7.6 of the SHA states:
"each of the parties shall procure that the board of managers of each of [V2, InterV and Viva Luxembourg Bulgaria] shall be the same size as the Board [of Directors of V Telecom GP] and shall include directors nominated in the same proportion as provided in clauses 4.2 and 4.3. The provisions of clauses 4 (Director Appointments), 5 (Directors' Interests) and 6 (Proceedings of Directors) shall apply equally (with appropriate changes) to the appointment, interests and proceedings of managers, of each of [V2, InterV and Viva Luxembourg Bulgaria] in addition to those of the General Partner"
In my view the SHA is dealing with matters as between the shareholders (including the appointment of the individuals to represent the shareholders) and the Articles deal with the operation of the company including the board of managers so it is neither surplusage nor conflicting.
"if clause 32 of the SHA does not apply to the proceedings, the board of managers has the authority to authorise any claim, ..."
In cross examination it was put to Mr Thewes that it was implicit in what he said that the power to authorise proceedings was vested in the board of managers. Mr Thewes said that the joint memorandum whilst important was a short version of much longer reports and the court should consider his reports in their entirety.
i) if clause 32 applies, that requires the quorum requirements in clauses 6.5 and 6.6 of the SHA to be amended; it does not require all the other rules in the SHA concerning the proceedings of the board to be abrogated; and
ii) the quorum requirements in V2's Articles (Article 11(9)) are expressly stated to be "subject to any shareholders agreement entered into by the shareholders of the company" whereas the convening requirements (Article 11 (5) – (7)) are not so qualified. It follows that as a matter of Luxembourg law clause 32 can only take precedence over the quorum requirements in V2's Articles. It cannot derogate from the convening requirements because that would amount to an impermissible amendment of the Articles (Dr Kinsch's report at paragraphs 63 – 64 and second report at paragraphs 20 – 30).
"the Parties agree that the Board [of Directors of the General Partner] shall be responsible for the supervision and management of [V Telecom GP] and its operations…"
LICT,
two directors nominated by Crusher and one director nominated by the minority shareholders. Clause 7.6 (set out above) provides for a similar board composition for V2.
"…any right of action which a Group Company … may have in respect of any breach or purported breach of any obligation owed to it by a Shareholder or any member of its Shareholder Group, …, may be prosecuted … by the members of the board of directors of the relevant Group Company … other than those appointed by the Shareholder in question. Those directors shall have full authority to elect to pursue, … any such …arising out of the breach or purported breach,"
"Subject to Clause 32 (Enforcement of company's rights), applicable law and the Directors' fiduciary duties, a director shall be entitled to vote and be counted in the quorum at a meeting of the Board in relation to, or any resolution of the Board in respect of, a matter in which he has a direct or indirect interest." [Emphasis added]
"No business shall be transacted at any meeting of directors unless a quorum is present at the beginning of and throughout each meeting. The quorum for transacting at a meeting of directors shall be [1LICT
director, one Crusher director and the minority representative director] if any of the Board Reserved Matters is to be considered at the meeting or [one
LICT
director and one Crusher director] in all other cases.
Involvement of Mr Reitsma
Conclusion on Issue 6
What are the consequences of the failure to convene a shareholder meeting (in the case of the Proceedings against Delta, Maze and Mr Veltchev) and a meeting of the board of managers to commence the Proceedings against Viva Luxembourg and Mr Roussev?
LICT
Managers without convening a meeting of V2's board.
"(1) Any decision adopted by a general meeting referred to in this law shall be void:"
1. where the adopted decision is flawed as a result of a formal irregularity, if the applicant proves that this irregularity may have influenced the decision;
2. in the event of a breach of the rules relating to its operation or in the event of deliberation on an issue which was not on the agenda where there is fraudulent intent;
3. where the adopted decision is flawed by any other abuse of power or misuse of power;
4. In case of the exercise of voting rights which are suspended pursuant to a legal provision not included in this law and where, without such unlawfully exercised voting rights, the quorum and majority requirements for decisions by a general meeting would not have been met;
5…
(2) The nullity of a decision by general meeting must be declared by court order.
…
(3) The actions for nullity shall be brought against the company…
(4) Where the avoidance is likely to prejudice rights acquired in good faith by a third party towards the company based on the meeting's decision, the court may declare the avoidance not to have any effect vis-à-vis those rights, subject to the applicant's right to damages, as the case may be." [emphasis added]
i) Article 100-22 applies to decisions which are actually taken but cannot be applied to a resolution of a board (or general meeting of shareholders) which has never taken place. This is plain from the wording of Article 100-22(1) which (in subparagraphs (1)-(2)) refers to breaches of rules concerning the convening and conduct of such meetings;
ii) The evidence of Dr Kinsch was that the Article does not apply to "inexistent decisions" it applies to "existent decisions which have at least a semblance to board decisions"; and
iii) If it does apply to the commenced Proceedings, the wrongful authorisation of the claims would comprise an "excessive power" within Article 100-22 (1) subparagraph 3. Sub- paragraph (3) applies where the relevant decision was taken by the wrong organ such that it follows that the Proceedings are automatically void.
"… Just like for any other corporate decision, the validity of theLICT
Managers decision to initiate proceedings must be assessed by applying the principles contained in Article 100 – 22 of the LCL.…" [emphasis added]
i) The view of Dr Kinsch on this point has been consistent since his original report in November 2018; a contrary view was only raised by Mr Thewes in April 2019 in his second supplemental report;
ii) The view of Dr Kinsch appears to me to be a logical conclusion on the wording of Art 100-22; the suggestion by Mr Thewes that Art 100-22 (1)(2) in referring to a "breach of the rules relating to its operation" is referring to the rules governing the operation "of the company" rather than the board does not appear to me to be supported by the language of the Article when taken as a whole: in my view the words "its operation" refer back to the decision adopted at the meeting and thus to the operation of the meeting. The relevant section is as follows:
"(1) Any decision adopted by a general meeting referred to in this law shall be void:
1. where the adopted decision is flawed as a result of a formal irregularity, if the applicant proves that this irregularity may have influenced the decision;
2. in the event of a breach of the rules relating to its operation or in the event of deliberation on an issue which was not on the agenda where there is fraudulent intent;…"
That narrower interpretation is reinforced by the second half of subparagraph 2 which refers to deliberation on an issue which was not on the agenda-clearly a reference to the meeting at which the decision was taken; and
iii) The general concern noted above regarding the approach which Mr Thewes took to the evidence.
Conclusion
LICT
Managers to commence the Proceedings.
i) the decision taken by theLICT
Managers in July 2018 to commence the Proceedings against Delta, Maze and Mr Veltchev did not comply with the requirement of Luxembourg law for a resolution of shareholders; and against Viva Luxembourg and Mr Roussev, did not comply with the requirements of the Articles and the SHA for a meeting of the board to be convened; and
ii) the decision taken by theLICT
Managers to bring the Proceedings against Delta, Maze and Mr Veltchev, Viva Luxembourg and Mr Roussev is invalid as a matter of Luxembourg law unless validly ratified.
Was Mr Reitsma conflicted from voting in relation to the commencement of the Proceedings by reason of the fact that he is a director of InterV and some of the minority shareholders that he represents as manager of V2 are also minority shareholders in Viva Luxembourg? If so, what is the consequence upon the operation of clause 32? (Issue 3)
i) Luxembourg company law expressly provides that only financial interests create a conflict of interest for board members under Luxembourg law;
ii) Functional conflicts, whereby a director or manager is said to be conflicted by reason of being a representative of companies on both sides of the transaction matter, do not count;
iii) That is the plain and obvious meaning of the Article 441-7.
"the interest must be "financial in nature"… The interest must be financial i.e. be likely to procure the relevant director of material advantage subject to economic valuation….
The question of indirect interest of a patrimonial nature presents difficulties if someone is director of two companies and plans to participate in resolutions enabling these two companies to conduct transactions between them. Does the opposed interest targeting the director in a transaction with the company also include this assumption of conflict functions? Strictly speaking, this should not be the case, since the purely functional interest is by itself not financial nature. Therefore the situation be covered where the director would have a personal financial interest in seeing the two companies enter into a transaction, or because their remuneration depends on it, or because the value of shares may increase due to this fact… This interpretation of the law seems too restrictive. The aim of Article 57… Is to prevent situations where the board of directors would be influenced in its decision-making by the personal interests of a director in the conclusion of a specific transaction with the company; as this risk also exists when a director sits in two companies, Article 57… should apply equally in this situation…" [emphasis added]
"the question still arises of determining whether the mere fact that the person is acting in his capacity as a director for two contracting companies in a transaction between them constitutes a conflict of interest resulting in the application of Article 57 of the LSC. In a strict sense, such a purely functional interest is not of a pecuniary nature and thus would not be considered sufficient to fall within the field of application of Article 57 of the LSC; it would moreover be necessary to require a personal financial interest…"
LICT
Managers' conflict of interest). Koch also appears to take the view that functional conflicts are not caught.
Ratification
LICT
Managers served purported notices seeking to convene board meetings of V2 and V Telecom GP on 15 January 2019, for the purpose of approving and/or ratifying the commencement of the Proceedings (paragraph 29 of the Agreed List of Agreed Issues).
Were the purported notices valid and effective? (Issue 7)
Are Delta and Maze conflicted from voting on resolutions in relation to ratification of the Proceedings? (Issue 8a)
Are the
LICT
Managers conflicted from voting on resolutions in relation to ratification of the Proceedings? (Issue 8b)
LICT
Managers had a financial interest in the resolutions and were conflicted from voting for them because, prior to the ratification, they faced a potential liability to pay costs by reason of having commenced the Proceedings without authority. In particular it was submitted that they faced a potential liability for a non-party costs order and/or costs from an action by the solicitors for commencing an un-authorised action.
"Any director having a direct or indirect financial interest conflicting with that of the company in a transaction which has to be considered by the board of directors, must advise the board thereof and cause a record of his statement be included in the minutes of the meeting. He may not take part in these deliberations…" [emphasis added]
LICT
Managers were not conflicted for the following reasons:
i) the argument was "nonsensical" because it would mean that proceedings could never be ratified;
ii) theLICT
Managers did not have a financial interest in the ratification that was sufficiently certain to engage Articles 441-7 and 710-15 (6) of the LCL; and
iii) any financial interest that theLICT
Managers had in relation to the ratification was not opposed to the interests of V2.
LICT
Managers did not have a "sufficient" financial interest to engage Article 441-7 and that it was not sufficiently "certain":
i) non-party costs orders are in the discretion of the court and it is therefore uncertain whether and to what extent the court might make non-party costs orders against theLICT
Managers;
ii) the ratification of the Proceedings might still leave theLICT
Managers with liability to pay costs incurred before the date of the ratification and potentially even after the ratification. Therefore, the ratification will not influence the court's order on costs; and
iii) there was no prospect of a claim by the solicitors for breach of warranty of authority since this was an issue from the outset of the Proceedings.
"…if…:
(1) as at the date when the resolutions were passed, theLICT
Managers were facing potential liabilities to pay substantial costs to the defendants and/or to Gresham by reason of having commenced the English proceedings without V2's authority; and
(2) ratifying the English proceedings would have the effect, with a not insignificant degree of probability, of extinguishing or reducing theLICT
Managers exposure to such liabilities, whether in whole or part;
then in my view, theLICT
Managers had an interest of a financial nature in ratifying the original decision to bring the English proceedings that was opposed to the interests of V2, as a matter of Luxembourg law.
"… A conflict would exist if, by voting on the ratification of previously commenced and possibly irregular proceedings, a manager could acquire for himself a reduction of the risk of being exposed to an order to pay costs in connection with the proceedings.…" [emphasis added]
"The interest must be "financial in nature".… The interest must be financial, i.e. be likely to procure the relevant director a material advantage subject to economic valuation.… It is reasonable to think, even if the law does not specify the question, that if the director only obtains an insignificant benefit, the procedure does not apply either. In fact, in this case, the interest that the director and the transaction will be sufficiently immaterial so as not to risk having an influence on his decision." [emphasis added]
"The question of the indirect interest of the nature of an asset presents difficulties if a person is a director of two companies and plans to participate in resolutions that allow these two companies to make transactions between them. Does the opposing interest referring to the director in a transaction with the company also include this hypothetical conflict of duties that? Strictly speaking, this should not be the case, since the purely functional interest is not in itself of the nature of an asset. As a consequence, only situations where the director would have a personal financial interest specifically the two companies entering into a transaction, either because his compensation depends on it, or because the value of shares might increase due to this … This reading of the law, appears, however to be too restrictive. The purpose of Article 441-7… is to prevent situations where the board of directors would be influenced in its decision-making by the personal interests of a director in entering into a specific transaction with the company; since this risk also exists when a director sits in two companies, Article 441-7… should also be applied in this situation…" [emphasis added]
i) theLICT
Managers were personally exposed to liabilities in respect of the costs of the English proceedings;
ii) the liabilities included liabilities both to the defendants and Gresham;
iii) the amount of those liabilities was potentially substantial; and
iv) by validly ratifying the Proceedings, theLICT
Managers would reduce or extinguish their exposure to liabilities in respect of the costs of the Proceedings whilst at the same time increasing V2's exposure to costs.
LICT
Managers and/or
LICT.
Accordingly, in my view such a risk of costs cannot be dismissed as sufficiently immaterial such that the decision to ratify could be said to give rise to only an insignificant benefit.
LICT
Managers had in relation to the ratification was not "opposed" to the interests of V2, it seems to me that Mr Thewes accepted in cross examination (on the assumption that the
LICT
Managers would reduce or extinguish their exposure in respect of the costs of the Proceedings whilst at the same time increasing V2's exposure to liabilities in respect of those costs) that the financial interest was opposed to the interests of V2 because the advantage to the
LICT
Managers of procuring ratification would operate to the detriment of V2.
LICT
Managers had an interest of a financial nature in ratifying the original decision to bring the Proceedings, their interest would have been "opposed" to the interest of the company for which they were acting because the company's interest may have been to discontinue. Dr Kinsch stated that for a manager's interest to be "opposed to that of the company" it is sufficient that the opposition exists potentially; whether or not the company would in fact have decided to discontinue the Proceedings is not relevant in this respect. The company's interest was in ensuring "a conflict free assessment".
LICT
Managers in ratifying the Proceedings is not aligned with the interests of the company.
"where, because of conflicts of interest, the number of directors required by the Articles to decide and vote on the relevant matter is not reached, the board of directors may, unless otherwise provided for by the Articles, decide to refer the decision on that matter to the general meeting of shareholders."
There is therefore an express mechanism to deal with the position if as a result of conflicts, the board is inquorate, namely to refer the matter to a general meeting of the shareholders.
Conclusion
LICT
Managers were conflicted from voting on resolutions in relation to ratification of the Proceedings.
Does clause 32 affect the quorum requirements in relation to board meetings for V2 and/or V Telecom GP, in particular by excluding any manager who is conflicted from the quorum requirements? (Issue 9)
"(9) The board of managers can only validly debate and take decisions (subject to any shareholders agreement entered into by the shareholders of the company) with the following quorum:
-one class V manager and one class C manager and the class E manager (if any), if any of the Board Reserved Matters is to be considered at the meeting; or
-one class V manager and one class C manager, in all other cases …"
i) the words of Article 15.6 are clear;
ii) there are references elsewhere in the articles of V Telecom to the SHA but not in Article 15.6 so it cannot have been overlooked; and
iii) reading the words "subject to any shareholders agreement" into Article 15.6 would amount to an extra statutory amendment of the articles in breach of Articles 100-4 and 100-12.
"any contractual amendment to the instrument of the company must, on pain of nullity, be made in the form required for the constitutive instrument of the company."
That means a special notarial deed and the amendment must be adopted at a duly convened extraordinary general meeting of shareholders.
"In that sense, if the shareholders' agreement means that nonetheless decisions can be taken otherwise, there is a contradiction and in that sense, the Luxembourg courts will not be as pragmatic as to say, well, the article of the company law which prescribes the articles to be amended by a special notarial deed is used as formalism, we dispense the parties with that. No, the courts would insist upon that article ."
"But until and unless the articles are amended, they must be complied with by the managers, by the directors, must they not?"
"They must be complied to just as much as the contract, the shareholders' agreement the company entered into. The company is bound at two different levels and I would add, the incompatibility between those provisions is really limited because if clause 32 has the effect of avoiding deadlock, of essentially avoiding most of the issues we've now been discussing for three days and the fights that have been going on for three years by allowing the merits, the case to be brought before a judge, and the judge will then impartially hear everybody and impartially decide what is right. Isn't that a positive outcome instead of this very tiring discussion about which of the provisions is stronger than the other, …?"
Conclusion -does clause 32 affect the quorum requirements in relation to board meetings for V2 and/or V Telecom GP by excluding any manager who is conflicted from the quorum requirements? (Issue 9)
If Delta and Maze were conflicted from voting in relation to the approval or ratification of the Proceedings does that mean that no quorate board meeting was held for V2 and/or V Telecom GP on 15 January 2019 with the effect that the purported resolutions are invalid and of no effect? (Issue 10a).
If the
LICT
Managers were conflicted from voting in relation to the approval or ratification of the proceedings, does that mean that no quorate board meeting was held for V2 and/or V Telecom GP on 15 January 2019, with the effect that the purported resolutions are invalid and of no effect? (Issue 10b).
i) whether a quorum only has to be met at the outset of the meeting or whether it is required throughout the meeting for each resolution and the effect of a conflict of interest of the relevant managers on the quorum of a meeting; and
ii) if a meeting is inquorate, what effect that has under Article 100-22 on the resolutions that were passed.
Whether a quorum only has to be met at the outset of the meeting or whether it is required throughout the meeting for each resolution and the effect of a conflict of interest of the relevant managers on the quorum of a meeting
i) there is no requirement in the articles of V2 or V Telecom for a particular number of directors and accordingly Article 441-7 is not relevant;
ii) Article 11 (9) of V2's articles provides different quorum requirements depending on whether any of the "Board Reserved Matters" is to be considered at the meeting and this indicates that the quorum requirement applies to the meeting as a whole and not to individual resolutions; and
iii) Clause 6.5 of the SHA makes it clear that the quorum requirement relates to attendance not participation or voting: it provides that "no business shall be transacted at any meeting of directors unless a quorum is present at the beginning of and throughout each meeting".
"(1) Any director having a direct or indirect financial interest conflicting with that of the company in a transaction which has to be considered by the board of directors, must advise the board thereof and cause a record of his statement be included in the minutes of the meeting. He may not take part in these deliberations… [emphasis added]
(4) Where, because of conflicts of interest, the number of directors required by the articles to decide and vote on the relevant matter is not reached, the board of directors may, unless otherwise provided for by the articles, decide to refer the decision on that matter to the general meeting of shareholders."
Evidence of experts
"[83] the quorum requirements were met at the beginning of the board meetings held on 15 January 2019 since all the board members of V2 and the GPs board were able to join the conference call…
[84] when the representatives of Delta and Maze both left the meeting, the quorum requirements ceased to be met. The fact that Mr Reitsma also left the meeting is irrelevant because no "Board Reserved Matter" was on the agenda and his presence was therefore not required.…
[85] the representatives of Europim and Coselux then continued with the meeting "considering that the quorum required by article 15-7 of the articles of association of the company… was met. They were entitled to proceed on that basis if the quorum requirements were changed by clause 32 of the shareholders agreement…Otherwise however they were mistaken. The quorum must be met at any time the board "debates and takes decisions". In other words the board must constantly be quorate and if the quorum ceases to be met, the meeting must be suspended or end.
[86] Once Delta and Maze both left the meeting, the quorum required by the articles of incorporation for the board of managers of V2 and the board of directors to be able to debate and take decisions was no longer met." [emphasis added]
LICT
Managers were conflicted. The evidence of Dr Kinsch was that the boards were not quorate if either Delta and Maze or the
LICT
managers were conflicted and "a fortiori" if all four managers/directors were conflicted. The evidence of Mr Thewes was that the quorum requirements "cannot be met" if Delta and Maze are both conflicted or if both
LICT
Managers are conflicted but said that it should be ignored on the grounds either that conflicted board members do not count for the quorum because they do not have a voting right or because Delta and Maze's departure from the meeting constituted an abuse of the minority.
"[37]… Mr Kinsch's evidence is that Delta's and Maze's conflict of interest meant that it was "legally impossible to meet the quorum requirement on 15 January 2019"…
[38] I disagree with this view. The rule in article 441-7, para 1 of the LCL is that conflicted board members "may not take part in these deliberations. It does not say that the presence of conflicted members of the board does not count towards the quorum. Attendance (required to meet quorum) and participation in the discussions and votes… are separate legal concepts, as is noted by T Tilquin who writes that the "the quorum is not related to an effective participation in the deliberation".
[39] It would be entirely irrational if a rule intended to protect the corporate interest by preventing conflicted board members from influencing board decisions led to a deadlock where decisions that are in the corporate interests can no longer be taken at all.…
[40] For this reason, "in order to avoid a deadlock in decision-making, directors confronted with a conflict of interest must be taken into account to determine the quorum" even though they do not physically participate in the deliberation and vote. It is appropriate "to regard the directors with a conflict of interest, for practical reasons, as being fictionally "present" with a view to fulfilling the quorum requirement"
[41]..if Delta and Maze had done what article 441-7, para 1 of the LCL required of them (i.e. declare their conflict so it could be recorded in the minutes, then abstain from taking part in the deliberations and votes) a board meeting with the quorum required in V2's and the GP's articles of association could have been held. In a normal boardroom setting this would have meant leaving the room (so they could not be accused of influencing the discussions and vote) whilst remaining in attendance at the venue with the board meeting takes place. In the context of a board meeting held by conferencing system, the appropriate conduct would have been to declare their conflict, then to mute their microphones until the discussions and votes have concluded…
[42] Delta and Maze did not do this, but that does not prevent them from being counted towards the quorum for the reasons explained.
"in order to cover all possible blocking situations, it is proposed to rephrase the fourth paragraph by adding a supplementary rule allowing the board of directors to refer the decision to the general meeting of shareholders."
I do not therefore accept the submission that Article 441-7(4) is to be narrowly construed and limited to a situation where the articles require a particular number of directors to decide on a matter.
"The quorum issue at the board meetings of 15 January 2019… was a consequence of Delta and Maze leaving the call…"
It is also contrary to the provision in the Articles (Article 15.7 of V Telecom GP and 11.10 of V2) which states that:
"if a quorum is not present within half an hour from the time appointed for the board meeting, or if during a board meeting a quorum ceases to be present, the meeting shall be adjourned…" [emphasis added]
"the director, after having indicated the conflict of interest, should excuse himself from the discussions and subsequent resolutions by the board…"
"[8.3] in the event of a conflict of interest, the law obliges the director in question to notify the board of directors (or the management board) of the latter and to mention this statement in the minutes of the meeting.
Furthermore this director may not take part in the deliberations and must refrain from voting on the items on the agenda affected by the conflict of interest. He must leave the room before deliberations begin."[emphasis added]
"subject to clause 32…, applicable law and the directors' fiduciary duties, a director shall be entitled to vote and be counted in the quorum at a meeting of the board in relation to, or any resolution of the board in respect of, a matter in which he has a direct or indirect interest."
This is clearly expressed to be "subject to applicable law" and it cannot therefore override Luxembourg company law rules about conflicts of interest.
Did Delta and Maze's departure from the meeting constitute an abuse of the minority?
"any act which, by the intention of its author, by its purpose or by the circumstances in which it is carried out, manifestly exceeds the normal exercise of the right, is not protected by the law, renders the originator liable and may give rise to a prohibitory injunction in order to prevent the ongoing breach."
"Q. If Dr Kinsch is correct, and conflicted board members cannot count for the purposes of a quorum requirement, then a number of things follow, as a matter of Luxembourg law…
The second consequence that would have followed would have been that Delta and Maze would have been acting lawfully by withdrawing."
"If the law instructs them to leave completely the building or, in this case, the conference call, then they would have acted lawfully."
"Q. The third point is that by withdrawing in those circumstances, Delta and Maze would not have been blocking any resolution that could otherwise have been passed."
"A. … The resolutions would effectively have been blocked, but it's not through deliberate action of Delta and Maze, but through an effect of a rule in the law, which I don't agree exists, but a rule in the law that forces them to abandon ship and leave the meeting."
"Q. Exactly. The fourth point is that the consequence of all of that is that they would not have been abusing any rights by withdrawing."
"A. Again, if the law instructs them to do that, they are not abusing rights." [emphasis added]
If a meeting is inquorate, what effect does that have under Article 100-22 of the LCL on the resolutions that were passed?
"(1) Any decision adopted by a general meeting referred to in this law shall be void:"
1. where the adopted decision is flawed as a result of a formal irregularity, if the applicant proves that this irregularity may have influenced the decision;
2. in the event of a breach of the rules relating to its operation or in the event of deliberation on an issue which was not on the agenda where there is fraudulent intent;
3. where the adopted decision is flawed by any other abuse of power or misuse of power;
4. In case of the exercise of voting rights which are suspended pursuant to a legal provision not included in this law and where, without such unlawfully exercised voting rights, the quorum and majority requirements for decisions by a general meeting would not have been met;
5…
(2) The nullity of a decision by general meeting must be declared by court order.
…
(3) The actions for nullity shall be brought against the company…
(4) Where the avoidance is likely to prejudice rights acquired in good faith by a third party towards the company based on the meeting's decision, the court may declare the avoidance not to have any effect vis-à-vis those rights, subject to the applicant's right to damages, as the case may be."
"[137] A breach of quorum requirements constitutes a breach of fundamental rules relating to the formation of the collective will of a corporate organ composed of several members, whether this be the general meeting of shareholders or a board of directors or board of managers functioning collegially under the company's articles of association. Therefore, such a breach does not fall under the relatively lenient regime which applies to violation of formalities… On the contrary, a violation of a quorum requirement is automatically sanctioned by the invalidity of the decision taken by an inquorate corporate body.
[138] In terms of analysis under article 100-22 of the LCL, the breach of quorum requirements falls under subparagraph 3. These are cases "where the adopted decision is flawed by any other abuse of power or misuse of power".…
[139] It is recognised that irregularity by reason of the "misuse of power" (subparagraph 3 of article 100-22(1)) includes, in particular, violation of the rules on quorum or of majority applying to a general meeting of shareholders… Dr Steichen adopts the same view… in the context of his discussion of the consequences of breaches of requirements of the articles of association as to the quorum for general meetings of shareholders.
[140] For these reasons, breach of the quorum requirements of the articles of V Telecom GP… will result in automatic invalidity of the resolutions purportedly passed by theLICT
managers on 15 January 2019. In the case of such a breach, no further conditions for invalidation are required by law." [emphasis added]
"Both in the case of general meetings of shareholders and meetings of boards of managers or directors, making a resolution in breach of quorum requirements will constitute a violation of the law or of the articles of association and therefore an excess of power within the meaning of article 100-22 (1) subparagraph 3."
Conclusion
i) the meeting of the board of managers of V Telecom GP held on 15 January 2019 was inquorate by reason of the absence of Delta and Maze and if they had been present, they would have been obliged to leave the meeting and the meeting would have been inquorate by reason of their conflict of interest;
ii) the meeting of the board of directors of V Telecom GP was inquorate by reason of theLICT
Managers' conflict of interest; and
iii) as a consequence of the breach of the quorum requirements identified under (i) and/or (ii) the purported resolutions of the board of directors of V Telecom GP were invalid under subparagraph (3) of Article 100-22(1) and subject to a court order being made, a nullity.
i) the meeting of the board of managers of V2 held on 15 January 2019 was inquorate by reason of theLICT
Managers' conflict of interest; and
ii) as a consequence of the breach of the quorum requirements identified under (i), the purported resolutions of the board of managers of V2 were invalid under subparagraph (3) of Article 100-22(1) and subject to a court order being made, a nullity.
If the
LICT
Managers were conflicted from voting in relation to the approval or ratification of the proceedings, would the fact that they were conflicted mean that the purported resolutions are invalid and of no effect? (Issue 10c)
LICT
Managers' conflict of interest, Article 100 – 22 (1) subparagraph 2 applies and the resolutions should be invalidated.
"there should be nothing to prevent a court from declaring inadmissible an action …relying on the conflict of interests of the directors …who have taken it upon themselves consciously to pass a resolution …despite their conflict of interest…. In addition, and depending upon the court's assessment of the facts, theLICT
Managers could be considered to have acted with "fraudulent intent" if they acted with "the intention to harm rights that [they] must respect..."
"Prior to the 2016 reform, it was felt that non-compliance with section 441-7 was only a matter of managerial responsibility; it did not entail the nullity of the resolution adopted by the management body (except in the case of fraud). Since the reform of 2016, however, it must be admitted that the company may act in nullity for transactions carried out if the procedure in Article 441-7 has not been respected, because nullity is involved from having been able to influence the adoption of a resolution by the board of directors and breach of rules for the conduct of the board of directors… The invalidity cannot, however, prejudice the rights of bona fide third parties." [emphasis added]
LICT
Managers' breach of the conflict of interest rules was damages because there are no third parties in the present case who might be adversely affected by the resolutions being declared invalid.
"the sanctions regime has not been substantially amended and will essentially consist of the liability of the bodies in question (action for damages). Contrary to Belgian law and despite a provision to this effect in the initial draft, the possibility of an action for annulment was not finally adopted"
"…the question also arises of the validity of the decisions adopted in infringement of the rules relative to conflicts of interest. Traditionally it is accepted that such decisions are not declared null and void. Draft law number 5730 envisaged the possibility of providing for a nullity action, drawing inspiration from the Belgian legal reforms, but this solution was not chosen in the end."
"where the avoidance is likely to prejudice rights acquired in good faith by third party towards the company based on the meeting's decision, the court may declare the avoidance not to have any effect vis-à-vis those rights, subject to the applicant's right to damages, as the case may be."
LICT
Managers are conflicted from voting in relation to the ratification of the Proceedings, means that the purported resolutions are invalid and of no effect. The highest that it can be put is that as acknowledged by Dr Kinsch and Professor Steichen, there is nothing to prevent a Luxembourg court declaring the resolution a nullity but that falls short in my view from establishing (on a balance of probabilities) that this is the current position under Luxembourg law.
Standing
"the question of the composition of the board of directors and its ability to deliberate is a purely internal issue and does not affect the representation of the company vis-à-vis third parties through its legally competent body. A decision of this organ cannot therefore, be called into question by third parties for reasons related solely to the internal functioning of the company."
Jurisdiction
Are the claims against Maze subject to the exclusive jurisdiction of the Luxembourg court pursuant to Article 25 of the Recast Brussels Regulation (EU) No 1215/2012 (the "Regulation")? (Issue 11)
"for the benefit of the Manager, the Shareholder and the Company hereby irrevocably, specially and expressly agree that the courts of Luxembourg city have jurisdiction to settle any disputes in connection with this Agreement and accordingly submits to the jurisdiction of the courts of Luxembourg city. Nothing in this clause limits however the rights of the Manager to bring proceedings against the Company in connection with this Agreement in any other court of competent jurisdiction or concurrently in more than one jurisdiction."
"If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise…"
Discussion
"Nothing contained in this Clause shall limit the right of the Lender to commence any proceedings against the Guarantor in any other court of competent jurisdiction nor shall the commencement of any proceedings against the Guarantor in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not." [emphasis added]
"[79] In what it entitled a subsidiary argument, Liquimar contended that the asymmetric jurisdiction clauses in the agreements between the Bank and the defendants are not compatible with Article 25 of Brussels 1 Recast and therefore cannot trigger Article 31(2). Article 25 requires the parties to have designated the courts of a Member State to enable the law applicable to the substantive validity of a jurisdiction clause to be identified and to provide certainty as to the forum in which a putative defendant can expect to be sued. That is not achieved by a clause which designates the courts of all other competent states, including those of non-Member States, outside the territorial competence of the EU, which could mean suits in multiple jurisdictions. The French cases considered earlier in the judgment, in particular Mme X v. Société Banque Privé Edmond de Rothschild 13 , First Civil Chamber, 26 September 2012, Case No. 11-26022, were also invoked.
80. This argument seems to overlook that in these asymmetric jurisdiction clauses the parties have designated the English court as having exclusive jurisdiction when the defendants sue. There is nothing in Article 25 that a valid jurisdiction agreement has to exclude any courts, in particular non EU Courts. Article 17, penultimate paragraph, of the Brussels Convention recognised asymmetric jurisdiction clauses. To my mind it would need a strong indication that Brussels 1 Recast somehow renders what is a regular feature of financial documentation in the EU ineffective.
[81] Any assistance which the defendants might garner from the decision of the French case, Mme X in 2012, comes up against the legal justification which the Cour de cassation in that case offered, the French concept of potestativité, not an autonomous concept in EU law. Quite apart from that there are the later French cases, and those in other European jurisdictions, outlined earlier in the judgment, which have taken a supportive approach to asymmetric jurisdiction clauses. I reject Liquimar's so called subsidiary argument." [emphasis added]
Conclusion
Are the claims against the Part 20/Part 7 defendants subject to Article 7(1) or alternatively Article 7(2) of the Regulation? (Issue 12)
LICT
Managers who must demonstrate to the standard of a good arguable case that the English court has jurisdiction over the claims made in the Proceedings. The precise nature of the test and its application has been addressed in several recent cases: Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192 at [7]; Goldman Sachs International v Novo Banco SA [2018] 1 WLR 3683 at [9] and Kaefer v AMS Drilling Mexico [2019] EWCA Civ 10 at [57]-[80].
"70. An opportunity to clarify the test arose in Goldman Sachs . Lord Sumption (giving a judgment with which Lord Hodge, Lady Black, Lord Lloyd-Jones and Lord Mance agreed), essentially repeated his formulation in Brownlie. To the extent that there was disagreement in Brownlie about the reformulation of the Canada Trust test the Supreme Court has now spoken with a single voice and the route forward lies with that reformulation. In paragraph [9] Lord Sumption stated:
"9. This is, accordingly, a case in which the fact on which jurisdiction depends is also likely to be decisive of the action itself if it proceeds. For the purpose of determining an issue about jurisdiction, the traditional test has been whether the claimant had "the better of the argument" on the facts going to jurisdiction. In Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192 , para 7, this court reformulated the effect of that test as follows:
"… (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it."
It is common ground that the test must be satisfied on the evidence relating to the position as at the date when the proceedings were commenced."
71. Any dispute about whether the three-limbed test is obiter has accordingly now vanished. The test has been endorsed by a unanimous Supreme Court…" [emphasis added]
"73. It is in my view clear that, at least in part, the Supreme Court confirmed the relative test in Canada Trust…The reference to " a plausible evidential basis " in limb (i) is hence a reference to an evidential basis showing that the Claimant has the better argument…
74. What is the correct name for the test? …It is notable that in Goldman Sachs the Court does not use the terminology of " good arguable case " save in respect of limb (iii) where it is combined with plausibility. In limb (i) – which is the basic test – the test is plausibility alone... In my view, provided it is acknowledged that labels do not matter, and form is not allowed to prevail over substance, it is not significant whether one wraps up the three-limbed test under the heading " good arguable case " and since this was the understanding in Aspen there remains currency in this rubric.
…
[78] Limb (ii) is an instruction to the court to seek to overcome evidential difficulties and arrive at a conclusion if it " reliably" can. It recognises that jurisdiction challenges are invariably interim and will be characterised by gaps in the evidence. The Court is not compelled to perform the impossible but, as any Judge will know, not every evidential lacuna or dispute is material or cannot be overcome…
[79] The relative test has been endorsed " in part " because limb (iii) is intended to address an issue which has arisen in a series of earlier cases and which has to be grappled with but which as a matter of logic cannot satisfactorily be addressed by reference to a relative test: …This arises where the Court finds itself simply unable to form a decided conclusion on the evidence before it and is therefore unable to say who has the better argument.
80. What does the Judge then do? Given that the burden of persuasion lies with the claimant it could be argued that the claim to jurisdiction should fail since the test has not been met. But this would seem to be unfair because, on fuller analysis, it might turn out that the claimant did have the better of the argument and that the court should have asserted jurisdiction. And, moreover, it would not be right to adjourn the jurisdiction dispute to the full trial on the merits since this would defeat the purpose of jurisdiction being determined early and definitively to create legal certainty and to avoid the risk that the parties devote time and cost to preparing and fighting the merits only to be told that the Court lacked jurisdiction... The solution encapsulated in limb (iii) addresses this situation. To an extent it moves away from a relative test and, in its place, introduces a test combining good arguable case and plausibility of evidence. Whilst no doubt there is room for debate as to what this implies for the standard of proof it can be stated that this is a more flexible test which is not necessarily conditional upon relative merits. [emphasis added]
"A person domiciled in a Member State may be sued in another Member State:
(1) (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: …
- in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;
(c) if point (b) does not apply then point (a) applies"
"A person domiciled in a Member State may be sued in another Member State: …
(2) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;"
"Matters relating to a contract"
Relevant law
"[65] Thirdly, as a matter of English law, Alfa Laval does not oblige us to adopt that mechanistic test. As already discussed, Longmore LJ was anxious to reject the "legal relevance" test adopted in Swithenbank (supra) and, for very good reason, to discourage "pleaders' games". It simply does not follow from Longmore LJ's approach that, merely because a matter could be pleaded as a breach of contract, therefore Art. 18 applies. Instead, Longmore LJ favoured, as we have seen, sticking with the actual words of Art. 18.1 and asking whether the claims made against the employee relate to individual contracts of employment. That is a broad test and involves a broad inquiry, not a mechanistic approach; the wording of Art. 18.1 does not require any gloss. For his part, Davis LJ likewise focused on the words of Art. 18.1 , saying that they were broad and unqualified words of nexus, not requiring artificial limitation. However, the nexus needed to be material and it was "…necessary to have regard to the substance of the matter". So far as concerns the observation of Sir Andrew Morritt C in argument (recorded at [25]), the important point is that it was not proposed as "a test of any kind". In many cases, it might, with respect, indeed be helpful to ask the question of whether the acts complained of by the employer constituted a breach of the contract of employment by the employee. But it would be wrong to elevate that question into a test or touchstone – and nothing in Alfa Laval requires us to do so. For my part, the correct approach as a matter of English law is to consider the question whether the reality and substance of the conduct relates to the individual contract of employment, having regard to the social purpose of Section 5: ..]."
"[66] Fourthly, the ECJ authorities do not require the adoption of the mechanistic test. With respect to Mr Foxton's argument to the contrary, I am unable to accept that the ratio of Brogsitter is to be found (in effect) solely in paragraphs [24] and [29]. There is more to it than that, as appears from the discussion in Holterman, set out above, especially the reference by the Court in Holterman to paragraphs [24] – [27] of Brogsitter. To my mind, the true ratio of Brogsitter appears from the entirety of the passage at [24] – [27]; there can be no good reason to look at paragraphs [24] and [29] in isolation. It may be remarked that the point is even clearer if regard is had to the German language text but I do not rest my conclusion on that consideration. Accordingly, it does not suffice to pose the – literal – question as to whether the conduct complained of "may be considered a breach of contract". Instead, the requirement that the legal basis of the claim "can reasonably be regarded" as a breach of contract, assists in directing the focus of the inquiry to the substance of the matter, with the result that it is "indispensable" to consider the contract in order to resolve the matter in dispute. This is a test and an approach indistinguishable to my mind from that adopted in Alfa Laval, so that (in Davis LJ's words) there will be a material nexus between the conduct complained of and the individual contract of employment." [emphasis added]
Discussion
" …Delta and Maze as directors of V2, InterV and V Telecom and Mr Veltchev as a director and representative of Delta owed duties to the Vivacom Group companies which they represented, (including in particular V2) to act in good faith in the best interests of the companies themselves pursuant to Articles 59…the Luxembourg law on Commercial Companies and Articles 1382-1384 of the Civil Code.."
It is then alleged that they were in breach of duty and colluded with VTBC by permitting it to dispose of the shares through a sham auction process.
i) as in Arcadia, the "key" to the alleged fraud lies not in the contract of employment; the reality or substance of the matter is that the overarching claims concern Delta acting outside any contract;
ii) although the conspiracy allegations are pleaded as breaches of their statutory duties as directors, the pleaded case relies on statutory breaches not on contractual obligations and as in Arcadia, in my view, their role as directors/managers provided "the opportunity" for the alleged fraud but the claims are in reality about the alleged dishonesty of a number of alleged conspirators acting in combination; and
iii) whilst it was accepted in Arcadia that there was no special rule for conspiracy such that every conspiracy must be outside individual contracts of employment, nevertheless some of the alleged conspirators were not party to any contract with V2 namely Mr Veltchev, Mr Roussev, Viva Luxembourg and VTB.
Mr Veltchev
Viva Luxembourg
Conclusion on Article 7 (1)
To the extent that the claims against the Part 20/Part 7 defendants are subject to Article 7 (1) of the Regulation, is England the place of performance of the obligation in question? (Issue 13)
To the extent that the claims against the Part 20/Part 7 defendants are subject to Article 7(2) of the Regulation is England the place where the harmful event occurred? (Issue 14)
"41. We consider that the Court of Appeal correctly identified the place where the conspiratorial agreement was made as the place of the event which gives rise to and is at the origin of the damage. As Sales LJ explained (at para 76), in entering into the agreement Mr Khrapunov would have encouraged and procured the commission of unlawful acts by agreeing to help Mr Ablyazov to carry the scheme into effect. Thereafter, Mr Khrapunov's alleged dealing with assets the subject of the freezing and receivership orders would have been undertaken pursuant to and in implementation of that agreement, whether or not he was acting on instructions from Mr Ablyazov. The making of the agreement in England should, in our view, be regarded as the harmful event which set the tort in motion." [emphasis added]
i) on the one hand, VTBC was based in England and meetings at which the sale of Vivacom was discussed are accepted to have occurred in London; and
ii) on the other hand, there is no reference in the pleadings to the conspiracy having been agreed in England and no such allegation in the witness statement of Mr Kakaad (solicitor for the claimants) of 31 July 2018 dealing with jurisdiction under Article 7(2).
"V2 has suffered significant loss and damage including the loss of its 100% interest in the Vivacom group. V2 accordingly seeks an order for the return of the InterV shares and/or the payment of appropriate compensation."
Whilst not defined, the Vivacom group is stated to be a group of companies, owned by InterV, which own and operate one of the largesttelecommunications
networks in Bulgaria.
telecommunications
companies which were held by InterV through Viva Luxembourg Bulgaria EOOD (paragraph 3 of the Agreed List of Agreed Issues).
Conclusion
Should V Telecom and/or V2 be removed as defendants to the Original Proceedings with the effect that in the case of V2 that the Part 20 proceedings cannot continue? (Issue 17)
"The court may order any person to cease to be a party if it is not desirable for that person to be a party to the proceedings."
i) There is no good reason for V2 to continue being a defendant in the Original Proceedings. No relief is sought against it and it was only joined to the Original Proceedings for the purposes of ensuring that it was bound by the judgment. That rationale no longer applies because the only claim that the Original Claimants can now bring is a claim for alleged loss of opportunity;
ii) It undermines an exclusive jurisdiction clause in the Pledge which should be respected; and
iii) It is being used to bring the Part 20 claim and circumvent the exclusive jurisdiction clause.
i) (assuming that the claimants were successful on the issue of authority) in order to bring the Part 20 claim, V2 has to be a defendant in the existing action and V2 does not wish to be removed; it is therefore in V2's interests to remain a party to the Original Proceedings because it will then be able to pursue its Part 20 claims; and
ii) VTBC is not a defendant to the Part 20 claim so there is no claim by V2 against VTBC and the Part 20 claim does not result in the determination of any claims which fall within the scope of the Luxembourg jurisdiction clause because there is no action between V2 and VTBC; the findings between V2 and the defendants in the Part 20 claim will not give rise to any res judicata in relation to VTBC merely because they are party to the main action.
"Each party hereto agrees that the courts of Luxembourg, judicial district of Luxembourg city, are to have the exclusive jurisdiction to settle any claims, disputes or matters (the "Proceedings") arising out of or in connection with this Agreement (including a dispute relating to any non-contractual obligations arising out of or in connection with it) and that accordingly any suit, action or proceedings arising out of or in connection with this Agreement (including any proceedings relating to any non-contractual obligations arising out of or in connection with this Agreement) shall be brought in such courts."
i) In the light of my findings on authority there is no reason for V2 to remain a party;
ii) The reason why the application was brought (allegedly to frustrate the Part 20 Proceedings) does not affect the exercise of the court's discretion when the Part 20 Proceedings have been found to have been commenced without authority;
iii) The alleged wish of V2 to remain a party cannot be said to have been expressed by V2 in the light of the absence of authority on the part of theLICT
Managers; and
iv) The Original Proceedings advance claims which are within the scope of the exclusive jurisdiction clause in the Pledge which should not be allowed to be pursued in the English courts by V2 against VTBC: in particular paragraph 55(3) which refers to VTBC acting in breach of the Pledge. If authority for this proposition is necessary then I refer to Eder J in Nomura International v Banca Monte dei Paschi di Siena [2013] EWHC 3187 (Comm) where, dealing with whether to grant a stay where there was an exclusive jurisdiction clause, he said at [80]:
"...the court should so, far as possible, give effect to the parties' bargain and be very slow indeed to exercise such a discretion in a manner the effect of which would be to destroy such bargain"
Conclusion
Is it open to the court to decline jurisdiction under Article 8 (2) of the Regulation on any of the following grounds and if so, should it do so?
i) TheLICT
managers have initiated the Part 20 proceedings in circumstances in which there is no basis for V2 to be a defendant to the Original Proceedings;
ii) the effect of the Part 20 proceedings is to circumvent the jurisdiction agreement contained in clause 15(b) of the Pledge; and/or
iii) the bringing of the Part 20 proceedings is an abuse (Issue 15)
"A person domiciled in a Member State may also be sued: …
"(2) as a third party in an action on a warranty or guarantee or in any other third-party proceedings, in the court seised of the Original Proceedings, unless these were instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case;"
Should permission be granted for the Part 20 proceedings and if not should the Part 7 Proceedings be consolidated with the Original Proceedings (Issue 18)
Should the Proceedings be struck out as an abuse of process on the basis that:
i) the Part 20 Proceedings seek to determine issues between VTBC and V2 which fall within the scope of an exclusive jurisdiction clause in the Pledge in favour of the Luxembourg courts;
ii) following the Preliminary Issues Trial, the Original Claimants are now trying to advance the same claims that they brought in the Original Proceedings, which claims could and should have been brought together with the Original Proceedings? (Issue 16)
Relevant law
"Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not." [emphasis added]
"It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. This latter (though not the former) is prima facie a denial of the citizen's right of access to the court conferred by the common law and guaranteed by article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression."
"…However desirable it may be for a party to bring all his claims forward in one go, the abuse principle...does not bar a claim simply because someone fails to raise a claim when he could have done so. The facts must be such that the second action amounts to an abuse of process before it can be struck out.
The importance of the general principle that every person with an arguable claim should be able to pursue it in court is enshrined in Article 6 of the European Convention. As Sir Anthony Clarke MR indicated in [Stuart v Goldberg Linde], at paragraph 98, if the court is not satisfied that a claimant's attempt to raise his claim is actually abusive in the light of his previous failure to raise it, the claim cannot be barred from proceeding however desirable it might have been for the claimant to have raised it earlier."
Submissions
i) theLICT
Managers did not deliberately hold back their claims until after the Preliminary Issues Trial. The reason why the
LICT
Managers did not take steps to bring proceedings in the name of V2 earlier is because neither they nor anyone associated with them was aware of the potential for such claims until June 2018;
ii) there is no particular prejudice to the Defendants (let alone "oppression") in allowing V2 to bring the proposed new claims. The Original Proceedings are still ongoing, and at an early stage, and are proceeding to trial in any event. There is an almost total overlap between the subject matter of the two sets of claims. Thus the introduction of V2's claims will have only a marginal impact on the cost, complexity and duration of the proceedings;
iii) the Defendants are wrong to say that the costs of the Preliminary Issues Trial (or this hearing) would have been avoided if the present claims had been brought at the time of the Original Proceedings; and
iv) there is no question of the "finality" of the Preliminary Issues Trial judgment being undermined. The judgment remains final as against the Original Claimants and between the present parties for the purposes of the issues which it determines.
i) Henderson v Henderson abuse can exist despite the claimants in the two relevant claims being different;
ii) the question of whether a claimant was aware that it could have brought its claim at the time of the Original Proceedings is highly relevant, not least to the question of whether the guidelines in Aldi Stores Ltd [2008] 1 WLR 748 have been complied with;
iii) the claimants and/or theLICT
Managers and/or those standing behind them knew about their "plan B" (i.e. their recourse to clause 32 of the SHA) but held it back until "plan A" had failed (when permission to appeal the outcome of the Preliminary Issues Trial was finally refused);
iv) even if those standing behind the claimants and theLICT
Managers did not know about clause 32 of the SHA and what they now say is its effect before 25 June 2018, nevertheless they plainly should have done; and
v) the time, costs and effort involved in the Preliminary Issues Trial, both on the part of the parties and the Court, were considerable: if "plan B" were allowed to be deployed now, all of that would be completely wasted.
i) theLICT
Managers could have commenced the Proceedings earlier because they could have commenced proceedings in reliance on clause 32 (or otherwise procured V2's authorisation of the Proceedings) at any time. The second and fourth defendants submit that this is not a case where the
LICT
Managers were only able to bring the Proceedings due to new events occurring after the Preliminary Issues Trial;
ii) theLICT
Managers should have commenced the clause 32 proceedings earlier: the Original Defendants' position was that
LICT
was the wrong party to bring the claims rejected by Waksman J at the Preliminary Issues Trial so
LICT
and the
LICT
Managers should have considered whether they had any response to that argument and they should have taken steps to address the point at that stage;
iii) the Preliminary Issues Trial, which took over a year and a half (including three interim applications, a five day trial and a consequentials hearing), and cost the Defendants nearly £5 million, will have been a waste of time;
iv) allowing theLICT
Managers to continue with the Proceedings would undermine the finality of the judgments in the Preliminary Issues Trial;
v) the institution of the Proceedings by theLICT
Managers has delayed the determination of the outstanding claim in the Original Proceedings;
vi) if it was the case that clause 32 was known about before the Preliminary Issues Trial then theLICT
Managers or the Original Claimants should have informed the Defendants and the court about the prospect of their using clause 32 to procure the commencement by V2 of its own claim; and
vii) even if theLICT
Managers, the Original Claimants and those standing behind them were not aware of clause 32 (or its alleged effect) until after the Preliminary Issues Trial, they should have been so aware. They have had the benefit of legal advice and the extent to which those claims could be brought by or through V2 was an obvious issue that should have been examined.
Discussion
"There is, therefore, only one question to be considered in the present case: whether it was oppressive or otherwise an abuse of the process of the court for Mr. Johnson to bring his own proceedings against the firm when he could have brought them as part of or at the same time as the Company's action. This question must be determined as at the time when Mr. Johnson brought the present proceedings and in the light of everything that had then happened. There is, of course, no doubt that Mr. Johnson could have brought his action as part of or at the same time as the Company's action. But it does not at all follow that he should have done so or that his failure to do so renders the present action oppressive to the firm or an abuse of the process of the court. As May L.J. observed in Manson v Vooght at p. 387, it may in a particular case be sensible to advance claims separately. Insofar as the so-called rule in Henderson v. Henderson suggests that there is a presumption against the bringing of successive actions, I consider that it is a distortion of the true position. The burden should always rest upon the defendant to establish that it is oppressive or an abuse of process for him to be subjected to the second action." [emphasis added]
LICT
Managers or those behind them in fact knew about what VTBC referred to as Plan B, but held it back and kept it "up their sleeve" until Plan A had definitively failed. (On 18 June 2018, the claimants' application for permission to appeal against the judgment in the Preliminary Issues Trial was refused.) The evidence of Mr Kakkad, the solicitor at Gresham Legal responsible for the proceedings on behalf of V2, in his second witness statement, was that he was informed by the
LICT
Managers that they did not "alight" upon Clause 32 until after the Preliminary Issues Trial. There was then a request made in March 2019 which asked how and from what natural persons the
LICT
directors "alighted" upon clause 32 and the answer was that it was privileged. In his third witness statement (paragraph 16) Mr Kakaad states in response to criticism from the defendants of his earlier explanations, that he was informed by Mr Picco that:
"no-one who represents the Claimants or theLICT
Managers, or has any involvement in their decision making or whose knowledge can be attributed to them was aware of clause 32 or the possibility of bringing claims based on it prior to June 2018."
LICT Managers that this evidence covers the barristers and the solicitors engaged in these proceedings and that the proposition that the lawyers would make assertions of fact in the knowledge that they were untrue was an "extraordinary" one.
"if a party fails to rely upon a point which properly belonged to the first litigation and which with reasonable diligence he might reasonably have brought forward at the time."
Conclusion on Abuse of Process