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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> New Media Holdings -v- Capita Fiduciary [2010] JRC 117 (29 June 2010) URL: https://www.bailii.org/je/cases/UR/2010/2010_117.html Cite as: [2010] JRC 117 |
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[2010]JRC117
royal court
(Samedi Division)
29th June 2010
Before : |
W. J. Bailhache, Esq., Deputy Bailiff, and Jurats Le Cornu and Nicolle. |
Between |
New Media Holding Company LLC |
Plaintiff |
And |
Capita Fiduciary Group Limited |
Defendant |
Advocate M. St. J. O'Connell for the Plaintiff.
Advocate N. M. Santos-Costa for the Defendant.
judgment
the deputy bailiff:
Background
1.
On 12th
May, 2010, the Court made a Norwich Pharmacal Order ex parte in chambers
against the defendant directing it to disclose to the plaintiff certain information regarding a series of entities
established organised or incorporated under the laws of a number of different
jurisdictions but in particular the jurisdictions of Jersey, Delaware, Ukraine
and Cyprus. The basis of the claim
giving rise to the Order was that the defendant, as a Jersey resident company
providing financial
services and the employer of a Mr Grant Timothy Brown, had
possession power or control of the information
and documents in question, relevant to the business affairs of the plaintiff;
which claimed that assets which belonged to a partnership in which the plaintiff
was an equal partner had been removed from the partnership structure in
circumstances which gave rise to legitimate suspicion of wrongdoing. The application to the Court for the
disclosure of information was based
on the premise that the defendant had some documents information
and material in respect of which the plaintiff had an ownership right as a
partner in the partnership, and secondly, to the extent that one was
considering non-partnership information
and material, then it was material to which the plaintiff claimed an
entitlement under the principles of a Norwich Pharmacal Order. The Court was shown a letter from Messrs
Crill Canavan which appeared to agree that the documents and material would be
provided because it was documentation to which the plaintiff was entitled in
any event. There was a caveat in
relation to potential confidentiality issues in the absence of consent from the
defendant's client or a Court Order, and there was a further caveat in
relation to the costs of production.
2. On 18th May, the defendant applied inter partes for a setting aside of that Order. In the course of that application, it was said that no such agreement had been confirmed in the letter in question. It turned out that there was a typographical error and the word "if" had been omitted, which importantly qualified the confirmation which the letter would otherwise appear to have given. In those circumstances, the Court ordered on 18th May that agreed partnership documentation should be produced to the plaintiff forthwith, to the extent that it was already available, and the further partnership documentation which was being sought out by the defendant should be produced to the plaintiff by Friday 21st May. As to costs, the defendant was given liberty to apply, and it was further ordered that the existing ex parte order be stayed for a period of three weeks in order that the parties might apply for a full inter partes hearing on the substance of the application.
3. The Court accordingly sat on 7th and 8th June to receive an application from the defendant to set aside the balance of the ex parte order made insofar as it was concerned with non-partnership documentation and other material.
The Claims
4.
The plaintiff
asserted that by an amended and re-stated partnership agreement dated 14th April, 2008,
and organised under the laws of Delaware,
the plaintiff became a 50% partner in Iota Ventures
LLP with a company called
Petal Capital Limited, incorporated under the laws of the British
Virgin
Islands. The
structure chart with which the Court has been provided shows the two principals
ultimately involved in this partnership are Mr
Vladimir
Gusinsky ("Mr
Gusinsky") and Mr Konstantin Kagalovsky ("Mr
Kagalovsky"). The former is
the beneficial owner of the plaintiff.
By a series of subsidiary companies, the Delaware partnership, Iota
Ventures
LLP,
owned a Ukrainian company Teleradiosvit LLC ("TRS"), which was the
owner of TVi, a Ukrainian television station, the development of which was the
ultimate purpose of the partnership.
The partnership arrangements envisaged that Mr Gusinsky and Mr
Kagalovsky would approve jointly all
financial
decisions in relation to the
underlying partnership assets, and both of them respectively put in place their
representatives in different parts of the structure so as to ensure the
appropriate development of the partnership property.
5. By a series of licence agreements in January and April 2009, a company called New Media Distribution Company LLC, the majority ultimate beneficial owner of which is understood to be Mr Gusinsky, licensed key programming content to TRS. The plaintiff asserts that these licence agreements were negotiated on behalf of TRS by Mr Kagalovsky personally, and that Mr Gusinsky, given his interest in the licensing company, did not participate in that negotiation. It is asserted by the plaintiff that Mr Gusinsky's role in the licensing company was disclosed to all concerned. The plaintiff asserts that difficulties between Mr Gusinsky and Mr Kagalovsky appeared during the summer of 2009 such that by September, TRS removed Mr Gusinsky's representative as executive director of TRS and he was denied access to the TRS premises. The licensing company commenced proceedings in the state of New York against the partnership for the recovery of licence fees which were due and outstanding under the terms of the licence agreements, and a Kagalovsky entity commenced proceedings also in New York against the plaintiff and Mr Gusinsky alleging breaches of fiduciary duty and self dealing in connection with the licensing agreements between the licensing company and the partnership. The plaintiff asserted that these proceedings were subsequently dismissed because the Court before which they were brought lacked jurisdiction over the subject matter.
6.
At some
point in or about September/October 2009, various
transfers of shareholdings
and/or issue of additional shares took place which resulted, so the plaintiff
claims, in a dilution of the partnership's interest in TRS from 100%
ownership to less than 1% ownership.
Furthermore, it is alleged that in or about October 2009 the partnership
purported to assign the TVi trademarks, which were an asset of the partnership,
to TRS. The plaintiff claims that
Mr Kagalovsky orchestrated the assignment of rights and its registration with
the Ukrainian Patent and Trademark
Authority,
as well as the dilution of the
partnerships interest in TRS, and that as a result of these
various
actions, Mr
Kagalovsky effectively now owns everything of
value
which was once owned within
the partnership.
7.
The
involvement of the defendant is asserted to be this. Mr Grant Brown, an employee of the defendant,
was the manager of the partnership entity Iota Ventures
LLP. On 1st September, 2009, he executed on
behalf of the partnership a Power of Attorney, allegedly without the knowledge
or consent of the plaintiff, Mr Gusinsky or any of his representatives,
effectively giving to one of Mr Kagalovsky's employees
very
broad powers
to act on behalf of the partnership.
It is also asserted that Mr Brown executed a Power of Attorney on behalf
of the partnership in favour of a Ukrainian Patent Attorney to enable the
registration of the assignment of the TVi trademarks with the relevant public
authority
in Ukraine, and that that Power of Attorney was granted without the
knowledge or consent of the plaintiff, Mr Gusinsky or his representatives.
8.
It is
apparent that Mr Kagalovsky is a client of the defendant, which may owe him
obligations in respect of a number of other personal or business transactions. The plaintiff has received some
voluntary
disclosure of documents and information
from Mr Brown, endorsed by Capita, and has received further documents and information pursuant to an Order for expedited
discovery made in the course of the proceedings issued by the plaintiff in New York. The analysis of these documents lead the
plaintiff to the position that the defendant is mixed up in the wrongdoing of
which it asserts it is the
victim,
namely the dilution of the partnership
interest in TRS and the transfer of the
valuable
TVi trademarks. The plaintiff's position is that
it is unable to say at present whether the defendant is innocently mixed up in
that wrongdoing or is itself in one form or another, a wrongdoer. It asserts that the defendant, as a
fiduciary, involved in the management of the partnership, and as a party mixed
up in the wrongdoing in one form or another, has come under a duty to assist
the plaintiff in the production of information
and material which will enable the plaintiff properly and fully to assess its
potential actions and remedies, and the jurisdictions in which these might best
be brought.
The New York Proceedings
9.
On 11th
December, 2009, the plaintiff brought proceedings in the Supreme Court of the
State of New York, County of New York, against Mr Kagalovsky, Iota LP, a Jersey
limited partnership, over which it was asserted Mr Kagalovsky exercises
complete dominion and control, and which is a co-partner in Iota Ventures
LLP,
a company called Aspida
Ventures
Limited, incorporated in Cyprus, and a company
Seragill Holdings Limited, a company also incorporated in Cyprus. The action asserted the wrongdoing
substantially described above, and claimed that Seragill and Aspida were the
Kagalovsky controlled and owned Cyprus
entities which acquired interests in TRS and its immediate holding company
International Media Co LLC to the detriment of the partnership Iota
Ventures
LLP. The proceedings claimed breach
of fiduciary duty and breach of contract against the plaintiff's partner
Iota LP, the tort of interference with contract by Mr Kagalovsky, aiding and
abetting the breach of fiduciary duty by Kagalovsky, Aspida and Seragill,
conspiracy to breach fiduciary duty and in the alternative unjust enrichment.
10. The Royal Court was informed that Seragill and Aspida contest the jurisdiction of the New York Court, although that objection has yet to be determined. In the meantime, a series of discovery orders have been made and depositions taken pursuant to the New York process. Before us, Advocate Costa confirmed on behalf of the defendant that the defendant would not object to any of its senior employees being deposed within the New York proceedings, provided that there was an order to this effect from a New York Court. Advocate Costa gave this undertaking to the Court, emphasising that the undertaking applied only of course to the defendant's own employees. Our understanding is that a Mr Paul Hucker, a senior employee of the defendant has already been deposed, and that arrangements are being made to take depositions from Mr Brown and other senior employees of the defendant.
11. In seeking to set aside the Orders obtained ex parte, Advocate Costa launched his attack on four grounds, albeit the first of them was not advanced with any great enthusiasm. The four grounds were these:-
(i) It was said there had been substantial non-disclosure by the plaintiff in making the application for the ex parte order and that on this ground, the ex parte order ought to be set aside.
(ii) It was said that the plaintiff had other means of getting the material information, and that accordingly, it was inappropriate to exercise the Court's Norwich Pharmacal jurisdiction as requested.
(iii) It was said that the scope and width of the orders was such that the defendant's confidential relationships with its clients would be wrongly invaded, and that therefore they were inadequate limits placed on the information requested.
(iv) It was said that the applicant for a Norwich
Pharmacal Order ought to pay the defendant's costs in complying with the
Order, not least because in this particular case very
substantial costs would
be incurred indeed. To give an
indication of those costs, 70 lever
arch
files of agreed partnership documents
had been provided in accordance with the Court's Order of 18th
May. This had involved the defendant's
staff in a huge exercise and it would be unreasonable for the plaintiff not to
have to pay costs accordingly.
12. The plaintiff's case amounted essentially to this:-
(i) It was clear that it had been significantly wronged. It was entitled to explore every reasonable remedy in whatever jurisdiction and against whatever party. The Norwich Pharmacal jurisdiction should be exercised so as to give the plaintiff all the information that it needed to make an assessment of the party against which it should bring proceedings and the jurisdiction in which those proceedings should be brought.
(ii) The test of necessity contended for by the defendant
was not in fact a very
high threshold.
The fact that the plaintiff was bringing proceedings in New York was not a bar
to Norwich Pharmacal relief.
(iii) The plaintiff had not yet identified the full circle of defendants, the type of claims, or where the claims might be brought. While it is true that the defendant might be one of the potential defendants against which proceedings might be brought, it was not necessarily the case that the defendant would be the subject of substantive proceedings.
(iv) There was in fact a dual purpose in bringing the Norwich Pharmacal application in Jersey - it was not only brought in traditional Norwich Pharmacal territory to assess the identity of prospective defendants and the nature of the claims which might be brought, but also to support discovery for the purposes of the New York proceedings where, it was contended, it would be extremely helpful to have documents available prior to the taking of depositions from the defendant's employees such as Mr Grant Brown.
13. Before turning to the factors which have
weighed upon us in the exercise of our discretion, it is right to review the
state of Norwich Pharmacal jurisprudence both in Jersey and, to the extent that
it has developed in the United Kingdom since the last Jersey authority
on the
subject, in the United
Kingdom.
The Authorities
14. Given that disclosure has already taken place
in respect of partnership documents, the only question remaining for the Court
now is the issue of disclosure pursuant to what is known in shorthand as the Norwich
Pharmacal jurisdiction, so named after Norwich Pharmacal Co-v-Customs
and Excise Commissioners [1974] AC 133. The Courts in Jersey
have applied the Norwich Pharmacal principles frequently. As Birt, D.B. said in Federal
Republic of Brazil and Municipality of Sao Paula the Citibank N.A. and Eight
Others [2006] JLR 478 at paragraph 13;
15. This was confirmed on appeal in Macdoel
Investments Limited and Others-v-Federal
Republic of Brazil and Others
[2007] JLR 201, which is the leading
authority
in the Jersey
courts on the application of the Norwich Pharmacal principle. We apply the criteria which were set out
in that decision. Given that a
number of cases from the Courts of England and Wales were put to us in
argument, we have noted in particular the comments of the Court of Appeal in Macdoel
starting at paragraph 38:-
16. Taking into account the comments of the Court of Appeal in Macdoel, we consider there are three questions for us to answer:-
(i)
Are we
satisfied there is a good arguable case that the plaintiff is the victim
of
wrongdoing?
(ii) Are we satisfied, to the same standard that the defendant was mixed up in that wrongdoing?
(iii) As a matter of discretion, do we consider it to be in the interests of justice to order the defendant to make disclosure?
17. We have used the expression "good arguable
case" because it is clear that something less than prima facie evidence
will suffice so as to entitle the Court to order disclosure to be made. The Court of Appeal in Macdoel
noted that there was support for that view
in some English cases, and at paragraph
50, the Court said:-
18. And again at paragraph 53:-
19. As to the third question, namely the exercise of discretion, the facts of each case where a claim for Norwich Pharmacal relief is made will differ, and it follows that no comprehensive statement of principle can be made. Ultimately, the Court has to make its decision as to whether the interests of justice require that an Order be made against the defendant for disclosure. Nonetheless there are some considerations which are liable to be relevant to the exercise of discretion in most, if not all, cases.
20. First of all, it is clear that the Norwich Pharmacal jurisdiction is an extraordinary jurisdiction, not to be exercised lightly. The focus is on whether it is just to make the Order. In this context, we refer to the President of the State of Equatorial Guinea and Another the Royal Bank of Scotland International and Others [2006] UKPC 7, a decision of the Privy Council on appeal from the Court of Appeal of Guernsey. At paragraph 16, the decision of their Lordships is given in these terms:-
21. I note that these dicta were applied by the Divisional Court in
Aamer-v-Secretary
of State for Foreign and Commonwealth Affairs [2009] EWHC 3316 (Admin), a decision given on 15th December, 2009. In that case, the Divisional Court asked itself five
questions - was there wrongdoing?
Was the UK
government, however innocently, involved in the wrongdoing? Is the disclosure of the information necessary? Is the information
sought within the scope of the available relief? Should the Court exercise its discretion
in favour of granting relief?
22. Secondly, a review of the authorities
tends to
suggest that in England and Wales there is a requirement to have regard to
whether it is necessary to make the Norwich Pharmacal Order, although criticism
has been made of cases where the test of necessity has been elevated to require
proof that no other mechanism for obtaining the information
is possible or that this is a remedy of last resort. These dicta were criticised by the
Divisional Court in Binyan Mohammed-
v-Secretary
of State for Foreign and
Commonwealth Affairs [2008] EWHC 2048, but in the later case, the
Divisional Court nonetheless held that in England and Wales, the Norwich
Pharmacal principle has developed in case law such that there is a requirement
that it should be necessary for the information
to be disclosed.
23. In the light of the judgment of the Privy
Council in the Equatorial
Guinea case, (supra), in our view
the issue of necessity is a matter to be considered within the remit of the
Court's exercise of discretion.
If the plaintiff has a straightforward and available means of obtaining
the information by some other route,
it would probably not be reasonable, in most cases, to exercise the discretion
in his favour. That emphasises that
the Norwich Pharmacal jurisdiction is an exceptional one. However, we do not consider that there
is any formal requirement for the plaintiff to establish that there is no other
way of gaining access to the information he seeks.
24. Thirdly, it seems to us to be clear that one
has to have close regard to the purposes for which the Norwich Pharmacal Order
is sought. It is clear from the
authorities
that these purposes may be for the identification of potential
defendants in litigation, but they may be for other purposes, whether in
connection with other litigation which is continuing (see for example Grupo
Torras SA and Another-
v-Royal
Bank of Scotland Plc and Others [1994] JLR 41) and in the matter of the representation of Lucas [1981] JJ 83 or for
the purpose of taking other lawful steps, albeit not steps in a Court of
law. (See P-
v-T
Limited
[1997] 4 AER 200).
25. Fourthly it is right to note that there is not a requirement that the defendant in Norwich Pharmacal proceedings should necessarily have been innocently involved in the wrongdoing of which the plaintiff complains. It is true that in Macdoel, the Court of Appeal frequently used the expression Indeed, at paragraph 48, the Court of Appeal said this:-
26. Advocate Costa relied on this passage for a number of reasons, but it seems to us that its emphasis is the threshold test in relation to the level of satisfaction which the Court must have before making a Norwich Pharmacal Order - prima facie evidence of wrongdoing, or reasonable suspicion? On the facts of Macdoel, there was no issue as to whether the banks from which the information was sought were other than innocently mixed up in the alleged wrongdoing. Accordingly it was unsurprising that the structure of the Court of Appeal's decision repeats the language of a defendant who is innocently mixed up in wrongdoing.
27. It is clear however from the case of CHC Software Care Limited-v-Hopkins
and Wood
[1993] FSR 241, noted by Lightman
J in Mitsui-
v-Nexen
Petroleum UK Limited [2005] EWHC 625, that the third
party from whom information is
sought need not be an innocent third party but maybe a wrongdoer himself. Where however the Plaintiff seeks Norwich
Pharmacal relief against a defendant who is asserted to be a wrongdoer and
not innocently involved, that appears to us to be a factor which would need to
be considered
very
carefully by the Court when having regard to the purposes
for which the Order is sought.
Other than the pre-action disclosure which is permitted by statute under
the Law Reform (Disclosure and
Conduct
Before Action) (Jersey)
Law 1999, the law of Jersey does not
permit pre-action discovery. We do
not have the equivalent of Rule 31.16 of the Civil Procedure Rules which apply
in England
and Wales
and enable pre-action discovery to be made in appropriate cases. If therefore the Royal Court were to be satisfied that the
primary purpose of the Norwich Pharmacal application was to obtain
pre-action discovery, it seems to us that it would be
very
unlikely that the
discretion of the Court would be exercised in favour of the applicant. Any introduction of such a change to the
rules of disclosure is one that, in our
view,
should be effected by new primary
and/or secondary legislation which would have been subject to consultation
before its adoption.
28. Fifthly, we do not eschew the possibility that
in an appropriate case, it may be relevant to make a Norwich Pharmacal
Order in order to assist proceedings which are taking place in another court,
whether that court is in Jersey or
elsewhere. The case of Lucas
(supra) is authority
for that proposition in Jersey. It would be a matter for the Court to
determine, in the exercise of its discretion, whether it is appropriate to make
an order on those grounds, and it will do so if it considers that it is
convenient in the interest of justice, to do so.
The Merits
29. Against those principles, we have come to exercise our discretion in relation to the application before us. The application is to discharge orders obtained on an ex parte basis in circumstances where the only reason that they were made on that basis, and not after an inter partes hearing, was a letter from Messrs Crill Canavan which, by reason of the typographical error to which we have referred, appeared to indicate that the defendant agreed that the information should be disclosed but raised only questions of cost and potential confidentiality in relation thereto. In the circumstances, we have approached the matter today simply on the basis as to whether or not we think the disclosure orders should be maintained.
30. In particular, although Advocate Costa asserted there had been substantial non-disclosure, he did not press this ground hard with us, and we do not decide the matter on that basis.
31. The Court considers that the disclosure orders should be set aside to the extent that they require the disclosure of non-partnership material. The reasons for this are as follows:-
(i)
The Court
is satisfied that the plaintiff has established a good arguable case that it is
the victim
of wrongdoing. The Court
is also satisfied, to the same standard, that the defendant was mixed up in
that wrongdoing, not least because Mr Brown, an employee of the defendant,
appears to have executed powers of attorney as set out in paragraph 7 above the
result of which has been, on the plaintiff's case, a substantial
diminution in the assets of the partnership between it and the Kagalovsky
entity, Iota LP. As however was
submitted by Advocate Costa, it is clear that the plaintiff already has a great
deal of information in relation to that wrongdoing and the potential claims
which it might bring - indeed claims it has brought in the proceedings in
New York. In those circumstances,
it appears to us that the plaintiff has quite sufficient information already to
be able to identify what we call the classic Norwich Pharmacal questions
of whom to sue and what the course of action might be in relation to that
wrongdoing. We disregard for these
purposes the third Norwich Pharmacal jurisdiction of tracing orders
because there is no evidence before us that that was the basis upon which the
orders might be applied for or maintained.
(ii) Advocate O'Connell's submission
that the plaintiff has not yet identified the full circle of potential
defendants and the type of claims which might be brought may indeed be
factually correct, but he has identified no wrongdoing in respect of which the plaintiff
might claim to be a victim
other than the wrongdoing where he already knows
enough to be able to bring proceedings.
Norwich Pharmacal relief is not available as a form of pre-action
discovery where one has already identified the potential defendant in advance,
nor is it generally a remedy to supplement discovery in aid of existing foreign
proceedings. On the latter point,
in our judgment such relief is available in order to identify a person who
might be a defendant in foreign proceedings or to establish the cause of action
or a tracing claim for the purposes of foreign proceedings, but generally one
would otherwise allow the foreign court to exercise its jurisdiction over the
disclosure which it required for the purposes of doing justice in the case
before it. We accept the submission
that, to the extent that disclosure was sought for use in the New York
proceedings, the correct approach was to obtain relevant orders from the New
York Court, including if necessary the taking of evidence pursuant to the Hague
Convention by means of a request to this Court for assistance.
(iii) Had the plaintiff been able to establish that it had been wronged in other ways but did not know the identity of the wrongdoer in respect of that wrongdoing, it would have been open to the plaintiff to seek an order against the defendant in that respect. That however is not the basis of the application before us.
(iv) It may be said that the plaintiff has not had full disclosure of all that the defendant has in its possession or power in relation to the matters of which the plaintiff complains. One answer to that would be to seek to join the defendant to the proceedings in New York, if the plaintiff is so advised and if, as a matter of New York law and procedure, the New York Court has jurisdiction to allow that course of action. In that event, the defendant would of course automatically be susceptible to disclosure orders which the New York Court might make. If on advice the plaintiff believes that the New York Court has no such jurisdiction, it remains open to the plaintiff, if so advised, to bring proceedings of a substantive nature against the defendant in Jersey, in which case disclosure will follow in the course of those proceedings in the usual way. It does not appear to us that Norwich Pharmacal relief ought to be available to a plaintiff if the predominant purpose is to supplement the disclosure process which exists in the Courts of another jurisdiction where a substantive action is already taking place.
(v)
style='font: 7pt/normal "Times New Roman"; font-size-adjust: none; font-stretch: normal;'> It is unnecessary to deal with the defendant's
arguments about confidentiality and costs, given the
view
at which we have
arrived on the primary question in respect of which we need to exercise our
discretion. However, we take the
opportunity of indicating that in our
view,
the right approach to matters of
confidentiality, had they been relevant, would have been to leave the order
stand but have questions of confidentiality raised in relation to individual
documents or classes of documents for subsequent determination. We noted for example that Advocate
O'Connell
very
properly conceded that he had no interest in any documents
which the defendant might hold in relation to the private business of Mr
Kagalovsky which did not impact upon the partnership and the claims which his
client had. The arguments around
confidentiality therefore would have best been served by highlighting classes
of documents in respect of which confidentiality was claimed and if no
agreement between the parties could be reached, the Court would have
adjudicated upon it.
(vi)
style='font: 7pt/normal "Times New Roman"; font-size-adjust: none; font-stretch: normal;'> As to costs, the Court considers that in
circumstances where there may be a substantive complaint against the defendant
in any event, it would have been more appropriate, had the Norwich Pharmacal
disclosure orders been permitted to stand, for a requirement to be made of the plaintiff
that money be paid into its Jersey lawyers' client account pending
determination of the costs issue by a court at some future date. We understand a similar approach has
been taken by way of security for the costs incurred by Mr Brown. On what we have read so far, we would
not have been minded to require the plaintiff to meet all the costs of
producing documents at this stage.
However this matter does not arise because the Court has resolved to
discharge the balance of the disclosure order as indicated above.