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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Tuckwell [2020] JRC 082 (07 May 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_082.html Cite as: [2020] JRC 82, [2020] JRC 082 |
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Companies - reasons for directions given
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Before : |
Advocate Adam Justin Clarke, Esq., Judicial Greffier |
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Between |
Financial Technology Ventures II (Q), L.P. |
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Financial Technology Ventures II, L.P. |
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Millennium Technology Value Partners II Holdings, L.P. |
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Millennium Technology Value Partners II (Master) - B, L.P. |
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Millennium Technology Value Partners II, L.P. |
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Millennium Technology Value Partners II-A, L.P. |
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SIG Growth Equity Fund II, L.L.L.P. |
Plaintiffs |
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And |
ETFS Capital Limited |
First Defendant |
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Graham Tuckwell |
Second Defendant |
Advocate N. A. K. Williams for the Plaintiffs.
Advocate S. J. Alexander for the First Defendant.
Advocate R. O. B. Gardner for the Second Defendant.
CONTENTS
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Paras |
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1. |
Introduction |
1 |
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2. |
Background |
2-4 |
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3. |
The Solicitation Amendments |
5 |
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4. |
The Relocation Amendments |
6-7 |
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5. |
The Relief Amendments |
8 |
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6. |
Plaintiff's submissions |
9-25 |
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7. |
Second Defendant's submissions |
26-42 |
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8. |
The Company's submissions |
43-45 |
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9. |
Reply |
46-51 |
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10. |
Decision |
52-58 |
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11. |
Decision on Relocation Amendments |
59-64 |
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12. |
Decision on Solicitation Amendments |
65-67 |
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13. |
Decision on the Relief Amendments |
68-73 |
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14. |
Costs |
74-77 |
judgment
the judicial greffier:
1. This judgment contains my written reasons for the directions that I have given in response to a summons a) to amend the Order of Justice and b) for consequential Directions issued by the plaintiffs on the 17th March, 2020.
2. The background to the litigation and the positions adopted by the respective parties are set out in detail in paragraphs 4 to 15 of the judgment issued by this Court on 28th October, 2019 reported at FTV II (Q) LP and Ors v ETFS Capital Limited and Anor [2019] JRC 214.
3. There have been a series of Acts of Court providing directions to the parties. Initially, by Act of Court dated 15th October, 2019 ("the October Act"), the Court ordered 24 directions to provide a procedural pathway from the discovery process through to a four week trial which, whilst ordered not to be before 7th September, 2020, was ultimately fixed for 4 weeks commencing on 19th October, 2020. Subsequently, it has been necessary to provide further Acts of Court dated 20th January, 2020 (amended on 29th January, 2020) and then 10th March, 2020, to deal with matters of electronic discovery and applications to adjourn trial dates.
4. By this latest Summons, which was dated 17th March, 2020, the plaintiffs seek various amendments to their Order of Justice. Some of these amendments are consented to by the second defendant ("Mr Tuckwell"). The first defendant ("the Company") continues to assert a neutral position and neither consented nor objected to the amendments sought. However, there are substantial parts of the amendments that are not agreed by Mr Tuckwell (together known as the "disputed amendments") which I list as follows:
(i) Mr Tuckwell's alleged solicitation of the previous General Counsel of the Company, Mr Martyn James (the "Solicitation Amendments");
(ii) Mr Tuckwell's decision to relocate to Australia whilst allegedly maintaining control over the Company and thereby causing potential prejudicial tax implications for the Company and the plaintiffs (the "Relocation Amendments"); and
(iii) Amendments to:-
(a) The plaintiffs' alternative claim for unfair prejudice, in paragraph 13.2 of the order of justice seeking, in addition to the price for the acquisition of the plaintiffs' shares in the Company, a sum necessary to satisfy any liability on the part of the plaintiffs to Australian tax and interest thereon; and
(b) The relief in the prayer in light of the Relocation Amendments and the Relief Amendments (together the "Relief Amendments").
5. In short, it is alleged that Mr Tuckwell, in breach of his fiduciary duties to the Company and the shareholders, solicited Mr James (the General Counsel for the Company):
(i) In April 2018, whilst still the General Counsel for the Company, to represent Mr Tuckwell in his personal capacity in relation to the matters in dispute in these proceedings, thus creating a conflict of interest for Mr James in his dual role to the prejudice of the Company and the plaintiffs.
(ii) In August 2018, as a result of the conflict of interest that had been established, to resign from the Company to commence employment at Rodber Investments (UK) Limited (Mr Tuckwell's personal investment vehicle) to the detriment of the Company and the plaintiffs.
6. Under this head, the plaintiffs seek leave to plead that Mr Tuckwell chose to relocate to Australia (whilst continuing to be involved in the management of the Company from his new residence) notwithstanding that this:-
(i) Was in breach of his service agreement with the Company; and
(ii) Would potentially result in the Company becoming Australian resident for tax purposes in circumstances where the Company had originally been incorporated in Jersey, remained resident in this jurisdiction since its incorporation and the beneficial tax treatment in Jersey had been an important factor for the Company. Were the Company to be subject to Australian withholding tax, it would mean tax of up to 15% applying to any future buy-back of the plaintiffs' shares.
7. The plaintiffs also seek leave to plead that Mr Tuckwell proposed and undertook a restructuring of the Company to mitigate Australian tax liability by the incorporation of a UK subsidiary company so that parts of the Company business could be transferred to it. However, it is alleged that this might be prejudicial to the Company and its shareholders by exposing them to UK tax liabilities and additionally would further reduce the plaintiffs' oversight of the Company.
8. As a corollary to the tax implications alleged in the Relocation Amendments, the plaintiffs amend their alternative claim for unfair prejudice to seek, in addition to an order that the plaintiffs' shares be bought out at fair value, such sum as will be necessary to satisfy any liability on the part of the plaintiffs to Australian tax on the purchase price (or an indemnity from the defendants on such a liability) together with interest at such rate and for such time as the Court deems just (and the plaintiffs amend their prayer accordingly).
9. On behalf of the plaintiffs, Advocate Williams filed with the Court a Skeleton Argument, a chronology, a draft Order and a draft Additional Discovery Protocol to set out the further electronic discovery that the plaintiffs argued should flow from the amendments sought to the Order of Justice.
10. The Amended Order of Justice (or a version in substantially the same form as the one before the Court) was first provided to the defendants on 10th March, 2020, the morning of the last hearing before the Court. There followed considerable correspondence between the parties. The plaintiffs invited the Company (and later Mr Tuckwell) to undertake a preliminary search of its electronic documents utilising the proposed search criteria to ascertain the number of hits and therefore inform the parties of the amount of work that might be required to undertake this additional discovery. These requests were ultimately declined on the basis that the searches had not been ordered by the Court and that it would deflect resources from the ordered discovery process presently in train.
11. Advocate Williams highlighted the responses received from Mr Tuckwell's lawyers to the request to agree the amendments. Mr Tuckwell was not prepared to agree to the disputed amendments because he considered them to be new allegations. They were described as being "bad on their face", "late" and "little more than an attempt to derail the proceedings". On the issue of the requested discovery, Mr Tuckwell's lawyers considered the whole exercise to be a "fishing expedition" and that even if the amendments were allowed by the Court, there should be no further discovery permitted. In light of the same, it has been necessary to ask the Court to determine the matter.
12. The plaintiffs submit that the principles to be applied to applications to amend are well known and set out in Cunningham v Cunningham [2009] JLR 227 [at 17-19] and can be summarised as follows:-
(i) All matters in dispute between the parties ought to be resolved as far as possible before the Court and leave to amend should be given if there is no prejudice to the other side which cannot be compensated for by costs;
(ii) However, where an application for leave to amend is brought late in the proceedings, more stringent considerations apply; and
(iii) In addition, amendments will not be permitted which infringe the rules of pleading or introduce a claim which is so hopeless that it would be liable to be struck out.
13. Applying these principles, first Advocate Williams contends that the only prejudice that might be suffered by the defendants (given that the plaintiffs do not seek, or believe there is no need, for the trial dates to be vacated as a result of these amendments) is the limited inconvenience and costs of amending their pleadings in response. It therefore follows that such prejudice can be compensated for in costs if the Court deems that appropriate.
14. Second, the plaintiffs assert that this application has been brought at an early stage of the proceedings and without undue delay. It should not be regarded as a "late" application. They submit that "lateness" is a relative concept which should have regard to whether or not the amendment could have been brought any earlier, how advanced the proceedings are and what consequences it might have on the procedural timetable.
15. In support of this proposition, Advocate Williams submitted that the amendments have arisen as a result of information that had been provided to the plaintiffs after the date of the filing of the Order of Justice, and the amendments have been brought within a reasonable period of time since those facts became known. The Court was informed that knowledge was given to the plaintiffs of Mr Tuckwell's intention to relocate to Australia (and the tax risks that might arise from that move) at a board meeting on 20th August, 2019. There followed extensive correspondence between the parties on the topic up to 13th December, 2019 which included discussion in respect of potential mitigation steps that could be taken. These included Mr Tuckwell taking a hiatus from the role of Chairman of the Company and the incorporation of a UK holding company without the formal approval of the Company's board of directors. It was contended by the plaintiffs that these were important discussions that needed to take place to ascertain the extent of the issues whether there was an alternative solution to litigation.
16. Given that the amendments were not provided until 10th March, 2020, Advocate Williams explained that during the intervening 9 weeks post the Christmas break, the plaintiffs had sought advice on both the Australian tax implications and the form of the amendments to be made to the pleadings. At the same time, and specifically by letter dated 17th February, 2020, from Mr Tuckwell's lawyers, the plaintiffs became aware that the solicitation of Mr James by Mr Tuckwell, and the provision of advice by the former to the latter, substantially pre-dated his change in status (from General Counsel for the Company to General Counsel of Rodber Investment (UK) Limited).
17. Advocate Williams submitted that no possible amendments could have been contemplated prior to Christmas 2019. As the further information regarding the change of status of Mr James was not known to the plaintiffs until mid-February, 2020 the production of a draft amended Order of Justice by 10th March, 2020 could not be subjected to criticism or be characterised as being late. In support of that, the plaintiffs argue that the proceedings are still at an early stage, with only pleadings completed and discovery ongoing.
18. In the view of the plaintiffs, the proposed amendments are discrete and do not represent substantial additions to or departures from the case pleaded in the Order of Justice. They do not seek to plead a new cause of action, rather merely add to the overarching impression that they say evidences Mr Tuckwell's control over the Company and his willingness to favour his own interests over those of the Company and other shareholders.
19. In addition, Advocate Williams submits that the amendments will not present any other case management difficulties and will not disrupt or defeat the present trial timetable. The further discovery that the defendants will be obliged to undertake is limited and discrete.
20. Third, the plaintiffs contend that the amendments embellish an already arguable case. They would not have been susceptible to being struck out had they been pleaded in the original Order of Justice in April 2019. Advocate Williams submitted that the test for a strike out is a necessarily high one and a heavy burden lies on the party seeking a strike out to show that it was a plain and obvious case where the claim was incontestably unsustainable on its face. That could not be the case in the present amendments as they go to the motivation of Mr Tuckwell's alleged behaviour and his desire to conduct the affairs of the Company to the detriment of the plaintiffs. Advocate Williams reminded the Court that this was not a mini-trial and it was not necessary to show that the cause of action would succeed (that was a matter for trial) but rather that the claims were not doomed to failure.
21. Advocate Williams submitted that there is a wide jurisdiction for ordering a just and equitable winding up of a company. This included where a party had suffered a justifiable loss of confidence in the probity of the company's management. Since the plaintiffs' stance was that Mr Tuckwell controlled the management of the Company, his alleged actions, both in regard to Mr James and to the relocation to Australia, were further examples of activities by Mr Tuckwell which clearly led to a loss of confidence by the plaintiffs. It did not follow that the plaintiffs needed to show actual financial loss in order to be able to show prejudice. The Court was led to the case of Re Bovey Hotel Ventures Ltd cited in Re Elgindata [1991] BCLC 959 at 984 (d)-(f) where Warner J stated:-
22. Moreover, the plaintiffs argue that Mr Tuckwell (as a director) and the Company turned a blind eye and failed to act to prevent the prejudice caused by Mr Tuckwell's actions and this omission by the defendants led to prejudice suffered by the plaintiff shareholders.
23. Pre-empting the criticisms made by Mr Tuckwell of the amendments sought, the plaintiffs asserted that:-
(i) It was irrelevant whether or not the relocation to Australia did in fact result in adverse tax liability for the Company and the shareholders. The matter remained at large and the actions of Mr Tuckwell (driven by his own interests) had meant that the value of the plaintiffs' shareholding had been seriously jeopardised and the plaintiffs had suffered a loss of confidence in the probity of the management of the Company;
(ii) It was unrealistic to argue that the amendments as pleaded were incapable of being answered or that what they were asserting was unclear. In the view of the plaintiffs, the course of conduct that was alleged was clear on its face and Mr Tuckwell and the Company were more than capable of responding to it and doing so in near course. Moreover, notwithstanding that there is reference to a risk of Australian tax being imposed on the price paid in the event of a buy-back, there is no need to obtain expert opinion on this topic. All the parties have already received the advice from Ernst & Young which had highlighted the potential problem. That evidence was not challenged by the plaintiffs and therefore there was no dispute regarding the foreign tax advice;
(iii) The Relief Amendments were not unique to the Court. It was entirely equitable that the court should be able to take account of a tax liability created by the actions of Mr Tuckwell contrary to his fiduciary duties to act in the best interests of the shareholders as a whole. It ensured that any final order that the Court may choose to give to order the buy-back of the plaintiffs' shares would not be diluted by an Australia tax burden; and
(iv) Contrary to the assertion of Mr Tuckwell, this application to amend was neither tactical nor intended to achieve a delay or adjournment of the trial dates - something that the plaintiffs had been unsuccessful in achieving at the hearing in March 2020. In the view of the plaintiffs, these amendments had now been known to the defendants since 10th March, 2020. They should be responded to in relatively short time and the discovery that was being sought ancillary to the amendments was discreet and limited and should not defeat the present timetable to trial.
24. On the topic of discovery, Advocate Williams argued that, should the amendments be allowed, it would be prudent to make the order for discovery now rather than wait for the close of pleadings. To delay until the end of amended pleadings would only delay the process with the parties likely to be back before the Court for further direction in 3-4 weeks' time, placing even greater pressure on the timetable to trial. In his view, the discovery sought was limited both as to search terms and time periods and would not be an onerous task. The plaintiffs had made their proposals known to the defendants and had even suggested that the Company and Mr Tuckwell run the searches so as to ascertain the number of hits that the search topics would have caused, but the Company and Mr Tuckwell declined to do this task.
25. The plaintiffs also denied the suggestion that this discovery was merely a "fishing expedition" intended to find documents to bolster a weak claim and to generate new causes of action late in the day. Advocate Williams argued that this could not be the case as there was a robust privilege protocol in place (utilising the services of an independent lawyer) to ensure that the documents disclosed did not include those which would be exempted under the usual privilege rules. In the view of the plaintiffs, the discovery should be undertaken and completed within 3 weeks.
26. Advocate Gardner was extremely strong in his criticisms of the application, the amendments and the ancillary discovery. In the round he asserted that the Solicitation Amendments were poorly drafted such as to make it extremely difficult for Mr Tuckwell to know what allegations he was due to respond to and did not (and could not) amount to unfair prejudice against the plaintiffs because they were not conduct of the affairs of the Company. In Advocate Gardner's submissions, there was no cause of action pleaded and the amendments were ripe for strike out. Advocate Gardner also submitted that:-
(i) The Relocation Amendments fail for similar drafting faults. Moreover, they fail to plead the necessary Australian law on the tax which the plaintiffs allege Mr Tuckwell has courted as a result of his relocation and continued involvement in the management of the Company. They also fail to plead actual (as opposed to potential) prejudice to the plaintiffs;
(ii) The Relief Amendments are an abuse in that they seek an order that the Court could not possibly give and are, notwithstanding the broad scope of remedies available under unfair prejudice and just and equitable winding up applications, quite without precedent.
(iii) Moreover, the application is both late and tactically so. Allowing the amendments will place the trial dates in danger of being lost and will lengthen and complicate the proceedings unnecessarily. The amendments should be characterised as "peripheral" and as such, there is a heavy burden on the plaintiffs to justify their inclusion at this late stage; a burden that they have failed to overcome.
27. Advocate Gardner contended that the Court ought not to allow amendments where they were bound to fail or be subject to successful strike out applications. As he contended that they were late applications, Advocate Gardner argued that there was a higher burden to meet - especially so where the amendments might jeopardise the trial dates. The longer the pleadings have been in their present form (and in this case that had been for almost a year at the time of the hearing), the greater the legitimate expectation of the defendants that they will remain in that form and that they can justifiably be said to have assessed and conducted the litigation and arranged their affairs accordingly.
28. In addition, Advocate Gardner asserted that the Court ought to have regard to the reason for delay in applying for an amendment and whether the plaintiffs had sufficient opportunity to amend at an earlier stage. Regard should also be had to the quality of the pleadings in late applications so that the defendants do not have to guess what it is that they are being asked to respond to. In his view, this application falls foul of all of these considerations.
29. Advocate Gardner took the Court to the wording of Article 141 of the Companies (Jersey) Law 1991 in order to identify the constituent parts of a claim under this Article and to see whether the amendments fall within those constituent parts. He identified that a claim had to show that:-
(i) The actions complained of had to relate to the conduct of the "company's affairs";
(ii) The minority shareholders had to have suffered "prejudice" as a result of that conduct; and
(iii) That the "prejudice" had to be considered to be "unfair".
30. Advocate Gardner asked the Court to apply these considerations to the amendments and ask itself whether the amendments provide allegations which can be deemed conduct of the affairs of the Company which create unfair prejudice to the plaintiffs or alternatively whether they are matters which relate to the actions of an individual shareholder (in the form of Mr Tuckwell) in his private capacity.
31. In support of this contention, Advocate Gardner drew from the judgments in Re Coroin [2012] EWHC 2343 (Ch) - and in its subsequent appeal at Re Coroin [2013] EWCA Civ 781 which upheld the decision of the lower court -a case brought in the English High Court under parallel provisions for unfair prejudice by a minority shareholder who claimed, amongst other things, to have been denied pre-emption rights by the action of the majority shareholders. In the lower court, David Richards J stated:
32. Mr Tuckwell's position is simply that the allegations in the amendments (his request of Mr James to provide him with personal advice, his alleged solicitation of Mr James to resign from the Company and work for Mr Tuckwell's personal company, his allegedly placing Mr James in a position of conflict of interest and his relocation to Australia) are no more than "activities of the shareholders amongst themselves" and do not constitute conduct of the affairs of the Company. They do not fall within the criteria for Article 141 and as such do not constitute an arguable case. They are susceptible to being struck out and therefore should not be allowed as amendments.
33. Advocate Gardner asserted that whilst there are numerous grounds under which a just and equitable winding up of the Company may be deemed appropriate, the only one that he could identify in the amendments was a justifiable loss of confidence in the probity of the management of the Company. Advocate Gardner suggested that this could only relate to the allegation of potential Australian tax liabilities incurred by Mr Tuckwell's relocation and continuing management of the Company or the allegation of the conflict of interest that he created through his approaches and solicitation of Mr James. However, is it realistic that a court would be prepared to wind-up a multi-million pound business on the back of these allegations were they to be found to be valid complaints? Mr Tuckwell says not.
34. Advocate Gardner asks the Court to have regard to the strength of the pleadings before exercising its discretion to allow the amendments. He was critical of the pleading for the Solicitation Amendments and submitted that it was not clear what the alleged conflict of interest was; that the amendments did not suggest that the Company had not received proper advice from Mr James as a result of his dealings with Mr Tuckwell; or why the Company had been prejudiced by Mr James's departure in August 2018. In the view of Mr Tuckwell, these allegations are based on factual inaccuracies, do not plead any loss and are based entirely upon allegations of "potential" conflict and loss. He argued that allegations based around "potential" issues are little more than fishing exercises and should not be acceded to.
35. In summary, Mr Tuckwell submitted that the Solicitation Amendments should be rejected because they:
(i) Were improperly pleaded and failed to disclose a cause of action;
(ii) If they did disclose a cause of action, they were unreasonably late and were peripheral at best; and
(iii) They were designed to achieve late additional discovery in the hope of mounting a case that the plaintiffs have not yet pleaded.
36. Mr Tuckwell was equally critical of the proposed discovery that would accompany any order for leave to amend. His initial view is that now would be premature for further discovery orders and that this should wait for pleadings to close. Nevertheless, if the Court were to grant leave and feel inclined to consider discovery at this stage, Advocate Gardner argued that the pool of documents upon which the plaintiffs are seeking to concentrate have already been identified as comprising, for the most part, privileged material. In the view of Mr Tuckwell, this demonstrates to the Court that this exercise is a fishing expedition on the part of the plaintiffs to seek to obtain documents from which to construct a case. He suggests that this will also increase the possibility that there will be further interlocutory arguments regarding the privileged status of documents. The initial requests for discovery were very wide and have only been narrowed slightly in correspondence. Mr Tuckwell's position is that the plaintiffs could never be entitled to the discovery they seek (which includes disclosure of the nature of any advice that Mr James gave Mr Tuckwell) especially when no allegations are actually made regarding the basis upon which Mr James was approached to work for Mr Tuckwell and the advice he received.
37. On the topic of the Relocation Amendments, Advocate Gardner asserts that they likewise ought to be dismissed as they were improperly pleaded thereby making it impossible to understand what is being alleged against the defendants. The Court was taken through the proposed amendments and it was asserted that they were full of hypotheticals and devoid of sufficient particulars to allow Mr Tuckwell to plead an answer. Furthermore, there was a specific deficiency in that they failed to plead the Australian tax law that was relied upon as the prejudice to the plaintiffs. On close review of the pleadings, they did not disclose a cause of action and they were also unreasonably late without good cause.
38. Again, Mr Tuckwell argued that what was pleaded was not conduct of the affairs of the company but rather was comment upon his actions in his personal capacity. As a result they could not form a proper cause of action for unfair prejudice on a minority shareholder.
39. Advocate Gardner suggested to the Court that the timing of the application was far from a coincidence and could not be justified by the chronology that the plaintiffs had presented to the court. In Mr Tuckwell's view, the plaintiffs had delayed bringing these allegations until the morning of the adjournment hearing in March 2020 in a tactical attempt to achieve an adjournment. Were the amendments to be permitted at this juncture, Advocate Gardner asserts that there would need to be expert evidence as to Australian law and potentially expert evidence regarding whether the actions of the board of the Company were sufficient in the circumstances. The need to garner such evidence would place the trial dates at risk of being lost to ensure all the necessary evidence was available to the trial court.
40. In summary, Advocate Gardner contends that late amendments, which jeopardise the trial dates and are burdensome to the defendants, need to be both justified as to the delay and be of greater merit than amendments that are brought earlier in the proceedings which need only to be arguable.
41. On the topic of the discovery sought under the Relocation Amendments, Advocate Gardner submits that if the extraneous issues are stripped away from the amended pleadings, the only real live issue is whether Mr Tuckwell's relocation to Australia has shifted the tax residency of the Company, and if so, what are the consequences thereof. He says that this does not require discovery. What is requested, which includes discovery of advice potentially received back in 2010 when Mr Tuckwell moved from Australia to Jersey, is disproportionate and irrelevant to the issues at hand.
42. Finally, on the topic of the Relief Amendments, Advocate Gardner contends that the amended prayer asks the Court to order payment for a potential loss in an unspecified sum. That cannot be appropriate when the Court makes orders as to the specified losses suffered. Moreover, in the circumstances where a tax liability arises, Mr Tuckwell and the Company cannot have a potential liability to the plaintiffs for increased tax. The defendants have no duty to the plaintiffs in this respect and none has been alleged within the pleading.
43. Advocate Alexander reiterated the position of the Company, namely that they neither objected to nor supported the amendments and took a neutral position in what was, in essence, a shareholder dispute.
44. Nevertheless, Advocate Alexander did express concern on the part of the Company to a potential for delay to the trial should the amendments be granted. Moreover, any ancillary discovery would again fall to the Company to undertake and this would add to what has already been a huge outlay in time and costs. He described the effect of the ongoing litigation on the Company as being one of "paralysis". He suggested that the greater the level of amendment, the greater the risk of delay and the greater the detriment to the Company.
45. On the topic of discovery, the Company was unaware of whether or not further discovery could be achieved by 11th May, 2020 (being the three weeks envisaged by the plaintiffs). The Company was unaware of the number of hits that the proposed searches would reveal and the number of review levels that would be need to be undertaken to finalise the discovery list. He had calculated that on the present timetable there were only 7 weeks between the close of pleadings and the finalisation of the witness statements and with the ongoing problems caused by the Covid 19 restrictions, the Company was concerned that further discovery obligations would genuinely put the timetable at risk of failing.
46. In response Advocate Williams reminded the Court that this application was not a mini-trial, rather this was an application for the amendment to the pleadings. As the application was not late, the test was whether or not the amendments might be struck out. That was a very high burden for Mr Tuckwell to satisfy - one which he had not achieved. The amendments are arguable and were not new causes of action in themselves, rather they were further instances of the behaviour that justified the unfair prejudice and just and equitable winding up applications.
47. With six months left until the trial begins, Advocate Williams argues there is still plenty of time to satisfy the procedural timetable and ensure that the parties were prepared with all the necessary information for the trial court.
48. In regard to the Solicitation Amendments, this is not merely the actions of a shareholder in a personal capacity. The plaintiffs assert that by undertaking this action, because Mr Tuckwell controls the Company and board, he is procuring the Company to approve Mr James's departure contrary to the interest of the Company and the minority shareholders.
49. Advocate Williams rebutted the suggestion that no prejudice had been pleaded or alleged. The plaintiffs had suffered prejudice in relation to the solicitation of Mr James because Mr Tuckwell's actions had created a clear conflict of interest between Mr James acting for the Company and also acting for Mr Tuckwell in relation to the present dispute, denying the Company the benefit of his services. In respect of the Relocation Amendments, the potential for an Australian tax liability is a real prejudice. Advocate Williams drew the Court's attention to the passage in Hollington on Shareholder Rights (8th Edition) at para 7-76 which stated:-
50. On the topic of discovery, Advocate Williams stated that there was nothing telling in the timing of the application or in the discovery being sought. The amendments had been brought as soon as possible in the circumstances and the discovery could not be characterised as a fishing expedition as it was plain that the documents falling within the search criteria would be filtered by the independent lawyer to ensure that privileged documents were not provided to the plaintiffs.
51. Finally, in reply to the limited comments made by Advocate Alexander for the Company, Advocate Williams suggested that the prejudice to the Company was being overstated in the circumstances. It was unfortunate that the Company sought to justify caution in the application by relying on uncertainty as to the number of documents that would need to be reviewed under the proposed discovery protocol when the Company had been asked to carry out that preliminary task some while ago and had declined. In the view of the plaintiffs, the discovery that does emerge from these amendments would be limited and very unlikely to affect substantially the witnesses and the creation of their respective witness statements.
52. I start with the proposition that whether or not a party will be granted leave to amend its pleadings is at the discretion of the Court under the provisions of RCR 6/12 of the Royal Court Rules 2004, as amended (the "Rules"). How that discretion is to be exercised has been ventilated numerous times and I have regard to the comments of the then Deputy Bailiff Birt in Cunningham v Cunningham [2009] JLR 227. I take from that judgment that there is a different standard to be applied to applications to amend which are defined as being late as compared with those that are not. The plaintiffs say that this application is not late and Mr Tuckwell argues to the contrary. For my part, having considered the chronology, I have concluded that this application cannot be considered late in the round.
53. My attention was drawn to a number of cases where applications for amendments were declined. However, I conclude that these examples are capable of being distinguished on the facts. In Rahman v Chase Bank (CI) Trust and five others [1994] JLR186, the application for amendment came 10 years after the action had been commenced and after decisions of the Royal Court had led to some of the parties to reach settlement in the proceedings. In Blenheim Trust Company Limited v Morgan and others [2003] JLR 598, the application to amend came after the decision in the first part of a split trial. It sought to plead new causes of action and recast and bring in new parties. In Slater and others v Turrill and another [2011] JRC 211, the application was brought only six weeks before trial was due to begin and would have resulted in the trial dates being lost and in Re Unisoft Group Ltd (No3.) [1994] 1 BCLC 609, the application came eight days into the trial.
54. I am content that reasonable efforts were made by the plaintiffs to communicate with the defendants to understand the tax ramifications of the relocation by Mr Tuckwell and to seek to find a resolution to avoid the potential tax implications for the Company and the plaintiffs. If there is any question of criticism regarding the speed at which the amendments were brought, then one might possibly suggest that the time between mid-December 2019 and the 10th March, 2020, might have been shortened. However, given that the issues relating to the Solicitation Amendments only came to the attention of the plaintiffs in February 2020, I do not feel that the criticism would be justified. I therefore do not treat this application as having been brought late.
55. Where an application is brought in the appropriate time, the general principle that all matters in dispute between the parties should be resolved as far as possible before the Court applies and therefore leave to amend should be granted provided that a) there is no prejudice suffered by the other side that cannot be compensated for in costs and b) the amendments do not infringe the rules of pleadings or introduce a claim which is so hopeless that it would be struck out. I add to this that the Court also has a duty to manage the cases before it with regard to the Overriding Objective as set out in RCR 1/6 of the Rules. In exercising its discretion, the Court must also ensure proportionality, progress matters as swiftly as possible and have regard to the costs incurred as a result of any directions given.
56. I am content that, where necessary, the defendants could be compensated in costs for amendments sought by the plaintiffs and allowed by the Court. The question therefore becomes, do the disputed amendments infringe the rules of pleading or introduce a claim which is so hopeless that it would be struck out?
57. The Court has heard a great deal of criticism of the disputed amendments from Mr Tuckwell. He asserts that such is the poor quality of the pleadings that, in short, the defendants are uncertain of what is being alleged. They are replete with hypotheticals and potential outcomes and fail to plead the salient facts. Moreover, they fail to disclose a cause of action. To this end, a great deal of time was dedicated, both in the written submissions and in oral submissions to the contention that in isolation, the disputed amendments failed to disclose a cause of action which would fall within the ambit of an Article 141 application for unfair prejudice or grounds for a just and equitable winding up.
58. In my view, the intention of the plaintiffs in seeking to amend their pleadings in this way, was not to create a further cause of action. Rather, it is intended to add additional layers of evidence of alleged behaviour by Mr Tuckwell which supports their central allegation that he has acted in breach of his fiduciary duties to the Company and the other shareholders and conducted the affairs of the Company for his own benefit and to the prejudice of the plaintiffs. It is not therefore necessary to analyse the disputed amendments in minute detail and by reference to the constituent parts of Articles 141 and 155 to see whether or not they should be allowed.
59. In respect to the Relocation Amendments, I conclude that the nature of the allegations pleaded are sufficiently clear on their face. Mr Tuckwell is alleged to have acted in breach of his fiduciary duties and without regard to the best interests of the Company (of which he is Chairman, has a majority shareholding and is alleged to exercise board control) and the plaintiffs when he chose, notwithstanding adverse tax advice provided by Ernst & Young, to relocate to Australia in late September/early October 2019. This allegation is complimented by the assertion that Mr Tuckwell caused the Company to incorporate ETFS Capital (Holdings) Limited in England as a subsidiary to the Company and transfer a number of the Company's assets to it. It is alleged that this may also lead to the creation of a UK tax liability for the plaintiffs on any buy-back of the shares prayed in the relief of the Order of Justice.
60. In my estimation, this is a salient allegation and the pleadings make it sufficiently clear to be able to answer. The defendants may choose to comment upon the pleading in their amended Answers and deny that any prejudice has been caused, but that is a matter for the trial court. I am content that it is appropriate and proportionate in this regard and should be allowed and I hereby grant leave to amend paragraph 10A in the form of the draft Amended Order of Justice.
61. The corollary to that decision is that an order for pertinent discovery must be considered. I have considered the submissions of Advocate Gardner that discovery should be delayed until after the completion of pleadings. However, having now ordered that the Relocation Amendments will be allowed, I do not believe it would be in keeping with the Overriding Objective to judicially "kick the can down the road" with the inevitable result that the parties are back before this Court in a few weeks' time.
62. I am also very conscious that the Court does not wish to impose a disproportionate obligation on the defendants just when the previous discovery obligation has come to an end and when further delays may adversely affect the trial dates. I have therefore reviewed the Additional Discovery Protocol for the Defendants. I am content that under the title "Mr Tuckwell's Relocation to Australia", the first box for the period 1st November, 2018 to 31st December, 2019 can remain as it is drafted.
63. However, the second box for the period 1st January, 2009 to 31st December, 2010 is not appropriate. I am unconvinced that this search, for a period almost a decade ago, is likely to be too pertinent to the issues in hand and the amendments that have been approved. I am of the view that this would be a disproportionate burden on the defendants and I decline to make that discovery order.
64. The final box titled "Restructuring of the Company" covers the discovery requested as a result of the incorporation of ETFS Capital (Holdings) Limited in or around the time of Mr Tuckwell's relocation to Australia. I am content that discovery needs to be provided and that appropriate search terms and custodians have been identified. However, the justification for the time-period was to cover the period just prior to the board meeting on 4th June, 2019 and just beyond the incorporation in early October 2019. The proposed time-period is 1st May, 2019 to 31st December, 2019. Whilst I agree that there may be pertinent documentation in the weeks leading up to the 4th June, 2019 board meeting, it is difficult to believe that there are likely to be pertinent documents in the two months plus after incorporation. I therefore shorten the period for this search to 1st May 2019 to 31 October 2019 and order that discovery shall be completed and lists provided by the defendants by close of business on Monday 18th May, 2020.
65. I have been less convinced by the proposed Solicitation Amendments. Whilst I have already indicated that I am exercising my discretion on the basis that the application was not late and that there is therefore a presumption that the amendments will be allowed unless they infringe rules of pleading or constitute a hopeless cause of action, I still must have regard to the need to comply with the Overriding Objective. Having considered the amendments, I have not been persuaded that this allegation takes the plaintiffs' case forward sufficiently to justify the burden that will be placed on the defendants to respond and comply with the discovery as requested.
66. I am mindful that the allegations relate to the solicitation of the General Counsel to the Company and the retention of Mr James by Mr Tuckwell in order for Mr James to provide legal advice regarding this dispute whilst still in the employ of the Company. However, both of those actions as alleged required Mr James to be complicit. Mr James, as a trained lawyer, will have been aware of his professional obligations and of his contractual obligations to the Company when he was approached by Mr Tuckwell. It has not been pleaded that Mr James was forced by Mr Tuckwell to undertake either of these tasks.
67. Furthermore, it has not been expressly pleaded what prejudice the Company or the plaintiffs suffered as a result of the actions of Mr James. I have therefore concluded that on balance, and to ensure that matters proceed expeditiously and fairly as between the parties (thereby providing the best opportunity to maintain the trial dates), I should not allow the Solicitation Amendments. Having reached that conclusion, it follows that no discovery need be provided and that section is removed from the Additional Discovery Protocol.
68. The Relief Amendments cover the proposed amendments to paragraph 13 and the prayer of the Order of Justice. Here, as an alternative to a just and equitable winding-up, the plaintiffs seek an order under Article 141 and 143 of the Companies (Jersey) Law 1991 for Mr Tuckwell or the Company to purchase their shares at a price representing their fair value as at 17 May 2018 together with such sum as is necessary to satisfy any liability to Australian tax on the part of the plaintiffs on the purchase price together with such interest as the court deems just.
69. The plaintiffs argue that this is only equitable. If the Court ultimately finds that Mr Tuckwell did act in a manner justifying their claim for unfair prejudice on a minority shareholder, and his relocation to Australia does result in a tax burden being imposed on the plaintiffs in respect of the purchase price ordered by the Court, it would be counter-intuitive to allow the plaintiffs to be penalised as a direct result of an action by Mr Tuckwell in breach of his fiduciary duties.
70. In support of this proposition, the Court was taken to the case of In Re Bird Precision Bellows Ltd [1986] Ch 658 at 669 (d-f) where Oliver LJ states:
71. Advocate Gardner characterised the pleading as seeking an order that the Court could not make because it relates to a potential liability and is in an unspecified amount. He argued that this is a novel device and seeks to create a liability for Mr Tuckwell or the Company where no such duty could be owed by either of the defendants to the plaintiffs.
72. It remains the case that, by the time this matter comes to trial, the issue of the Australian tax may remain unresolved. Alternatively, the tax residence of the Company may have been clarified meaning that a liability does arise on any purchase price or clarified to confirm that no liability arises at all. All of these options remain a possibility at this time. I am content that the Court retains very wide powers to do justice between the parties should it conclude that there has been unfair prejudice on a minority shareholder. It may be the case that the trial court is unable or unwilling to accede to this prayer, but I am not minded to prevent it being pleaded. The defendants are at liberty to express their views regarding the efficacy of the requested relief in their respective amended Answers. I therefore allow the Relief Amendments as drafted.
73. I require the plaintiffs to file their amended Order of Justice (absent the Solicitation Amendments) by 12 noon on Wednesday 29th April, 2020 and the defendants to file their Amended Answers by 12 noon on 13th May, 2020. The plaintiffs are to file any consequential amendments to their Reply by 12 noon on 27th May, 2020.
74. At the end of the hearing I invited the parties to make representation on costs to supplement their written submissions.
75. The plaintiffs' position was that, notwithstanding that the justification for allowing the amendments was that the other party could be compensated in costs for the need to amend their pleading, the failure of Mr Tuckwell to agree to the amendments meant that they were at risk as to the costs incurred in the hearing. There had been no good reason for refusing to consent to the amendments by Mr Tuckwell and this hearing could, and should, have been avoided.
76. Advocate Gardner submitted that the starting point should be that the costs be borne by the amending party. Irrespective of the quality and validity of the amendments (upon which he had already addressed the court) the application was late, especially so in regard to the Relocation Amendments. There could be no justification for Mr Tuckwell bearing any costs in this application.
77. Having decided that some of the amendments should be allowed and some not, I have concluded that my discretion on costs is best exercised by making the following orders: namely that the plaintiffs will pay the defendants' reasonable costs in filing their Amended Answers but that the costs of and incidental to this hearing shall be costs in the cause.
