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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 152 (03 August 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_152.html Cite as: [2020] JRC 152 |
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Companies - appeal against the decision of the Judicial Greffier
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Before : |
J. A. Clyde-Smith O.B.E., Commissioner |
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Between |
Financial Technology Ventures II (Q) L.P |
First Plaintiff |
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Financial Technology Ventures II, L.P. |
Second Plaintiff |
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Millennium Technology Value Partners II Holdings, L.P. |
Third Plaintiff |
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Millennium Technology Value Partners II (Master)- B, L.P. |
Fourth Plaintiff |
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Millennium Technology Value Partners II, L.P. |
Fifth Plaintiff |
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Millennium Technology Value Partners II-A, L.P. |
Sixth Plaintiff |
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Sig Growth Equity Fund II, L.L.L.P. |
Seventh Plaintiff |
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And |
ETFS Capital Limited |
First Defendant |
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Graham Tuckwell |
Second Defendant |
IN THE MATTER OF ETFS CAPITAL LIMITED
AND IN THE MATTER OF IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991 (AS AMENDED)
AND IN THE MATTER OF ARTICLES 141 AND 143 OF THE COMPANIES LAW
Advocate N. A. K. Williams for the Plaintiffs.
Advocate S. J. Alexander for the First Defendant.
Advocate R. O. B. Gardner for the Second Defendants
judgment
the COMMISSIONER:
1. This is an appeal by the plaintiffs and the second defendant ("Mr Tuckwell") against the decision of the Judicial Greffier of 27th April 2020 concerning amendments to the Order of Justice sought by the plaintiffs. The reasons for that decision are contained in the Judicial Greffier's judgment of 7th May 2020 (Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Tuckwell [2020] JRC 082).
2. By his decision, the Judicial Greffier allowed, inter alia, one amendment to the Order of Justice referred to by the parties as "the Relocation Amendments", against which Mr Tuckwell appeals, and refused another amendment to the Order of Justice referred to by the parties as "the Solicitation Amendments", against which the plaintiffs appeal. The same arguments for and against the amendments canvassed before the Judicial Greffier were canvassed before me.
3. The Judicial Greffier's earlier decision of 28th October 2019 (Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Anor [2019] JRC 214) sets out the background to the case in detail, but in broad summary and to place these appeals in context:
(i) The plaintiffs are minority shareholders in the first defendant, ETFS Capital Limited ("the Company"). Mr Tuckwell is the majority shareholder and chairman of the board.
(ii) The Company was incorporated in Jersey in August 2004, and carried on business as a developer, issuer and manager of exchange-traded products until 2018.
(iii) The plaintiffs are US based private equity funds that invested in the Company in 2006 and 2007. They say that they acquired their shares in the expectation that the Company would pursue a "liquidity event" which would provide them an opportunity to achieve an exit and liquidity for their investments.
(iv) Substantially all of the Company's businesses and assets were sold in 2018, generating total considerations said to be more than US$600 million. The plaintiffs expected that the sales would lead to a wind-down and a distribution of the Company's assets, but Mr Tuckwell has declined to wind the Company down, embarking on a new business as a private equity-type fund investing in companies in "the ETF eco-sphere", contrary to the desires of the plaintiffs. The plaintiffs allege that Mr Tuckwell's conduct in this regard is motivated by a desire to force the plaintiffs to sell their shares in the Company to him for less than fair value. Mr Tuckwell has confirmed that his intention is not to distribute the funds raised by the sales, but that he would support the Company buying back the plaintiffs' shares at the right price, namely at a discount of 44% from the Company's net asset value.
(v) The plaintiffs issued an Order of Justice on 24th April 2019, seeking an order for the just equitable winding up of the Company, pursuant to Article 155(1)(a) of The Companies (Jersey) Law 1991 ("the Companies Law") or in the alternative, orders under Articles 141 and 143 of the Companies Law that Mr Tuckwell or the Company purchase their shares at a fair value with no discount for a minority shareholding, on the grounds that the affairs of the Company have been and are being conducted by Mr Tuckwell in a manner which is oppressive and unfairly prejudicial to the interests of the shareholders in the Company, including the plaintiffs.
(vi) The filing of pleadings was completed by 9th August 2019. There followed a number of hearings and there are three judgments of the Judicial Greffier dealing with the issue of whether there should be a split trial (Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Anor [2019] JRC 214), issues over discovery (FTV II and Ors v ETFS Capital Limited and Anor [2020] JRC 032) and an application by the plaintiffs for delay of the trial which was refused (Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Tuckwell [2020] JRC 051).
(vii) By the time of the hearing before the Judicial Greffier for leave to amend the Order of Justice, which took place on the 17th April 2020 (with the decision being reserved), whilst pleadings had been completed, discovery was still in progress with exchange due to take place six weeks later; it is now complete. The trial is fixed to take place over the four weeks commencing on 19th October 2020.
(viii) The Company adopts a position of neutrality in these proceedings and apart from limited factual observations expresses no view on these appeals.
4. By their Order of Justice the plaintiffs claim that in declining to wind up the Company, Mr Tuckwell has exercised his powers as director and as majority shareholder of the Company for an improper purpose, namely to advance his own interests over those of the Company and its shareholders and to seek to use the plaintiffs' desire for, and expectation of, an exit from their investment in the Company to pressure the plaintiffs to accept a buy out at a substantial and unjustified discount to the benefit of Mr Tuckwell.
5. The Order of Justice alleges repeated breaches of fiduciary duty and misuse of his fiduciary powers to further his own interests to the detriment of the Company and shareholders, including the plaintiffs which have caused the plaintiffs, they say, to lose trust and confidence in Mr Tuckwell and in the management or conduct of the affairs of the Company.
6. Further and alternatively, in circumstances where substantially all of the businesses carried on by the Company and in which the plaintiffs have invested have now been sold and Mr Tuckwell is purporting to exercise his powers as director and majority shareholder so as to cause the Company to undertake a very different venture, it is unfair and inequitable for Mr Tuckwell to force the continuation of the association between the parties and the deprivation of the plaintiffs' expected opportunity to exit from their investment at fair value.
7. The Relocation Amendments to the Order of Justice can be summarised as follows:
(i) The Company has been tax resident in Jersey since incorporation.
(ii) In the summer of 2019, Mr Tuckwell, who is originally from Australia, decided to relocate from Jersey to Australia.
(iii) Ernst & Young advised that if after becoming resident in Australia he continued to control the voting power of the Company and be involved in the management of the Company's business from Australia, this would risk causing the Company to become tax resident in Australia.
(iv) Becoming Australian tax resident would be prejudicial to the Company and its shareholders.
(v) Shortly before relocating, Mr Tuckwell re-structured the Company by transferring certain investments to a UK subsidiary managed from the UK. This was also prejudicial to the Company and its shareholders as the UK subsidiary may be liable to UK tax and removing that function from the board of the Company removed the oversight of the plaintiffs.
(vi) The relocation to Australia and the exercise of control over and/or conduct of some or all of the management of the Company from Australia was inconsistent with the terms of Mr Tuckwell's service contract with the Company.
(vii) Mr Tuckwell took up residence in Australia on 9th October 2019 notwithstanding the plaintiffs' legitimate requests that he not do so.
(viii) A number of steps advised by Ernst & Young and suggested by the plaintiffs to help preserve the Company's Jersey tax residence status were not considered or taken prior to the re-structuring.
(ix) Having informed the plaintiffs that he intended to take a hiatus from his role as chief executive officer for six weeks, in order to reduce the risk of the Company being considered to be Australian tax resident, Mr Tuckwell convened a board meeting at short notice on 24th October 2019, in order to consider a number of transactions he wished the Company to enter into and appointing an alternative director for this purpose.
(x) In causing the Company to re-structure its affairs and continuing to act in relation to the Company's affairs after relocating to Australia where there was a risk that so doing would cause the Company to become Australian tax resident, Mr Tuckwell:
(a) sought to prefer or benefit his own interest over and/or at the expense of or to the detriment of the interests of the Company and its other shareholders;
(b) acted in breach of his service contract with the Company;
(c) misused his fiduciary powers; and
(d) conducted the affairs of the Company in a manner which is unfairly prejudicial to the interests of its shareholders.
8. I would summarise the Solicitation Amendments as follows:-
(i) On 23rd August 2018 the board of the Company was advised of the resignation of the Company's general legal counsel, Mr James, to work for a company owned by Mr Tuckwell.
(ii) Mr Tuckwell's legal representatives (Bedell Cristin) told the plaintiffs' legal representatives (Ogier) by letter dated 17th February 2020 that in April 2018, Mr Tuckwell had requested Mr James to advise him in a personal capacity with respect to what became the subject matter of these proceedings. Mr James accepted the invitation and provided advice to Mr Tuckwell in relation to the dispute from April 2018 until August 2018 when he resigned his position as the Company's general legal counsel.
(iii) Despite his resignation, Mr James appears to continue a legal role at the Company and to be involved in matters where Mr Tuckwell's interest may diverge from those of the Company leading to a conflict of interest. For example at the November 2019 board meeting Mr James was assigned responsibility for putting in place a settlement agreement between the Company and Mr Tuckwell and for drafting a consultancy agreement between a subsidiary of the Company and Mr Tuckwell.
(iv) In instructing Mr James to act for Mr Tuckwell personally in relation to a likely dispute between shareholders and the Company and/or the Company at a time whilst Mr James was an employee and general counsel of the Company and in soliciting Mr James to leave the Company's employ and work for Mr Tuckwell, Mr Tuckwell:
(a) placed Mr James in a position of obvious and continuing conflict of interest resulting in Mr James leaving the Company's employ;
(b) preferred or sought to benefit his own interests over, and/or at the expense of or to the detriment of, the interests of the Company and its other shareholders; and
(c) acted in breach of the fiduciary duties he owed to the Company.
9. It is not in dispute between the parties that the Royal Court's approach to appeals from decisions of the Judicial Greffier is as follows:
(i) The Royal Court may make any order it sees fit regarding the subject matter of the appeal before it and the hearing is, in this sense, de novo.
(ii) However, in exercising that jurisdiction, the Royal Court ought to have due regard to the decision of the Judicial Greffier, his stated reasoning and any other factors that moved his decision (see Victor Hanby Associates Ltd and Hanby v Oliver [1990] JLR 337, Café de Lecq Ltd v R A Rossborough (Insurance) Brokers Ltd [2011] JRC 011 and, more recently, CMC Holdings Ltd & Ors v Forster and Ors [2018] JRC 078 at paragraphs 23 and 24).
10. In CMC v Forster at paragraph 24, citing Holmes v Lingard, the Court added that: "Of course not only is the Master a senior Jersey lawyer but he has a very significant practical experience of litigation both as a practitioner and as a procedural judge of this Court." This is an appeal from a decision of the Judicial Greffier, not the Master, but these observations apply to the Judicial Greffier, who has had considerable experience of these proceedings.
11. The law as regards amendment to pleadings is also not in dispute. The decision of Sir Michael Birt, then Deputy Bailiff, in Cunningham v Cunningham, Sovereign Trust International Ltd and C.I. Law Trustees Ltd [2009] JLR 227 at paragraphs 17-19 can be summarised as follows:
(i) The general position is that all matters in dispute between parties should be resolved so far as possible before the Court at trial. Leave to amend should, therefore, be given if there is no prejudice to the other side which cannot be compensated for by costs (at paragraph 15).
(ii) 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 (at paragraph 19).
(iii) More stringent considerations apply where an application to amend is late (at paragraph 17) and if (and only if) the Court considers that an amendment is 'late' it may then consider (at paragraph 21):
(a) why the amendment material could not have been pleaded earlier;
(b) the strength of the new case;
(c) whether and why an adjournment ought to be granted;
(d) how to remedy any adverse effects attendant upon the amendment being granted; and
(e) why the balance of justice favours the party seeking to amend at a late stage.
12. In terms of strike out, the applicable legal principles were considered in the decision of the Court of Appeal in Home Farm Developments and Others v Le Sueur and Others [2015] JCA 242 at paragraphs 23-29, where reference was made to the judgment of Beloff JA in Trant and Others v AG and Others [2007] JLR 231, in which he said at paragraph 22:
13. Having summarised the submissions of the parties, the Judicial Greffier addressed first the issue of whether the application to amend, which the plaintiffs had first notified to the defendants on 10th March 2020, was made late, noting correctly that as per Cunningham, a different standard was to be applied to a late application.
14. He concluded that the application in respect of both amendments could not be considered late in the round (paragraph 52) for the reasons set out in paragraphs 53 and 54 of his judgment:-
15. As the applications had been brought in time, and taking into account the Overriding Objectives in Royal Court Rules ("RCR") 1/6, the Judicial Greffier was content that the defendants could be compensated in costs and the issue was whether the amendments infringed the rules of pleading, or introduced claims which were so hopeless that they would be struck out.
16. Advocate Gardner, for Mr Tuckwell, had been very critical of the quality of these amendments, which he had said were replete with hypothetical potential outcomes and failed to plead the salient facts. Moreover, he said they failed to disclose a cause of action. A great deal of time had been taken before the Judicial Greffier in written and oral submissions on the contention that in isolation the disputed amendments failed to disclose a cause of action which would fall within the ambit of Article 141/143 for unfair prejudice or grounds for a just and equitable winding up under Article 155. In respect of the pleadings, the Judicial Greffier said this at paragraph 58:
17. The Judicial Greffier's decision in relation to the Relocation Amendments is contained in paragraphs 59-60:
18. He then went on to deal with the consequential order for discovery, the ambit of which he reduced. The Relocation Amendments having been allowed, amended answers and an amended reply have now been filed and discovery in relation to the Relocation Amendments completed.
19. Turning to the Solicitation Amendments, the Judicial Greffier's decision is contained at paragraphs 65-67 as follows:
20. Advocate Gardner submitted that in relation to the Relocation Amendments:
(i) The plaintiffs were well aware that Mr Tuckwell intended to relocate to Australia in September 2019, and amendments to the Order of Justice were threatened almost immediately. No factual matters had arisen since to justify the delay other than correspondence.
(ii) The Judicial Greffier said that "reasonable efforts had been made by the plaintiffs to communicate with the defendants to understand the tax ramifications of the relocation." That correspondence was not trying to be helpful at all, and the suggestion that the plaintiffs were "seeking to find a resolution to avoid the potential tax implications" was not sustainable on a reading of the documents.
(iii) None of this would explain why in any event there is a delay from mid-December 2019 until 10th March 2020 before making the application, given a trial scheduled for October 2020. The late discovery of the matters giving rise to the Solicitation Amendments in February 2020 would not explain why the Relocation Amendments were not brought well before that.
21. As to the Solicitation Amendments, Advocate Gardner said the plaintiffs were aware of the key factor of Mr James' departure in mid-2018, well before the Order of Justice was served, and although they say by way of submission that they did not know Mr James had advised Mr Tuckwell before leaving the Company until the letter of 17th February 2020, that would address only part of the allegations. The delay from mid 2018 cannot be explained away by relying on only part of the allegation now belatedly being pursued.
22. The obvious inference, he said, is that the draft amended Order of Justice was served just before the hearing on 10th March 2020 in a cynical attempt to bolster the plaintiffs' case for an adjournment and to obfuscate the actual issue before the Court that day. If the plaintiffs had any belief that the amendments might make material difference, they would not have delayed so long in raising them. These inferences are supported by the plaintiffs' approach to discovery as regards these amendments as they sought and obtained in part massive disclosure from the Company as regards the tax issues at the heart of the Relocation Amendments and as regards the Solicitation Amendments, they seek to conduct an extraordinary fishing trip to see if they can find a case, mostly by seeking discovery of obviously privileged documents.
23. There is no formula that can be applied to the determination of whether an application to amend is late, thus triggering the more stringent considerations set out in Cunningham. It is, as Advocate Williams for the plaintiffs submits, a relative concept which includes consideration of the time at which the amendment is made, both in terms of whether it could have been made earlier and whether it is made at an advanced stage of a proceedings, as well as the consequences of the amendment on the parties and the procedural timetable.
24. Before the Judicial Greffier, Advocate Gardner referred to the facts of a number of cases which the Judicial Greffier considered and summarised in part at paragraph 53 of his judgment, but in my view, reference to these earlier decisions of the Court is of limited assistance as each case is very much fact dependent.
25. I agree with the assessment of the Judicial Greffier that, taken in the round, the application to amend in this case was not made late for the following reasons:
(i) The application was notified to the defendants on 10th March 2020, some seven months prior to the trial date.
(ii) I have considered the correspondence between the parties between October and December 2019, and agree with the Judicial Greffier's assessment that the plaintiffs were making reasonable efforts to communicate with the defendants to understand the tax ramifications of the relocation of Mr Tuckwell and to seek to find a resolution to avoid potential tax implications for the Company and the plaintiffs. I note that during this period, detailed advice was obtained by the Company from Ernst & Young on two occasions which would have needed careful assessment. I also accept that it was only on receipt of Advocate Gardner's letter of 17th February 2020, when I am informed that the plaintiffs were working on the application to make the Relocation Amendments, that the extent of Mr James' role in advising Mr Tuckwell when he was also a general counsel for the Company was revealed.
(iii) At the time that the application was notified, whilst pleadings had been completed, discovery was still in progress.
(iv) The proposed amendments make no substantial change to the nature of the case pleaded by the plaintiffs with no new cause of action added and no new parties. The amendments sought to add evidence of two further instances in which it is alleged that Mr Tuckwell was acting in breach of his fiduciary duties and conducting the affairs of the Company in a manner which was unduly prejudicial to the interests of its members.
26. Advocate Gardner submitted that the Judicial Greffier was wrong to admit these amendments for the following reasons, in summary:
(i) It is improperly pleaded and impossible to understand given the pleading of hypotheticals and the lack of proper particulars. For example, it refers to an "understanding" of a decision that would "risk" the Company becoming Australian tax resident. If the Company became Australian tax resident, it refers to shareholders being "potentially" liable to Australian tax. Reference is made to a "proposal" to re-structure the Company. In a proper plea, the plaintiffs would have to precisely set out what actual facts they rely on as having happened and then plead what they say is the actual consequence as a result of foreign law actually pleaded and any consequence must be an actual tax liability, not some hypothetical possibility of one. To the extent that the amended pleading alleges a breach of duty on Mr Tuckwell's part, in failing to take proper advice and implement it before he left for Australia, like any claim in negligence it would need to be properly particularised and require full examination of the advice which was taken and expert evidence as to whether the conduct fell below that reasonably to be expected. There is no such plea.
(ii) There is a specific deficiency of a failure to plead the foreign (Australian and English) law relied on.
(iii) Central to the allegation is whether or not Mr Tuckwell's admitted move to Australia and the transfer of assets to a UK subsidiary have had any effect; the plaintiffs merely allege that they might have. That is not enough.
(iv) It is obvious that the decision of Mr Tuckwell to relocate to Australia is not conduct of the affairs of the Company. The plaintiffs could have made a case about how the Company dealt with Mr Tuckwell's move, but it is not pleaded, and is only pleaded deficiently in the amended reply.
27. The Court should not be tempted simply to think that because so much work has now been done with respect to the Relocation Amendments, it should allow them in. They will require further significant work before and during trial and made far more burdensome for the lack of clarity in the plaintiffs' case. Allegations so lacking in clarity as these would inevitably lead to endless arguments at trial and will add considerably to the costs of the proceedings going forward.
28. In short, Advocate Gardner submitted that the Court cannot and should not permit unparticularised, contradictory, or incorrect (as a matter of law) allegations to go ahead to trial regardless. It must properly consider the individual pleas. It was not enough to take the Judicial Greffier's overall approach and just let everything in without considering the details. The key passage, he said, of the Judicial Greffier's judgment is contained at paragraph 58, which appears to misunderstand the difference between pleadings and evidence and the nature of the cause of action of unfair prejudice. It is not enough, he said, to say that something is evidence of an overall scheme; it must be evidence of wrongdoing, even if part of an overall scheme, i.e. each part of the scheme relied on must be wrong, and not just background. If it is just background, it is irrelevant to the cause of action.
29. A plea that the Company might theoretically become liable one day, maybe, and then perhaps only for a few pence, to Australian tax, is not a plea capable of founding relief for unfair prejudice or a winding up. A plea that simply makes no sense is an abuse whatever it is for. He said, with respect, that the Judicial Greffier appears to have abdicated his responsibility to consider the merits of the allegations.
30. In response, Advocate Williams rejected the criticisms of the pleadings and said the Judicial Greffier was correct to reject the argument that the content of each of the amendments taken alone must be independently capable of justifying Article 141/143 or 155 relief. It is quite clear, he said, that a series of breaches of duty or misuses of fiduciary powers over a prolonged course of dealing (on which the proposed amendments pleaded specific examples) can amount to grounds for the relief sought.
31. As Advocate Williams submitted, an application to amend, still less an appeal, is not a mini trial. I am not concerned with whether the claims in the Relocation Amendments will succeed or even whether they are likely to do so but with whether they are so hopeless that they are liable to be struck out. Pleadings can only be struck out where it is plain and obvious that the claim cannot succeed. The mere fact that a claim may be weak is not a ground for a strike out.
32. I agree with Advocate Gardner, however, that the Relocation Amendments must contain allegations of wrongdoing sufficient to found a claim under Article 141/143 and/or 155, even if part of an overall scheme. He referred me to the decision of Harman J in Re Unisoft Group Limited (No 3) [1994] 1 BCLC 609 in which it was held that the Court should be extremely careful to ensure that oppression is not caused to the parties to a petition of this kind by allowing the parties to trawl through facts which have given rise to grievances, but which do not constitute conduct of the affairs of the Company and therefore cannot found a petition. In that case, large parts of the amended points of claim were struck out on the grounds that they either disclosed no cause of action as the conduct alleged was not the conduct of the affairs of the company concerned, or did not affect the petitioner qua member.
33. Do the allegations in the Relocation Amendments amount to a mere grievance or is it arguable that they do constitute conduct of the affairs of the Company? The words "affairs of the Company" are extremely wide and are to be construed liberally. I was referred to this helpful passage in the judgment of Richards J in the case of In the matter of Coroin Limited [2012] EWHC 2343 (Ch) where he said this at paragraphs 628 and 629:
34. He went on to say in paragraph 630 that:
However, as he said in paragraph 631:
35. In my view, it is arguable that the affairs of the Company encompassed Mr Tuckwell's relocation to Australia, bearing in mind the business reality that he is both a majority shareholder and chairman of the board. The issue came before the board for consideration and advice was obtained by the Company with the restructuring being carried out by the Company.
36. As to prejudice, it is arguable in my view that a potential as opposed to an actual tax liability in either Australia or the UK is sufficient, even if the lack of an actual pleaded adverse financial consequence might make it more difficult to do so. In support of this proposition, I was referred by Advocate Williams to this passage from the judgment of Warner J in Re Elgindata Limited [1991] BCLC 959 at page 984:
37. Intuitively, it must be open to the plaintiffs to argue that for a Company's residence in a tax free jurisdiction to be jeopardised is prejudicial to the interests of the Company and its shareholders. Put another way it is not plain and obvious that the claim in the Relocation Amendments, that the acts complained of constitute the affairs of the Company and are prejudicial to the interests of the Company and the plaintiffs as shareholders, cannot succeed. That being the case, I do not think it necessary to go into the case law as to what constitutes "unfairness", a concept which runs parallel to the concept of "just and equitable", as a ground for a winding up under Article 155 (see the judgment of Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092 at page 1098), because having mounted the first two hurdles, it must at least be arguable that the acts complained of are unfair and therefore sufficient to found an application for orders under Articles 141 and 143 and for a just and equitable winding up under Article 155.
38. As to Advocate Gardner's criticisms of the quality of the pleading, I agree with the Judicial Greffier that the allegations are sufficiently clear to be able to be answered and indeed they have been answered.
39. As to Australian and English tax law, the plaintiffs say there is no need for expert evidence. The Company and Mr Tuckwell have received expert advice from Ernst & Young, which will be before the Court, which makes clear the risks to the Company. The plaintiffs' stance in this respect is not a ground for refusing the Relocation Amendments and their claim will proceed and stands to be considered by the Court at the trial on the evidence they actually adduce.
40. I conclude, therefore, that the acts complained of as pleaded in the Relocation Amendments do arguably constitute conduct of the affairs of the Company and can found a claim under Articles 141\143 and 155 of the Companies Law. I therefore uphold the decision of the Judicial Greffier to allow the Relocation Amendments.
41. On the basis that the Relocation Amendments might be upheld, Advocate Gardner has before the Court a request for further information pursuant to RCR 6/15 (referred up by the Judicial Greffier to be dealt with at the same time as the appeals), which the plaintiffs have declined to respond to. At the hearing, time did not permit consideration of this application and, assuming the matter cannot be agreed, I will need to hear from the parties as to whether I should deal with it on the basis of their written submissions or whether they wish to have a further short oral hearing.
42. Mr Tuckwell's appeal extended to the consequential and amended relief sought by the plaintiffs to the prayer in the Order of Justice and allowed by the Judicial Greffier as follows:
43. Advocate Gardner argued that no court could ever make such an order, but in discussion it became clear that whether or not such an order could be made by the Court would be a matter for the trial court, assuming the plaintiffs succeed. The prayer, as now amended, simply gives the defendants notice of an order that the plaintiffs might be seeking, and as such the amendment to the relief should be allowed.
44. Advocate Williams, for the plaintiffs, submitted that the Judicial Greffier was wrong to refuse this amendment for the following reasons in summary:
(i) In his judgment at paragraph 65, the Judicial Greffier accepted that the application had not been made late, and in paragraph 56 that the amendments could be compensated in costs, so the only question was whether the Solicitation Amendments infringed the rules of pleading or introduced a claim which was so hopeless that it should be struck out.
(ii) The Judicial Greffier appears not to have applied this test, but instead concluded that the Solicitation Amendments did not take the plaintiffs' case forward "sufficiently" to justify the burden that would be placed on the defendants in responding and in complying with discovery. This was an error of law. It was inappropriate at this stage for the Judicial Greffier to conduct a further value judgment of the extent to which the amendment surpassed the test and balance that against a possible discovery exercise that had not yet been ordered.
(iii) The effect of the Overriding Objective in RCR 1/6(3)(a) was not served by denying the plaintiffs the opportunity to plead the Solicitation Amendments in circumstances where the relevant test had been passed.
(iv) The Judicial Greffier's reliance on the potential burden of discovery was in any event misplaced. If he considered it disproportionate for discovery as sought by the plaintiffs or even any discovery at all, to be given with respect to the Solicitation Amendments, he could have made that order, but the extent and appropriateness of discovery is an irrelevant consideration as to whether an amendment should be permitted.
(v) The Judicial Greffier further erred in paragraph 67 in refusing leave: "to ensure that matters proceed expeditiously and fairly as between the parties (thereby providing the best opportunity to maintain the trial dates)". There was no suggestion at the hearing before the Judicial Greffier that permitting the amendments would jeopardise the trial dates. The best way to ensure that matters proceeded fairly as between the parties was for the amendments to be permitted, so that all matters in dispute between the parties could be resolved.
(vi) The Solicitation Amendments introduced a clear cut case of Mr Tuckwell preferring his interests to those of the Company and breaching his fiduciary duties, which supports the granting of a leave sought under Articles 141/143 and 155.
(vii) The Greffier's suggestion that the plaintiffs' case required Mr James to be complicit and to have breached his professional obligations is irrelevant and the Judicial Greffier misconstrued the plaintiffs' case in saying at paragraph 67: "...it has not been expressly pleaded what prejudiced the Company or the plaintiffs suffered as a result of the actions of Mr James. It is the actions of Mr Tuckwell not Mr James with which the plaintiffs and the Court are concerned."
(viii) Over a four month period, Mr Tuckwell sought personal advice about the subject matter of the present proceedings when Mr James was in the full-time employment of the Company as general counsel, which represented a clear conflict for Mr Tuckwell between the duties he owed to the Company to act in its best interests, and in the Company's best interests in not having Mr James poached from its employ, and Mr Tuckwell's own interests in having Mr James advise him personally. By resigning in order to act for Mr Tuckwell personally, rather than for the Company, the Company was deprived of the services of Mr James.
(ix) As a director of the Company with effective control of the board, Mr Tuckwell turned a blind eye to his own conduct, which was damaging to the Company's interests.
(x) His failure as a director to act on the Company's behalf in relation to this conduct was in and of itself a breach of fiduciary duty in the conduct of the Company's affairs.
45. Advocate Gardner said the Solicitation Amendments disclosed no cause of action and were defective as a pleading. Moreover, they are trifling and peripheral, so that they could never justify a buy-out, less a just and equitable winding up. Moreover, they will impose a significant burden, particularly given the width of the disclosure being sought.
46. He submitted that at the highest, the Solicitation Amendments asserted, without any particulars, that Mr James had an unspecified conflict of interest and that he left the Company at Mr Tuckwell's request without this being a breach of contract. That is not even alleged to have caused any harm to either the plaintiffs or the Company.
47. Furthermore, Advocate Gardner submitted that there was no proper plea of conflict and that in any event, merely acting for two parties does not put a solicitor in a position of conflict. There is no reason whatever why Mr James in advising Mr Tuckwell personally, even on the subject matter of these proceedings, should place him in any position of conflict with the Company, which is, after all, neutral as regards these proceedings.
48. The point was reinforced, he said, by the lack of particulars. Mr Tuckwell and the Company (and Mr James) are entitled to have particularised details about the supposed conflict, and of what, if any, consequences. No particulars at all were provided for the period before Mr James' resignation. For the period after Mr James' resignation, one example only of the conflict is pleaded (the November 2019 board meeting) which is improper. Plaintiffs have to plead each and every instance they rely on.
49. The one alleged instance of conflict was without merit as the Company has confirmed that as a matter of fact no drafting was undertaken by Mr James. The documents concerned were drafted by the Company's senior legal counsel, Stephanie Poulier.
50. There is a more fundamental problem, submitted Advocate Gardner, in that none of this is the conduct of the affairs of the Company and no prejudice is even claimed to flow from any of it. There is not even an allegation that these matters caused unfair prejudice or which justified a just and equitable winding up.
51. Furthermore he said the Court should not permit such trifling and peripheral amendments, citing by way of example Cook v Group Newspapers Ltd [2002] EWHC 1070 (QB). This was no doubt what the Judicial Greffier had in mind when he said at paragraph 65 that he was not persuaded the Solicitation Amendments took the plaintiffs' case forward sufficiently. This was absolutely the correct approach, as the Court should not allow trivial allegations which make no difference. This, he argued, is a paradigm case of oppressive and badly pleaded allegation. As the English Court of Appeal said in G & G Properties Ltd, Re, [ 2019] WL 06221264 at paragraph 35:-
52. Once again, the Solicitation Amendments must contain allegations of wrongdoing sufficient to found a claim under Articles 141/143 and 155 of the Companies Law, even if part of an overall scheme. Although the acts complained of appear on their face to concern Mr Tuckwell personally, it must be arguable that they constitute part of the affairs of the Company. Mr James was after all employed to give legal advice to the Company and it would be of legitimate concern to the Company that he was advising a director personally on what became the subject matter of these proceedings, as would his solicitation by that director to leave the employment of the Company. I note that his resignation was raised at a board meeting.
53. What is more difficult is that no prejudice to the Company and/or the plaintiffs is pleaded other than that Mr James had been placed into a position of conflict, resulting in his leaving the Company's employment. No particulars are pleaded as to the actual prejudice caused to the Company or to the plaintiffs; it is not alleged that the Company had been given advice that was vitiated by conflict, or that it was left with no access to competent legal advice. The one example given of him being allegedly assigned responsibility for documentation is according to the Company factually incorrect. Even if true, no prejudice is pleaded as to his undertaking that task.
54. I can appreciate that for Mr James to give advice to Mr Tuckwell personally whilst still in the employ of the Company has the potential to give rise to a conflict of interest on his part, but that would be dependent upon the nature of the advice given. It is a matter of pure speculation what advice Mr James actually gave to Mr Tuckwell, whether a conflict ever in fact arose and what, if any, prejudice the Company and\or the shareholders have suffered. It is difficult to avoid the conclusion that for the Solicitation Amendments to have any traction, it is necessary for the plaintiffs to know what advice Mr James actually gave Mr Tuckwell and at the moment the plaintiffs have no access to that information over which privilege is claimed. There is some justification, therefore, in Advocate Gardner's assertion that in seeking an order for discovery the plaintiffs would be embarking on a fishing trip for evidence to support their case.
55. The Judicial Greffier clearly found the Solicitation Amendments less convincing than the Relocation Amendments, adding little to the plaintiffs' case. I would go further. As Hollington on Shareholders' Rights, Eighth Edition, says at paragraph 7-77, the court will not accept prejudice of a speculative or vague nature and in my view the prejudice pleaded in the Solicitation Amendments, if it has been pleaded at all, is too speculative and vague to found an application under Articles 141/143 of the Companies Law. That would still leave the application under Article 155 of the Companies Law, but in circumstances where prejudice to the Company and the shareholders of only a speculative and vague nature is pleaded, the Solicitation Amendments offer no support for a claim to wind up what is a solvent company on just and equitable grounds. In other words it is plain and obvious to me that the Solicitation Amendments would be liable to be struck out.
56. However, if I am wrong in so finding, a further issue does now arise in that we are now in late July and whilst there may just be time for the pleadings to be amended to deal with the Solicitation Amendments in time for the trial on 19th October 2020, a real issue arises in relation to the discovery sought by the plaintiffs. It is the Company that conducts the discovery process on behalf of the defendants. The E-discovery provider has been asked by the Company to run the search terms in respect of the Solicitation Amendments for the periods set out in the plaintiffs' Additional Discovery Protocol, which indicates that there may be some 2,787 documents involved in the discovery process. Because many if not all of the communications between Mr Tuckwell and Mr James will potentially constitute privileged communications, there will have to be a repeat of the two-stage process used in the earlier discovery process by which all of the documents are sent to an independent lawyer, namely Tamara Oppenheimer QC, who was previously engaged in this process, to assess whether Mr Tuckwell is entitled to claim privilege. She is apparently on leave for the whole of August and bearing in mind that the last exercise took a month to complete, it is going to be the end of September or the beginning of October before this process is likely to be completed.
57. I disagree with Advocate Williams that the appropriateness and extent of discovery is an irrelevant consideration as to whether the amendments should be permitted. The Court has an obligation to keep these proceedings within manageable bounds and, of course, to take into account the Overriding Objectives. If the Solicitation Amendments are allowed there will inevitably follow argument as to the extent of discovery before the actual discovery process can commence. Consensus amongst counsel at the hearing was that if discovery was ordered as currently requested, the exercise would derail the trial on 19th October 2020 and inevitably lead to an adjournment.
58. Advocate Alexander, for the Company, made it clear that it would be damaging for the Company if the trial were to be adjourned. He said the litigation had been and continues to be highly disruptive to the Company and has left it in a state of paralysis, absorbing employee and management time, leaving it unable to freely move forward in terms of new business investments and growth. The trial date should, he said, be preserved.
59. Whatever the position on the 17th April 2020 when the Judicial Greffier heard the application, we are now under three months to the trial and there is a real risk that allowing the Solicitation Amendments and dealing with discovery will jeopardise the trial dates. Such an order now would not be proportionate and just and for that reason the decision of the Judicial Greffier should be upheld.
60. The end result is that I have upheld the two decisions of the Judicial Greffier in relation to the Relocation and Solicitation Amendments and both appeals are dismissed.
61. Advocate Gardner devoted some time to criticisms of the amended reply filed by the plaintiffs most of which he said was illegitimate, in that it changed their case and put forward new allegations. It is trite, he said, that a party cannot plead new allegations by way of reply. At this stage he said there could not be yet another round of pleadings for a trial in October. This is not a matter that is the subject of either appeal and there is no application to strike out the offending parts of the reply. It is not an issue, therefore, that is before me. If any application is made in this respect then it will fall to be determined by the Judicial Greffier, who retains the management of this case.
62. The plaintiffs appeal the decision of the Judicial Greffier that the plaintiffs pay the defendants' reasonable costs in filing their amended answer, but that the costs of and incidental to the hearing before the Judicial Greffier should be costs in the cause for the following reasons:
(i) The Judicial Greffier accepted that the amendments could not reasonably have been brought earlier and in these circumstances they are in no way different from the matters pleaded in the original Order of Justice in respect of which the costs of the defendants' responses will depend on an assessment of their merits at trial.
(ii) There is no reasoned basis for irrevocably depriving the plaintiffs of their costs of the amendments now, which would plainly lead to injustice if they ultimately prevail. The Judicial Greffier did not provide any reason for so deciding in his judgment.
(iii) To order the plaintiffs to pay the costs of the defendants' consequential amendments was irrational and unfair in the light of his own finding and should be set aside.
63. Advocate Gardner's position before the Judicial Greffier was that the amending party should pay the costs and that in any event there was no justification in Mr Tuckwell having to bear any costs.
64. In my view there is some merit in the plaintiffs' submissions on the costs order made by the Judicial Greffier. This is not a case in which costs have been wasted by the plaintiffs changing the direction of their case or abandoning part of it. The amendments add new allegations in support of the same relief, to which the defendants have had to plead and if the plaintiffs succeed at trial they should not be deprived of their costs in this respect. In my judgment the costs of the hearing before the Judicial Greffier and the costs of the consequential amendments to the pleadings should be in the cause.
65. As to the costs of these appeals, both have failed and I am inclined to order that the plaintiffs and Mr Tuckwell shall bear their own costs and the costs of the Company shall be in the cause, but it is open to the parties to apply for a different order when this judgment is handed down.
