Jersey Unreported Judgments

Companies - application for an order from the court for the company to be wound up.

[2012]JRC079

Royal Court

(Samedi)

17 April 2012

Before     :

J. A. Clyde-Smith, Esq., and Jurats Clapham and Olsen.

 

Advocate N. M. Sanders for the Plaintiff.

Advocate M. H. D. Taylor for the Defendant.

judgment

the commissioner:

1.        The plaintiff applies for leave to amend its Order of Justice so as to include, inter alia, a further interim injunction against the defendant restraining it from publishing in any media a certain letter to which we will come in a moment. 

2.        The plaintiff is a special purpose company formed in the Cayman Islands so that clients of Nomura, based in Japan, could invest in the defendant, which is a closed end investment company with substantial real estate holdings in Russia.  The plaintiff owns 27% of the Participating Shares in the defendant. 

3.        It is the plaintiff's case that it subscribed for the Participating Shares on the basis that the defendant would operate for an investment period of three years, with a wind down period of a further two years.  The wind down period was capable of extension with the approval of 75% of the Participating Shareholders.  The wind down period will expire on or about 30^th June this year. 

4.        In very general terms, the plaintiff claims that the defendant, having failed in an attempt to seek approval for the extension of the wind down period, is in any event proceeding to restructure the scheme so that the assets will be retained for a further period which could last over five years from the end of the wind down period. 

5.        In its Order of Justice the plaintiff is therefore seeking an order from the Court for the defendant to be wound up on just and equitable grounds pursuant to Article 155 of the Companies (Jersey) Law 1991 as amended ("the Companies Law") or alternatively, for relief under Articles 141 and 143 on the ground that the defendant's affairs are being conducted in a manner which is unfairly prejudicial to the plaintiff.  An interim injunction was granted restraining the defendant from implementing its proposal pending the final hearing of the matter. 

6.        An answer and reply have been filed.  Again in very broad terms, the defendant denies that the proposal which it seeks to implement, whereby shares in a subsidiary company holding real property assets may be distributed in specie, requires any authorisation from the Participating Shareholders, has been approved by 62.74% of the Participating Shareholders, does not involve any breach of contract and does not constitute unfairly prejudicial conduct. 

7.        The case is due to be heard on 18^th June, 2012.  The plaintiff asserts that the original hearing date of 19^th March, 2012, had to be adjourned because of failures by the defendant to comply with its discovery obligations, which failures resulted in a costs order against it.  

8.        The application for a further interim injunction arises because the plaintiff claims that the defendant, via its investment adviser, Wermuth Asset Management GmbH ("WAM") and its directors have made and propose to continue to make derogatory, prejudicial and untrue statements about the plaintiff and its conduct of the proceedings.  These allegations are particularised in the draft amended Order of Justice as follows:-

"These statements were made:

(i)        orally during a conference call on 21 March, 2012, between servants or agents of WAM and holders of Participating Shares in the Defendant (the "Conference"):-

(ii)       in writing in slides e-mailed to shareholders during the conference (the "Slides");

(iii)      in writing in a letter by the directors of the Defendant to its members dated 29 March 2012 (the "Letter");

(iv)      in writing by Jochen Wermuth, Sergey Ezimov and Nikita Yarushnikov in a document dated 29 March, 2012, attached to the Letter (the "Attachment"). 

(6)       The following untrue statements were made in the course of the Conference by Jochen Wermuth:-

(i)        that the Plaintiff's instructions to Jones Lang Lasalle ("JLL") had not been given in good faith;

(ii)       that the Plaintiff had not properly communicated the position to its underlying shareholders;

(iii)      that the Plaintiff's actions had prevented him from receiving cash from the Defendant (whereas in fact the injunction obtained by the Plaintiff does not restrain distributions of cash; if anything prevents the Defendant from distributing cash it is its own determination to do so in tandem with its unlawful scheme for vesting the Defendant's real estate assets in the Phoenix SPV pursuant to the Proposal);

(iv)      that it was necessary to take legal or regulatory action to ensure that the Plaintiff's underlying shareholders do not get cheated or mistreated and to ensure that the Plaintiff does not commit a breach of fiduciary duty. 

(7)       The untrue statement in the Slides was that the Defendant's shareholders were unable to take advantage of investment opportunities because that Defendant was unable to proceed with cash distributions (implicitly because of these proceedings). 

(8)       The untrue statements in the Letter were that:-

(i)        the Plaintiff's main argument against the Proposal was based upon a valuation from JLL.  It was not.  The Plaintiff's main argument against the Proposal was that it would, if implemented, in breach of the terms of the Prospectus prolong the life of a closed end fund without proper sanction and tie the Plaintiff into a further 4 to 6 years of relationship with WAM: and

(ii)       that if the Plaintiff is successful in these proceedings there will be a fire sale of real estate assets; if this Court orders the Defendant to be wound up it would be a matter of commercial judgment for the liquidator, subject to the control of this Court, to decide how and when the real property assets should be disposed of, but a liquidator would seek to realise best value, and if that involved postponing a sale a liquidator would postpone it. 

(9)       The untrue statements in the Attachment were:-

(i)        that there was cash which the Defendant could distribute to its investors if there were no injunction and no ongoing litigation;

(ii)       that these proceedings prevented investors in the Defendant from investing in a new fund promoted by WAM. 

(10)     Further or alternatively WAM by Mr Wermuth in the course of the Conference and the Defendant's directors in the Letter have threatened to publish statements (including the Letter) in the Japanese media. 

(11)     In the circumstances the Defendant intends to use its funds (27% of which are the Plaintiff's) in an attempt to injure the reputation of the Plaintiff and its affiliates in Japan. 

(12)     Further or alternatively in the course of the Conference WAM by Mr Wermuth encouraged other investors in the Defendant to claim damages against the Plaintiff.  It is no part of the functions of an investment adviser to stir up litigation, especially since any such claim would be misconceived."

9.        As a consequence, the plaintiff seeks a further interim injunction in the following terms:-

"Service of this Order upon the Defendant or the Defendant's Advocates shall operate as an immediate interim injunction restraining the Defendant from publishing a copy of the letter from the directors of the Defendant to investors in the Defendant dated 29 March, 2012, and the enclosure thereto (the Directors' Letter), or the contents of such letter or similar in any media (whether in hard copy, in newspapers, on the internet or by any other means of publication) in any jurisdiction (including but not limited to Japan).  

2. Effect of this Order

A Defendant which is a corporation and which is ordered not to do something must not do it itself or by its directors, officers, employees, or agents (including but not limited to Wermuth Asset Management GmbH) or in any other way."

10.      Mr Taylor, for the defendant, responds firstly by pointing out that he does not act for WAM or its directors and they are not parties to the proceedings.  There is no pleaded basis upon which WAM can be said to be the defendant's agent. 

11.      As to the defendant and its directors, there are strongly felt arguments as to why it is not in the interests of the Participating Shareholders for the defendant to be liquidated at the end of the wind down period and their concern is that these may not have been properly communicated by the plaintiff through Nomura to the underlying clients in Japan.  Its request that the Letter, which was sent to all of the Participating Shareholders and filed with the Channel Island Stock Exchange, should be forwarded on by the plaintiff to its ultimate clients was refused.  To get round this it proposes to publish the Letter in the Japanese media. 

12.      The section of the Letter dealing with the plaintiff's clients is as follows:-

"[Plaintiff] has not facilitated communication between us, while we believe [plaintiff's] actions hurt the interests of all shareholders including their own clients.  We would very much like to explain to those clients why the "Redemption in Kind" resolution is in their best interests and why we believe [plaintiff's] case is baseless and value destructive.  Accordingly, in case [plaintiff] will not forward this letter to underlying investors, we will publish this letter in relevant Japanese media and would encourage any such clients to contact us directly to discuss this matter further."

13.      In his affidavit in support of the application, Yosuke Aoyama of Nomura Funds Research & Technologies America, Inc which has been authorised by the plaintiff to conduct the day to day running of the litigation says:-

"We do not want any such publication because it is riddled with misleading and inaccurate information which will only serve to unfairly prejudice the Plaintiff and Nomura in the conduct of this case and in its position as a minority shareholder in the Defendant and potentially and wrongly disparage its business reputation with the "underlying investors" and others in Japan who may read it.  I cannot see how such actions are justifiable in the context of the fiduciary duties of the Directors of the Defendant.  Therefore, in order to prevent or limit this potential unfair prejudice and breach of fiduciary duty we are seeking an urgent injunction.  I can confirm that reputation is everything to Nomura, and unfair and unjustified damage to that reputation could not be quantified in terms of monetary loss.  

I anticipate that the Court may ask whether we have sought to circulate our own version of events.  I would respectfully suggest that it is not appropriate in circumstances where there are live legal proceedings which will be determined in June.  I do not want a public rehearsal of issues which may ultimately be considered in Court, nor do I want to be cajoled into doing so by the bullying tactics of the Directors against a minority shareholder."

14.      Mr Taylor submitted that this application was all about protecting Nomura and its reputation and had nothing to do with the plaintiff, which would not in any way be prejudiced by the proposed actions of the defendant.  It would be wrong of the Court to prevent the defendant taking whatever action it thought appropriate, absent confirmation from the plaintiff that the Letter had been handed down to each of the underlying investors. 

15.      At the hearing, neither counsel provided the Court with any authority.  Mr Sanders made the application for the further interim injunction on the basis that the defendant's proposed actions were an attempt to interfere with the administration of justice.  The defendant was seeking to put pressure on the plaintiff by litigating the matter in public in Japan which was an abuse of and disrespectful to the Court's process.  Mr Taylor limited himself to addressing the merits of the defendant's proposed actions. 

16.      Mr Sanders subsequently filed a note with the Court seeking to base the plaintiff's application upon Article 141 of the Companies Law which is in the following terms:-

"A member of a company may apply to the court for an order under Article 143 on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least the member) or that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial" (his underlining). 

17.      Article 143 of the Companies Law however provides that the Court can only make an order "if the Court is satisfied that an application under Article .... 141 ... is well founded".  In other words, after the facts have been heard out and the Court is satisfied with the evidence.  We are not at that stage and as made clear in CN Limited-v-Teighmore Limited and Others [2004] JRC 195, if an injunction is to be granted at this interim stage of an application under Article 141, it will be pursuant to the Court's inherent jurisdiction. 

18.      In any event, we accept Mr Sanders' first submission, that what is proposed by the defendant would be an interference with the administration of justice.  The purpose of the Letter is to place improper pressure on the plaintiff to withdraw the proceedings. 

19.      There are a number of Jersey cases which are concerned with interference with the administration of justice (see for example United Capital Corp Ltd-v-Bender [2007] JLR N 1) but none on the facts which are before us.  Because of the similarities in the administration of Justice in Jersey and England, it is helpful to look at English law.  Halsbury's Laws of England Fourth Edition Volume 9(1) at paragraph 421 states that in general publications which are intended to impede or prejudice the administration of justice may be punishable as a contempt of Court.  The law in relation to what may be published concerning current proceedings is sometimes referred to as the "sub judice" rule.  An example of a publication which constituted a contempt under English law is Attorney General-v-Hislop (1991) 1 AER 991, where the satirical magazine Private Eye published an article with the intention of dissuading the plaintiff from pursuing a libel action against the magazine by what amounted to threats to expose her to cross examination on her knowledge of her husband's murderous activities and her fraud on the social security authorities.  It was held that it amounted to placing improper pressure on the plaintiff to abandon her claim.  Parker LJ said this at page 920:-

"First, and most important, it is clear ......

(i)        that there is a difference between private pressure, whether by an opposing litigant or a third party and publication to a wide section of the public,

(ii)       that so far as the latter is concerned the mere fact that the publication will exert pressure will not suffice to constitute the publication as contempt, so long as it consists in no more than fair and temperate criticism".  

20.      We are not in a position to determine whether the Letter is inaccurate or misleading, but it is plain to us that we are not dealing with the publication of fair and temperate criticism.  The Letter is nothing more than a public presentation of the defendant's case and the alleged damage that will be done if the plaintiff succeeds in its action.  Its only purpose can be to persuade the underlying investors in Japan to put pressure on the plaintiff to withdraw the proceedings.  It is improper, in our view, to seek to place pressure upon the plaintiff in this way.  The matter is now before the Court, and it is before the Court that the merits of the plaintiff's application should be debated. 

21.      We are therefore going to grant the further Interim injunction (together with the ancillary order sought at paragraph (iii) of the prayer), but we are not prepared to extend the same to WAM on the basis that it is the defendant's agent.  We have not seen the investment management agreement between the defendant and WAM and have no basis upon which to make such a finding.  We would, however, expect the defendant to use its best endeavours to prevent WAM and its directors from taking any similar steps to interfere with the administration of justice before this Court. 

22.      The further interim injunction will be in the following terms, subject to any drafting points counsel may wish to raise:-

"2.       The Defendant shall not publish (whether itself or by its directors, officers, employees or agents) a copy of the Letter and the enclosure thereto or the contents of the Letter or similar in any media (whether in hard copy, in newspapers, on the internet or by any other means of publication) in any jurisdiction (including but not limited to Japan).  

3.        within 2 business days of service of this Order upon the defendant or its Advocates the Defendant shall serve upon the Plaintiff's Advocates and file a copy with the Royal Court, an affidavit sworn by a director of the defendant confirming whether or not the Defendant (itself or by its directors, officers, employees or agents) has caused or procured or encouraged any publication of the Letter or the contents thereof or similar and if the Defendant has so caused, procured or encouraged or is aware of any such publication the Affidavit shall set out and/or exhibit a copy of such publication and shall include the following information (if known):-

a.        the date of publication;

b.        the place of publication;

c.        the identify of the publisher;

d.        the identify of the person and/or party who caused, procured or encouraged the publication."

Amendment to the Order of Justice

23.      As mentioned at the outset, the plaintiff has brought these matters before the Court by way of a proposed amendment to the Order of Justice by which it seeks to include not only the matters referred to above, but also the defendant's failure to comply with its discovery obligations and this as further evidence of conduct which it says is unfairly prejudicial.  Amending the Order of Justice will of course bring in turn the need for consequential amendments to the answer and reply, with potentially further discovery obligations arising. 

24.      It seems to us that these are matters which have arisen in the course of the proceedings and constitute complaints about the conduct of those proceedings.  These complaints have been dealt with firstly by the interim injunction which we have now granted and secondly by the defendant being ordered to pay the plaintiff's costs in relation to its failure to comply with its discovery obligations. 

25.      It is unnecessary and would be unusual for parties' conduct during the course of proceedings to be formally incorporated into the pleadings in this way.  We see no reason to further complicate the matter by doing so.  We therefore decline to amend the Order of Justice.  In granting the further interim injunction, we do so on the basis that the plaintiff's application should be treated as a separate representation which, for good order, we require it to file with the Judicial Greffe within seven days.  

Authorities

Companies (Jersey) Law 1991.

CN Limited-v-Teighmore Limited and Others [2004] JRC 195.

United Capital Corp Ltd-v-Bender [2007] JLR N 1.

Halsbury's Laws of England Fourth Edition Volume 9(1).

Attorney General-v-Hislop (1991) 1 AER 991.