Summary

A judge had erred in refusing to continue a worldwide freezing injunction and a proprietary injunction on the basis of the application of the no reflective loss principle. The appellants did have a good arguable case that there had been breaches of fiduciary duties owed by co-joint venturers in the payment of funds to third parties.

Facts

The appellants (S) appealed against a decision ([2013] EWHC 1993 (Ch)) refusing the continuation of a worldwide freezing injunction and a proprietary injunction in relation to the assets of the respondents (R). R applied to set aside permission granted to S to adduce a joint expert report in the instant appeal.

The first and third personal appellants had formed a joint venture with the first and second personal respondents (M) (the founders) to create a fund of funds business, in which it was agreed that all four would share equally in the benefits of the joint venture. The fund company (HF) and investment advisory company (HIA) that they decided to use were incorporated in the Cayman Islands. The founders agreed that M would have primary responsibility for communicating with the nominee directors of the companies set up as part of the joint venture corporate structure. Under a distribution agreement between HF and HIA, two-thirds of the sums that would have been paid to HIA in relation to a particular investment were paid instead to the fifth respondent (B). S alleged that that agreement was entered into without their knowledge or consent, and was bogus. S also alleged that B had also received secret payments pursuant to a written distribution agreement with another company within the same structure (the Rio agreement). In a without notice application, S had obtained a proprietary injunction restraining the use of trust assets B held and a worldwide freezing order restraining B's dealing with assets up to a value of £13 million; the continuation of those injunctions was refused on the basis that S did not have a good arguable case in relation to their claims that M had breached fiduciary duties owed to S as a result of the distribution and Rio agreements. The judge held that the no reflective loss principle meant that S did not have a good arguable case. The issues were whether (i) S had a good arguable case; (ii) permission to rely on the joint expert report ought to be set aside.

Held

(1) The general principle was well established that, on an application for an interim injunction, the court should not attempt to resolve critical disputed issues of fact or difficult points of law on which a claim might ultimately depend, particularly where the point of law turned on fine questions of fact which were in dispute or which were presently obscure, Derby & Co Ltd v Weldon (No.1) [1990] Ch. 48 applied. The judge had not been entitled to take the view that S's case was no more than borderline: R in their skeleton had not identified the precise causes of action which HIA might have if S were successful in their claims for breach of fiduciary duty in connection with the distribution and Rio agreements, and the judge had considered two claims that HIA might pursue against M: one of deceit, and the other, at the judge's own suggestion, that HIA could bring an action for breach of fiduciary duty by M and S as shadow directors of HIA. The judge had concluded that S did not have a good arguable case that they would succeed in the claims for breach of fiduciary duty, but that R would not succeed in their argument that HIA would have a claim for the same loss. The judge had not been entitled to conclude that there was a strong case that M and S were shadow directors of HIA, to which they owed fiduciary duties; he had failed to make any allowance for the possibility that the law of the Cayman Islands on shadow directors and their duties might differ from that of England and Wales. Even if Cayman law were the same as English law, it was apparent that English law was not entirely settled as to the circumstances in which a shadow director owed fiduciary duties, Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] F.S.R. 17 and Vivendi SA v Richards [2013] EWHC 3006 (Ch), [2013] B.C.C. 771 considered. Moreover, it was clear that whether a person was a shadow director who owed such duties was highly fact dependent, and there were conflicts in the parties' evidence on that issue in the instant case. It was impossible to resolve that dispute at an interlocutory stage. The judge had also not been entitled to assume that the law in relation to shadow directors and fiduciary duties in the Cayman Islands was the same as that in England and Wales, and the conclusion of the joint expert report was that existing Cayman authority was against the imposition of fiduciary duties on shadow directors. The judge had also failed to properly address the way in which S put their case and given that the application of the no reflective loss principle was highly fact dependent, and the current state of the disputed evidence, S had a good arguable case that their claims for relief for breach of fiduciary duty would not be barred at trial by the no reflective loss principle (see paras 32-34, 36, 39, 41-43, 55, 58 of judgment). (2) The application to set aside the grant of permission to rely on the joint expert report was refused: R had only raised the issue of reflective loss as a defence in their skeleton argument served a few days in advance of the hearing, and the possibility that M might be liable for breach of fiduciary duty as shadow directors of HIA was only identified as a significant issue in reply submissions before the judge. Where the judge had handed down his judgment within three days of the end of the hearing, S could not be said to have failed to exercise reasonable diligence to adduce expert evidence of Cayman law during the hearing or before his judgment. The Ladd v Marshall requirements were satisfied, and permitting the joint expert report to be adduced would give effect to the overriding objective (para.46).

Appeal allowed, application refused