(1) Norgulf Holdings Ltd (2) Incomeborts Ltd Appellants v Michael Wilson & Partners Ltd Respondent

• Jurisdiction: British Virgin Islands
• Judge: RAWLINS, J.A.,Justice of Appeal,Ola-Mae Edwards,Hugh A. Rawlins,Denys Barrow, SC
• Judgment Date: 29 October 2007
• Judgment citation (vLex): [2007] ECSC J1029-2
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: CIVIL APPEAL NO.8 OF 2007
• Date: 29 October 2007

[2007] ECSC J1029-2

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Denys Barrow, SC Justice of Appeal

The Hon. Mr. Hugh A. Rawlins Justice of Appeal

The Hon. Ms. Ola-Mae Edwards Justice of Appeal (Ag.]

CIVIL APPEAL NO.8 OF 2007

Between:

(1) Norgulf Holdings Limited

(2) Incomeborts Limited

Appellants

and

Michael Wilson & Partners Limited

Respondent

Appearances:

Mr. John Jarvis, QC, with him Mr. Paul Dennis for the Appellants

Mr. James Drakes for the Respondent

Company Law - receiverships - appointment of receivers - threshold test - discharge of receivership orders

The appellants are companies incorporated in the British Virgin Islands (BVI). The respondent, a firm of lawyers, is a company also incorporated in the BVI. The respondent alleges that the appellants are liable to the respondent as accessories in equity or for knowing assistance, in that they dishonestly assisted three of the respondent's then employees in their breaches of fiduciary and other duties, and in receiving and attempting to retain the proceeds of the breaches. The respondent therefore alleges that the appellants are constructive trustees of the property for the respondent and are liable to it for equitable compensation. A judge of the High Court issued ex parte receivership orders over the entire assets, undertaking and shareholdings of the appellants, and continued the receiverships after the subsequent inter partes hearing. The appellant companies appealed on the grounds that the judge erred in that she incorrectly stated the threshold test for the appointment of a receiver and by finding that there was sufficient evidence on which to issue the receivership orders.

Held-Allowing the appeal, discharging the receiverships in their entirety and ordering the respondent to pay the expenses and charges of the Receiver and the costs of the appellants in this court and the court below:

• (1) The minimum threshold test for the appointment of a receiver is "a good arguable case".

  Dictum of Mustill J in Ninemia Maritime Corporation v Trave GmbH (The Niedersachsen), [1983] 1 WLR 1412, pages 1415–1417 applied.

• (2) The evidence presented by the respondent at the ex parte and inter partes stages did not meet the required threshold to establish that there was a good arguable case, and further, the evidence did not show that the subject matter of the proceedings was in danger if left in the possession or under the control of the appellants until the trial, or that the respondents would have been in a worse position if the receivership orders were not made. In granting and continuing the receivership orders therefore, the judge had acted outside the generous ambit of her discretion within which reasonable disagreement is possible.

RAWLINS, J.A.

1 The appellants, Norgulf and Incomeborts, appealed against the decision of a judge of the High Court, which was made in an order dated 22 ^nd May 2007. The order provided for the continuation of the appointment of a receiver over the assets, undertakings and shareholdings of the appellants. The appellants challenged the judge's determination that as a matter of law the necessary threshold test was that which is set out in American Cyanamid v Ethicon Ltd. 1 They also challenged her finding of fact that the threshold test, on the evidence which was provided, was sufficient to merit the appointment of the receiver.

2 The appellants further challenged the judge's finding that the cross undertaking in damages offered by Michael Wilson Partners (MWP), the claimant in the substantive action, but the respondent in this appeal, was sufficient to cover all possible loss that they (the appellants) might suffer. However, this issue does not arise for consideration in this judgment because this court issued an order on 20 ^th August 2007 discharging the receiverships.

3 The oral submissions in the appeal proceedings were heard on 18 ^th July 2007. This court further read the written submissions, the Record of Appeal, the Supplementary Record of Appeal, and, in particular, the Orders of the High Court dated 29 ^th March 2007 by which Mr. William Tacon of Kroll (BVI) Limited was first appointed Receiver of Norgulf Holdings Limited and Incomeborts Limited, after an ex parte hearing. We also considered the Orders of the High Court dated the 18 ^th day of May 2007 and entered on the 31 ^st day of May 2007, which continued the appointment of Mr. Tacon as Receiver over the Appellants. We decided that the need to discharge the receiverships was sufficiently urgent to issue the order of 20 ^th August 2007, thereby allowing the appeal. We now provide the reasons for our decision in this judgment.

4 The consequence of our decision was that the order of the High Court dated 29 ^th March 2007 by which Mr. William Tacon was first appointed as Receiver over the appellants, and the order of the High Court dated the 18 ^th day of May 2007 continuing his appointment, were set aside in their entirety. The receiverships

ended from the date that the order of this court was served on the Receiver. This court also ordered the respondent, MWP, to pay the costs and expenses of the Receiver, as well as the appellants' costs in the appeal and in the High Court proceedings. Costs are to be assessed in accordance with rule 64.7 of the Eastern Caribbean Supreme Court Civil Procedure Rules 2000, 2 if not agreed.

5 A brief background to the claim and to the proceedings to date will provide a helpful precursor to the reasons for the decision in this judgment.

Background

6 Norgulf and Incomeborts, are incorporated in the British Virgin Islands ("BVI"). Their registered offices are in Road Town, BVI. Allegedly, they are ultimately owned by Mr. Garifolla Kachshapov, who had the benefit of 2 contracts to exploit oil in Kazakhstan. These contracts are known as the Block A & E and the East Alibek contracts. The contracts were owned by Horizon Services N.V., which seems ultimately to be beneficially owned by Mr. Kachshapov.

7 The respondent, MWP, is also incorporated in the BVI. It is a firm of lawyers that is engaged, inter alia, in the business of providing legal services in Kazakhstan, Central Asia, the Caucasus, Russia and the Ukraine. The Managing Director of MWP is Mr. Michael Earl Wilson. He is admitted as a Solicitor in England and Wales, a Solicitor, Proctor and Attorney in New South Wales, and a Barrister and Solicitor in Victoria, Australia. MWP is the claimant in the substantial proceedings, and the appellants are 2 of 7 defendants. At the material time, MWP had 2 partners, Mr. Wilson and Mr. Emmott. Mr. Robert Nichols and Mr. David Slater were employed by MWP as assistant solicitors.

8 MWP claims that Messrs Emmott, Nichols and Slater diverted work away from it, whilst employed by it. MWP also alleges that these 3 men caused clients to be underbilled and that they received reward in the form of shares for the services

they provided. MWP further alleges that Messrs Nichols and Slater formed the first and second defendants in the claim, Temujuin International Limited, and Temujuin Services Limited. Temujuin International is a law firm in Kazakhstan. MWP also alleges that Messrs Emmott, Nicholls and Slater, directly or indirectly, in breach of their fiduciary, contractual and other duties owed to MWP, took for their own benefit, shares in Max Petroleum plc on the flotation of that company, while they worked for MWP. MWP further alleges that the 3 men hid the shares from Max Petroleum in Norgulf and Incomeborts, respectively.

9 Max Petroleum is an English company. It is allegedly a director of a large number of companies that hold significant percentages of the Max Petroleum shares. Those companies include Incomeborts and Norgulf which received 10 million shares and 5 million shares, respectively, in Max Petroleum in August 2005 for a non-cash contribution. These shares allegedly amount to about 8.07% of the issued share capital of Max Petroleum. According to MWP, the allocation of these shares to Norgulf and Incomeborts was not part of the process of making a public offering. MWP insists that the allocation resulted because the individuals behind these companies were "insiders" or persons close to the taking of Max Petroleum to the market. MWP further insists that the monetary price for these shares, (£0.01) per share, if paid at all, was but an infinitesimal fraction of the £0.35 per share paid on the public offering approximately 3 months later.

10 MWP alleges that Mr. Kachshapov needed finance to exploit the oil in Kazakhstan and he obtained help from Mr. Tom Sinclair and Mr. David Rigoll. They suggested the flotation of a company on the Alternative Investment Market in London ("AIM"). The scheme was that 80% of the shares held in the 2 intermediate companies, which held the benefit of the oil contracts would be sold to Sokol Holdings Inc. Sokol Holdings then entered into back to back contracts with Max Petroleum to sell the shares to Max Petroleum. MWP was the law firm that acted for Sokol Holdings in the transaction. Messrs Emmott and Nichols worked on the transactions on behalf of MWP. As part of the transaction consideration, shares were to be issued and allotted by Max Petroleum and delivered to persons at the direction of Sokol Holdings. It was thus that the 5 million shares were allotted to Norgulf and 10 million shares were allotted to Incomeborts. 14.75 million shares were also allotted to Eagle Trust, a Bahamian Trust, which is a family trust of Mr. Emmott and were allegedly issued to him as a "kickback". Mr. Emmott insists that he has no interest in the shares and that they are held in trust for Mr. Sinclair, the Managing Director of Sokol Holdings.

11 MWP ultimately alleges that the benefits which Messrs Emmott, Nicholls and Slater received as a result of their work on the foregoing transactions included reward for the services which they rendered to...