Citco Global Custody NV Appellant/Claimant v Y2K Finance Inc. Respondent/Defendant

JurisdictionBritish Virgin Islands
CourtCourt of Appeal (British Virgin Islands)
JudgeEDWARDS, J.A.
Judgment Date19 October 2009
Neutral CitationVG 2009 CA 10,[2009] ECSC J1019-2
Docket NumberHCVAP 2008/022
Date19 October 2009
[2009] ECSC J1019-2

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Hugh A. Rawlins Chief Justice

The Hon. Mde. Ola Mae Edwards Justice of Appeal

The Hon. Mde. Janice George-Creque Justice of Appeal

HCVAP 2008/022

Between:
Citco Global Custody NV
Appellant/Claimant
and
Y2K Finance INC
Respondent/Defendant
Appearances:

Mr. Simon Browne-Wilkinson Q.C. and Mr. Jeffrey Chapman for the appellant/claimant

Ms. Barbara Dohmann Q.C., Mr. Samuel Jackson Husbands and Mr. Robert Weekes for the respondent/defendant.

Civil Appeal -whether judge applied correct principles for striking out amended statement of case under CPR26.3(1)(b) -assumption that facts stated in the pleadings are true -whether test for summary judgment under CPR 15.2 applicable -whether pleadings sufficiently disclosed that one of the claimants was beneficial owner of shares -whether judge erred in striking out the claimant who was beneficial owner of shares as having no locus standi to pursue a claim under section 1841 -whether pleadings disclose reasonable grounds for bringing unfair prejudice claim under section 1841 of the BVI Business Companies Act -whether the rule against reflective loss imposes a bar to the relief sought in paragraph 2 of the prayer -statutory interpretation of section 1841 -court's discretion to make different types of orders under section 1841 -whether judge erred in striking out paragraph 2 of the relief sought.

By an Amended Statement of Claim for unfair prejudice brought under section 1841 of the BVI Business Companies Act, Headstart Class Holdings Limited ("Headstart") as 1 st claimant alleged at paragraphs 3 and 13 that it invested US$8,000,000.00 in the hedge fund of the respondent Y2K Finance Inc., a BVI Business company ('the Fund") in April 2006, by using Citco Global Custody NV ("Citco") who is the appellant and 2 nd claimant as its nominee. The claimants alleged that the representatives of the Fund between 1 st June 2007 to 15 th November 2007 had depleted the Net Asset Value of the Fund by acting in breach of its equitable obligations of good faith. The pleadings alleged further that this depletion resulted because the representatives of the Fund had allowed redemptions of Class A and Class X shares which were not in accordance with the Fund's Memorandum and Articles of Association. The particulars of breach of equitable obligation of good faith were pleaded in detail at paragraph 21 of the amended statement of claim. The relief sought by the claimants included at paragraph 2 of the prayer that the Court order the repayment of all sums withdrawn from the Fund in breach of the Memorandum and Articles of Association as pleaded in paragraph 21.

The Fund made an application to the Court on 5 th May 2008 for the Amended Statement of Claim to be struck out. The grounds of this application included: (1) that Headstart was not a registered shareholder and lacked standing to pursue a claim under section 1841 of the BVI Business Companies Act; and (2) that the Amended Statement of Claim disclosed no complaint of unfair prejudice, or ground for relief; and was in conflict with the rule against reflective loss. In determining the application the learned judge applied principles applicable to a summary judgment application under CPR 15.2 and made factual findings from affidavit evidence adduced by the claimants instead of assuming, as the law required, that the relevant facts pleaded in the amended statement of case were true; and thereafter identifying any pleaded inferences from those facts before striking out the statement of case. The judge found that the claimants had failed to prove that Citco was Headstart's nominee; that Citco has not made any complaint of unfair prejudice against Y2K. She concluded that the pleadings did not disclose reasonable grounds for bringing the claim; and that paragraph 2 of the relief sought would be struck out for offending the rule against reflective loss. The learned judge ordered that Headstart be struck out as a claimant in these proceedings and that the claim be struck out in its entirety with costs to the defendant to be assessed in accordance with CPR 65.12 if not agreed. The appellant appealed the judge's decision and the respondent also filed a counter notice.

Held: allowing the appeal, dismissing the counter-notice, setting aside the order that the learned judge made on 4 th November 2008; ordering that the matter be remitted to the court below for case management and a trial date to be set; and awarding costs to the appellant in the court below to be agreed or otherwise assessed; and costs in this appeal which is to be 2/3 of the costs below pursuant to CPR 65.13(b).

  • 1. The application to strike out was obviously an application under CPR 26.3(1)(b) and the learned judge would be obliged to assume that the facts alleged in the amended statement of claim were true and she would not be entitled to make use of the powers contained in CPR 15.2 in the absence of any application for summary judgment before her. The summary judgment test -whether the claimants had any real prospect of succeeding on the claim was not an option in considering the respondent's application to strike out the amended statement of claim.

    Morgan Crucible Co. plc v Hill Samuel & Co. Ltd [1991] Ch 295; Swain v Hilman and another [2001] 1 All E.R. 91 followed.

  • 2. That the judge erroneously concluded that the claimants had the burden to prove that the appellant was the nominee of Headstart, and she failed to apply the correct test and consider whether the relevant pleaded facts were primary facts or inferences. Paragraphs 2 and 13 of the amended statement of claim contain primary facts which should be taken at face value to be true for the purposes of the application and the judge erred in striking out Headstart as a claimant.

    Diamantis Diamantides v JP Morgan Chase Bank [2005] EWCA Civ. 1612 at paragraph 23 to 26 followed and distinguished.

  • 3. An accurate summary of the case for the claimants as pleaded in paragraph 21 of the amended statement of claim is that by making certain redemptions in breach of its Memorandum and Articles of Association, Y2K's actions were unfairly prejudicial to the interests of the appellant, whose interests for these purposes include the interests of Headstart on whose behalf it holds the shares in Y2K; and had the judge applied the correct principles in considering the application, she should have concluded that the appellant and Headstart had pleaded reasonable grounds for bringing the claim. The learned judge therefore erred in striking out the claim brought by Headstart and Citco for the reasons that she gave.

  • 4. Having regard to the law on reflective loss and the relief prescribed in section 1841(2)(a) to (h) of the BVI Business Companies Act any decision of the court as to whether to grant relief under paragraph 2 of the prayer in the amended statement of claim depends on the view that a court will take of the appellant's case in light of the pleaded facts, the evidence and law; and the learned trial judge therefore acted prematurely and unreasonably in striking out paragraph 2 of the prayer.

    Atlas Ltd & Others v Brightview & Others [2004] BCC 542 at paras. 58 – 63 considered and followed

EDWARDS, J.A.
1

This is an appeal against the decision to strike out the appellant's claim against the respondent for unfair prejudice on the basis that it disclosed no reasonable grounds for bringing the claim. The appellant seeks to set aside the decision in its entirety and also seeks an order that the respondent do pay the appellant's costs below and in the Court of Appeal.

Background Facts
2

The appellant Citco Global Custody NV ("Citco") is the nominee of Headstart Class Holdings Limited ("Headstart") and is a registered shareholder in the professional hedge fund of the respondent Y2K Finance Inc. ("the Fund"). The Fund is an international business company incorporated under the International Business Companies Act of the Virgin Islands and continued under the BVI Business Companies Act No 16 of 2004 1 with its registered office in Tortola, Virgin Islands. The authorized capital of the Fund is US$50,000.00 divided into 5 classes including 1,500,000 Class A shares of US$0.01 par value each, further divided into 30 series of 50,000 shares in each series.

3

The Fund's Memorandum and Articles of Association provided, among other things, that the redemption price for each share was the Net Asset Value per share (NAV) of the applicable class or series as at the close of business on the valuation day immediately preceding the dealing day on which such redemption is effected. The dealing day for the Class A shares will follow after 30 days prior notice; the redemption or purchase price of shares will be effected at the redemption price, and payment shall be made to the applicant in the base currency in respect of the redemption or purchase of shares based on unaudited data.

4

By an Amended Statement of Claim filed on 23 rd April 2008 Headstart alleged as 1 st claimant that it invested US$8,000,000.00 in the Fund in April 2006 using the appellant Citco (2 nd claimant/appellant) as its nominee; and that the representatives of the Fund between 1 st June 2007 to 15 th November 2007 had depleted the Net Asset Value of the Fund by acting in breach of its equitable obligations of good faith.

5

Section 1841 of the BVI Business Companies Act 2004 provides:

"1841(1) A member of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the Court for an order under this section.

(2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such...

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