East Pine Management Ltd Appellant v [1] Tawney Assets Ltd [2] Oldril Holdings Ltd [3] Guildron Trading Ltd Respondents [ECSC]
| Jurisdiction | British Virgin Islands |
| Judge | Mitchell, JA [AG.],Don Mitchell,Justice of Appeal [Ag.],Chief Justice,Mario Michel,Justice of Appeal |
| Judgment Date | 24 March 2014 |
| Neutral Citation | VG 2014 CA 6,[2014] ECSC J0324-2 |
| Docket Number | BVIHCVAP2012/0035 |
| Court | Court of Appeal (British Virgin Islands) |
| Date | 24 March 2014 |
EASTERN CARIBBEAN SUPREME COURT
IN THE COURT OF APPEAL
(On appeal from the Commercial Division)
The Hon. Dame Janice Pereira, DBE Chief Justice
The Hon. Mr. Mario Michel Justice of Appeal
The Hon. Mr. Don Mitchell Justice of Appeal [Ag.]
BVIHCVAP2012/0035
Mr. Christopher Parker, QC, for the Appellant
Mr. James Ayliffe, QC, with him Ms. Keisha Durham, for the Respondents
Civil appeal — Commercial law — Agreement by two Russian dealerships to merge — Agreement to use BVI company and to apply English law —Fraudulent misrepresentation — Prediction of one dealership as to its coming year-end profitability — Failure to disclose extent of black cash payments and grey suppliers — Unreliability of Russian official company statements — Whether prediction amounting to false representation — Whether defendant knew it was false at the time it was made — Whether defendant intended claimant to act on it — Whether claimant acted on misrepresentation and suffered loss — Appeal from judge's findings of fact
East Pine and Tawney Assets Limited, two Russian John Deere agricultural equipment dealerships, agreed to merge the two businesses in a BVI company. It was commonly understood by the parties that the business atmosphere in Russia was corrupt. Bribes and commissions were commonly used to conduct business; the use of black cash to keep payments off-the-book was commonplace; even staff got their share of black cash, being payments made to them concealed from the revenue authorities; it was also common for businesses to incur imaginary debts, supported by imaginary inventory, through grey or non-existent suppliers, thus creating false VAT inputs to set aside a company's VAT liability on its outputs. Official financial statements might include fictitious profits and fail to take into account bribes and other black cash payments.
On 21 st August 2010, during the early stages of negotiations for merger, at a dinner in a restaurant, Mr. Korontsvit of Agrosnab told Mr. Amirkhanian of Mercury that Agrosnab's operating profit for the year 2010 could be $1m. This estimate contributed to a comparatively higher figure being placed on the value of Agrosnab over Mercury. The parties agreed that they would conduct no due diligence on each other. They agreed, on a back-of-the-envelope calculation, that the principals of Agrosnab should be paid $4m in cash to equalise the merged businesses.
The merger took place on 25 th November 2010 when a Share Subscription Agreement ("the Agreement") was entered into by the parties and one half of the balancing sum paid, the other half being due by way of notes. The Agreement stated that it was the entire agreement between the parties. It did not include any warranty by Agrosnab as to profitability or as to the extent of black cash payments. On 15 th December 2010, Mercury staff moved into Agrosnab's offices and began training with Agrosnab staff, with Mercury providing a new CFO to manage the financial affairs of the two companies. When it became apparent early in the new year that Agrosnab had made a loss instead of a profit, the principals of Mercury demanded a renegotiation of the balancing payment, but Agrosnab refused. The actual merger never happened since on 16 th March 2011 East Pine walked away from the joint venture claiming misrepresentation by Agrosnab.
Both parties commenced legal proceedings against each other with East Pine contending that it was entitled to rescind the Agreement for misrepresentation. On a determination of East Pine's case, the judge found that Mr. Korontsvit relying on an expected upturn in sales towards the end of the year had told Mr. Amirkhanian at the dinner on 21 st August that he believed that Agrosnab could turn in an operating profit of $1m for the year, and not $1.5m as Mr Amirkhanian alleged. Further, that East Pine entered into the joint venture on the basis of a recommendation by Mr. Amirkhanian to the SI Partners setting out five reasons for the joint venture with a balancing payment to Agrosnab, none of which reasons included Agrosnab's prediction of future profitability.
The learned trial judge found that he could not infer that Mr. Korontsvit was dishonest at the time he made the prediction, or that Mr. Korontsvit did not believe that Agrosnab could make such an operating profit, if his expectation of an upturn in sales before the end of the year had occurred.
He found that East Pine did not enter into the Agreement relying either wholly or in part upon the representations Mr. Korontsvit made to Mr. Amirkhanian. By the time the Agreement came to be signed the principals of East Pine were well aware that Agrosnab would not make the profit estimated by Mr. Korontsvit at the 21 st August 2010 dinner and they were not relying on it at that stage. Their attempt to argue an agreement for the parties to renegotiate the balancing payment in the event the profitability did not turn out as estimated contradicted their reliance on the representation. He delivered judgment dismissing East Pine's case in misrepresentation. East Pine appealed.
Held: dismissing the appeal and awarding costs to the respondents, that:
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1. The judge had properly tested the veracity of the witnesses by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and paying particular regard to their motives and to the overall probabilities.
Armagas Ltd. v Mundogas SA (The Ocean Frost)Ocean Frost [1985] 3 WLR 640 applied.
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2. An appellate court will not impeach the finding of facts by a first instance or trial court that saw and heard witnesses give evidence, except in certain very limited circumstances. Where a trial judge misdirects himself and draws erroneous inferences from the facts, an appellate court is in as good a position as the trial judge to evaluate the evidence and determine what inference should be drawn from the proved facts. The learned trial judge had the advantage of seeing and hearing the witnesses give their testimony. This Court is satisfied that the learned trial judge drew the proper inferences from the evidence before him and came to a proper conclusion. East Pine has not discharged the burden on an appeal against a judge's finding of fact by establishing that the judge was plainly wrong.
Golfview Development Limited v St. Kitts Development Corporation et al Saint Christopher and Nevis High Court Civil Appeal SKBHCVAP2004/0017 (delivered 20 th June 2007, unreported) followed; Kanwal Sohal v Patwant Singh Suri and Another [2012] EWCA Civ 1064 applied.
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3. Fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. To prevent a false statement being fraudulent, there must always be an honest belief in its truth. East Pine has failed to show that, Mr. Korontsvit, when he made the forecast, did so with an intention to deceive. The learned trial judge, on the evidence presented, made a determination that Mr. Korontsvit did not do so dishonestly. East Pine, having failed to satisfy the test warranting disturbance of a judge's finding by an appellate court, cannot succeed on this ground.
William Derry et al v Sir William Henry Peek, Baronet (1889) 14 App Cas 337 applied; Nocton v Lord Ashburton [1914] AC 932 applied; Armstrong and Another v Strain and Others [1952] 1KB 232 applied.
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4. The burden is on a claimant to establish to the satisfaction of the court that he did place reliance on the representation made. As long as a misrepresentation plays a real and substantial part, though not by itself a decisive part, in inducing the claimant to act, it is a cause of his loss no matter how strong or how many are the other matters which play their part in inducing him to act. Where the misrepresentation made no difference at all to the representee, in that he would have acted in precisely the same way and contracted on precisely the same terms even if he had known the truth, there is no possibility either of rescission or damages. The learned trial judge had evidence before him which contradicted East Pine's assertion that they were entitled to rely on the representation they claimed had been made on 21 st August 2010. The learned trial judge's conclusion cannot be faulted. Accordingly, this ground also fails.
William Smith v David Chadwick et al (1884) 9 App Cas 187 applied; ECO3 Capital Limited et al v Ludsin Overseas Limited [2013] EWCA Civ 413 applied.
This action involves a dispute between two Russian John Deere agricultural equipment dealerships who agreed to merge their businesses. One party paid a substantial sum to the other to equalize its investment in the merger. It has sued in misrepresentation for rescission of the agreement and a refund of sums advanced.
The appellant, ("East Pine"), 1 is a BVI registered company acquired, for the purposes of the merger, by a group of investors acting through their Moscow-based boutique investment company, called SI Capital Partners Ltd ("SI Partners"). This project of the SI Partners was managed by Mr. Rudy Amirkhanian with the assistance of his partner, Ms. Elena Lokteva. In the summer of 2010, when the events began to evolve, the SI Partners, using a Russian company called Mercury Technology Ltd. ("Mercury"), had recently acquired for some US$17 million ("$17m") the valuable assets of a failed Russian agricultural machinery dealership called Matrix. Matrix held a John Deere dealership covering five Russian regions, but no current staff. The SI Partners had no experience in this business and were looking for a partner for...
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