EChina Cash Inc. Claimant v echina Cash (BVI) Ltd First Defendant Light Year Partners Llc Second Defendant Elliot Friedman Third Defendant

• Jurisdiction: British Virgin Islands
• Judge: FOSTER, J (Ag)
• Judgment Date: 20 April 2009
• Neutral Citation: VG 2009 HC 6
• Judgment citation (vLex): [2009] ECSC J0420-2
• Court: High Court (British Virgin Islands)
• Docket Number: CLAIM NO. BVIHCV 2008/0330
• Date: 20 April 2009

[2009] ECSC J0420-2

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

CLAIM NO. BVIHCV 2008/0330

Between:

eChina Cash Inc

Claimant

and

echina Cash (BVI) Ltd

First Defendant

Light Year Partners Llc

Second Defendant

Elliot Friedman

Third Defendant

Appearances:

Mr. Malcolm Arthurs of O'Neal Webster & Co. for the Claimant

Mr. Gerard Farara QC and Mrs. Tana'ania Small-Davis of Farara Kerins for the Second Defendant

(Company Law - Interim injunctions - whether injunction should be discharged on continued on procedural lapse - principles to be applied - whether there is a serious issue to be tried - whether damages would be adequate - balance of convenience - fortification)

FOSTER, J (Ag)

1 This application arises out of a dispute concerning the ownership of eChina Cash (BVI) Ltd ("eCC BVI") a company incorporated here in the BVI.

2 The Claimant, eChina Cash Inc ("eCC Inc") applied for and obtained an exparte injunction against the Second Defendant, Light Year Partners LLC ("Light Year") on 7 ^th November 2008. The order granting the injunction was later served on Light Year on 17 ^th November 2008. eCC Inc at the time of applying for the exparte injunction did not seek any injunctive relief against the First Defendant, eCC BVI nor the Third Defendant, Elliot Friedman ("Mr. Friedman").

3 The court now has before it two applications.

4 First, Light Year is applying to discharge the exparte injunction on the following grounds:-

Light Year relied on the First, Second and Third Affidavits of Mr. Friedman along with the accompanying exhibits.

• a. The order is irregular in that having been made on an application without notice it has been made for a period of more than 28 days and no date for further consideration of the application has been set as required by CPR 17.4(4) and (5).

• b. eCC Inc's undertaking in damages is not adequate and ought to be fortified, especially in light of it being an external company.

• c. The injunction does not preserve the status quo or the balance of convenience.

• d. There is no serious issue to be tried.

5 Secondly, eCC Inc applied on 18 ^th November 2008 for similar injunctive relief against eCC BVI and Mr. Friedman, supported by the First, Second and Third Affidavits of Clarisse von Wunschheim. They also seek to have the injunctive relief against Light Year continued.

The Parties

6 The Claimant, eCC Inc is a United States company incorporated under the laws of Delaware. The First Defendant, eCC BVI is a BVI business company which owns a Chinese subsidiary called Beijing eChina Cash Network Technology Limited ("eCC China") which at all times have been under the control of the Claimant. The Second Defendant, Light Year is a United States company also incorporated under the laws of Delaware and appears on eCC BVI share register as the sole holder of all the First Defendant's outstanding shares. The third Defendant, Mr. Friedman is the owner and controller of 86% of Light Year's shares and owns a minority shareholding in eCC Inc.

Background

7 Sometime in April 2001 eCC Inc, which does business primarily in China incorporated eCC BVI which in turn set up 100% owned subsidiaries in China. These Chinese subsidiaries were intended to be the primary means by which eCC Inc conducted its various business interests in China. eCC Inc claims that at the time of incorporation of eCC BVI the shares in eCC BVI were erroneously issued to Light Year instead of eCC Inc.

8 In September 2001, 5 months after the incorporation of eCC BVI, it is claimed that the parties recognized the "error" and it was decided that steps would be taken to rectify the said error and vest eCC BVI shares in eCC Inc. eCC Inc alleges that on 19 ^th September 2008 Mr. Friedman executed a document entitled "Action by Written Consent of the Manager of Lightyear Partners LLC" ("Action by Written Consent") which acknowledged that eCC BVI shares were mistakenly issued to Light Year and resolved to transfer the shares to eCC Inc. The said Action by Written Consent was accompanied by an undated cover letter addressed to eCC Inc and allegedly signed by Mr. Friedman.

9 In an email dated October 29, 2002 to Casper Partovi, Mr. Friedman acknowledged his intention to transfer the eCC BVI shares to eCC Inc and that he misplaced his amendment changing eCC BVI ownership from Light Year to " eChina Cado" [sic]. On October 31, 2002 Mr. Partovi responded to Mr. Friedman's email by attaching an extra copy of the Action by Written Consent and the undated cover letter. He also explained that the Action by Written Consent corrects the mistaken issuance of BVI stock to Light Year instead of eCC Inc and that the said documents were initially sent on 31 ^st January 2002 with instructions that they be signed and placed in corporate binders for Light Year and eCC Inc.

10 Apparently, the Action by Written Consent and the relevant documentation to transfer the shares in eCC BVI to eCC Inc were never delivered to the registered agent of eCC BVI. Therefore the shares in eCC BVI were never formally transferred to eCC Inc. It is alleged that despite the error, eCC Inc and Mr. Friedman at all material times acted as if ownership of the shares in eCC BVI were transferred to eCC Inc.

11 Sometime in 2004 Mr. Friedman ceased his affiliation with eCC Inc and his departure from eCC Inc gave rise to litigation between the parties in 2005. eCC Inc contends that prior to and throughout the litigation Mr. Friedman and eCC Inc continued to behave as if eCC Inc was the duly registered or true owner of the disputed shares. This is so as is borne out in a sworn deposition by Mr. Friedman made in relation to the said litigation. He stated that to the best of his knowledge, the 100% owner of the shares in the eCC BVI was eCC Inc. The litigation was eventually compromised and Mr. Friedman executed a general settlement agreement between himself and Light Year on the one part and eCC Inc, eCC BVI and its Chinese subsidiaries on the other part. In essence the settlement agreement shows that eCC Inc was treated as owner of eCC BVI. Light Year and Mr. Friedman were treated as having no interest in the ownership of eCC BVI. No provisions were made in relation to the disputed shares because the parties treated them as if they were eCC Inc's asset.

12 Sometime in July 2008 eCC Inc's management realized that Light Year was listed on the Share register of the eCC BVI as owner of the disputed shares, and that the intended transfer of the disputed shares had not been effected. In an attempt to rectify this error Ms. Von Wunschheim, eCC Inc's Beijing attorneys wrote to Mr. O'Brien, the attorney for Light Year and Mr. Friedman on July 17, 2008 advising them of the situation and requested copies of transfers effecting transfers of the disputed shares. The said correspondence also indicated that if by error no transfers were executed as yet, eCC Inc's attorneys would draft the transfers and forward them for execution. On July 21, 2008 Ms. von Wunschhiem also sent copies of the Action by Written Consent and the undated letter from Mr. Friedman to eCC Inc acknowledging that the shares were erroneously vested in Light Year. Mr. O'Brien responded on July 24 and August 19, 2008 and indicated that the Action by Written Consent and the covering letter were not authentic and refused to properly effect the transfer of the disputed shares to eCC Inc. He also instructed eCC BVI's registered agent that they were not authorized to transfer any of eCC BVI's shares to any other party without express written permission from Light Year.

13 eCC Inc says that Light Year's and Mr. Friedman's action has interfered with their effective management of eCC BVI as they have taken advantage of the mistaken retention of the disputed shares to remove one of the Directors of eCC BVI. Mr. O'Brien in an email dated 8 ^th October 2008 has indicated that Light Year has retained ownership of eCC BVI and its Beijing subsidiaries and that Light Year will move expeditiously to take operative control and to liquidate the Chinese subsidiaries.

14 eCC Inc contends that this action will cause irreparable damage to their interest in eCC BVI and its wholly owned subsidiaries and that Light Year and Mr. Friedman are using the current state of affairs not to assert a genuinely held belief in the ownership of the disputed shares but to force eCC Inc to purchase their minority shareholding on terms favourable to them.

15 Mr. Friedman in his defence states that the documents are forgeries and that the shares are not owned by eCC Inc and that they have no documents (share transfer documents or resolutions) to evidence that eCC Inc in fact owns the shares.

16 I will now consider whether or not the injunction should be discharged.

Law on Injunctions

17 An interim injunction is another form of interlocutory injunction and the court's authority to grant such interim relief stems from s. 24 of the West Indies Associated States Supreme Court (Virgin Islands Order) Cap. 80. This section gives the court the discretion to grant such relief when it is just and convenient to do so and on such terms as it sees fit. The procedure for obtaining such injunctions is set out in CPR 2000 Part 17. In exercising this power our courts have adopted the test laid down by the House of Lords in American Cyanamid v. Ethicon 1. In essence, eCC Inc must satisfy the court that it has a serious issue to be tried, that is, one that is not frivolous or vexatious and that the balance of convenience favours the grant of an injunction.

Procedural Lapse

18 Mrs. Small-Davis, Counsel on behalf of the Second Defendant argued that the injunction obtained exparte should be discharged as eCC Inc did not seek leave to serve the claim form and supporting documents on Light Year which is a non-resident company; that the claimant did not serve any of the material that was relied upon at the expart...