Malitskiy and Filipenko v Oledo Petroleum Ltd; Oledo Petroleum Ltd v Adamovsky and Stockman Interhold S.A.

• Jurisdiction: British Virgin Islands
• Judge: Mitchell, J.A.
• Judgment Date: 16 August 2013
• Neutral Citation: VG 2013 CA 6
• Docket Number: BVIHCMAP 6 of 2013
• Court: Court of Appeal (British Virgin Islands)
• Date: 16 August 2013

Court of Appeal

Mitchell, J.A. (Ag.)

BVIHCMAP 6 of 2013

Malitskiy and Filipenko

and

Oledo Petroleum Ltd

Oledo Petroleum Ltd

and

Adamovsky and Stockman Interhold S.A.

Appearances:

Mr. Justin Fenwick, QC, instructed by Martin Kenney & Co. for the appellants

Mr. Peter McMaster, QC, Mr. Andrew Willins and Mr. Jonathan Ward instructed by Appleby, for the respondents

Company Law - Civil appeal — Interlocutory appeal filed with leave — British Virgin Islands' company — Derivative claim — Unfair prejudice claim — Cross appeal against order for costs filed without leave — British Virgin Islands Business Companies Act, 2004 — Eastern Caribbean Supreme Court (Virgin Islands) Act — Whether the same facts may have found either a derivative claim or an unfair prejudice claim — Whether the availability of the unfair prejudice claim is a factor to consider and not a mandatory bar to a derivative claim.

1 Mitchell, J.A. [AG.]: This is an interlocutory appeal against parts of an order of Bannister, J. made on 18th January 2013 in the Commercial Division and brought with leave of this Court granted on 9th May 2013. It has been passed to me as a single judge of the Court in accordance with rule 62.10 of the Civil Procedure Rules 2000 (“CPR”).

2 Mr. Malitskiy and Mr. Filipenko own one half of the BVI company Oledo Petroleum Ltd (“Oledo”). Mr. Adamovsky owns the other half. Through Oledo the parties owned a chain of filling stations in the Ukraine. In April or May 2009 the parties agreed to separate, and to distribute the assets they jointly owned in specie. They agreed to sell Oledo's business for some US$71.5 million, so that some one half of the proceeds would belong to Mr. Malitskiy and Mr. Filipenko and the other half to Mr. Adamovsky. Mr. Adamovsky and Mr. Malitskiy were joint signatories on an Oledo company bank account, but Mr. Adamovsky was the sole director of the company. On selling Oledo's business, Mr. Adamovsky, using his authority as sole director, and without telling Mr. Malitskiy, removed Mr. Malitskiy from the mandate and caused the US$71.5 million to be transferred from Oledo's account at a bank in Latvia to an account in the name of his company Stockman Interhold SA (“Stockman”) in January 2010. He has disbursed all the money, and Oledo is an empty shell.

3 Mr. Malitskiy and Mr. Filipenko claim that Mr. Adamovsky used part of the proceeds (some US$35 million) to purchase in the name of Stockman shares in a company called Assofit Holdings Ltd. (“Assofit”). The appellants say this was not only a misappropriation by Mr. Adamovsky of Oledo's funds, in breach of his fiduciary duty, but that Stockman is fixed with knowledge of Mr. Adamovsky's breach of fiduciary duty and cannot in conscience retain the Assofit shares in question. Mr. Adamovsky says it was an act of commercial probity, motivated by a desire to keep the money out of the hands of the appellants who would have disappeared with their 50% share of the proceeds leaving creditors of the group of companies unpaid. Mr. Adamovsky claims to have applied US$71,128,488.40 in satisfying the former partnership debts.

4 This dispute has resulted in Mr. Malitskiy and Mr. Filipenko bringing two cases before the Commercial Division. The first is an unfair prejudice claim for relief for improper dealings with Oledo's assets to the appellants' loss. They seek compensation for the diminution in value of their shares. The second is a derivative claim brought by Mr. Malitskiy and Mr. Filipenko in the name of Oledo against Mr. Adamovsky and Stockman. The purpose of this action is to recover the sum of US$71.5 million. The company seeks either recovery of the money, and/or a finding of a constructive trust of assets bought with that money. The learned trial judge found that there was a possibility that at trial and after full disclosure it may be shown that Oledo has a good claim to a beneficial interest in any property purchased with its money by Mr. Adamovsky.

5 The statutory provision governing the issue of a derivative claim is section 184C of the BVI Business Companies Act, 2004 (“the Act”) [Act No. 16 of 2004, Laws of the Virgin Islands 2004 (as amended by the BVI Business Companies (Amendment) Act, 2005, Act No. 26 of 2005, Laws of the Virgin Islands 2005)]. This section provides as follows:

• “184C. (1) Subject to subsection (3), the Court may, on the application of a member of a company, grant leave to that member to

  • (a) bring proceedings in the name and on behalf of that company; or

  • (b) intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company.

• (2) Without limiting subsection (1), in determining whether to grant leave under that subsection, the Court must take the following matters into account

  • (a) whether the member is acting in good faith;

  • (b) whether the derivative action is in the interests of the company taking account of the views of the company's directors on commercial matters;

  • (c) whether the proceedings are likely to succeed;

  • (d) the costs of the proceedings in relation to the relief likely to be obtained; and

  • (e) whether an alternative remedy to the derivative claim is available.

• (3) Leave to bring or intervene in proceedings may be granted under subsection (1) only if the Court is satisfied that

  • (a) the company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

  • (b) it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders or members as a whole.”

6 The statutory provision governing the bringing of an unfair prejudice claim is section 184I of the Act which provides as follows:–

• “184I. (1) A member of a company who considers that the affairs of the company have been, or 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 order as it thinks fit, including, without limiting the generality of this subsection, one or more of the following orders

  • (a) in the case of a shareholder, requiring the company or any other person to acquire the shareholder's shares;

  • (b) requiring the company or any other person to pay compensation to the member;

  • (c) regulating the future conduct of the company's affairs;

  • (d) amending the memorandum or articles of the company;

  • (e) appointing a receiver of the company;

  • (f) appointing a liquidator of the company under section 159(1) of the Insolvency Act on the grounds specified in section 162(1)(b) of that Act;

  • (g) directing the rectification of the records of the company;

  • (h) setting aside any decision made or action taken by the company or its directors in breach of this Act or the memorandum or articles of the company.

• (3) No order may be made against the company or any other person under this section unless the company or that person is a party to the proceedings to which the application is made.”

It is clear that the power to grant relief conferred on the court by section184I has deliberately been drafted in the widest possible terms.

7 The learned trial judge had before him an application by Mr. Malitskiy and Mr. Filipenko in the derivative claim for the provisional leave earlier granted by Wallbank, J. to bring these proceedings in the name of Oledo to be made final. At the conclusion of the hearing, he dismissed the claim and set aside the Subject Matter Preservation / Freeze Order that Wallbank, J. originally made at a hearing on 15th August 2012 and subsequently continued. He ordered Mr. Malitskiy and Mr. Filipenko to pay 20% of the respondents' costs of the proceedings, to be assessed if not agreed and paid within 14 days of assessment or agreement.

8 In considering section 184C and section 184I the learned trial judge observed:–

• “[14] I was referred to no authority upon the meaning of good faith where it occurs in section 184C (2)(a) [Suzy Belinda Hughes v. Nigel Richard Weiss et al [2012] EWHC 2363 (Ch)].[Nurcombe v. Nurcombe [1985] 1 WLR 370, mentioned in Mr Adamovsky's skeleton, but not referred to in argument, was about estoppel by election and has nothing to do with the issues which arise in the present application]. In my judgment the provision is designed to enable the Court, in a proper case, to withhold permission to commence derivative proceedings from a shareholder who wishes to use the procedure otherwise than for the benefit of the company in question – in other words, in order to achieve a collateral purpose. On the other hand, and in accordance with generally accepted principles it seems to me that, once it is shown that it is in the interests of the company for the proposed claim to be brought, that the claim has a real prospect of success and that the true object of the shareholder in seeking leave to bring it is to seek redress on its behalf for a wrong done to the company, it is not relevant that the shareholder has some improper motive in advancing it. In other words, and provided that the other conditions are satisfied, the fact that the applicant may be motivated by spite or malice against the proposed defendant is nothing to the point – otherwise, as has been pointed out elsewhere, only persons of established and universal goodwill would be permitted to institute derivative proceedings…

• “[15] So far as concerns the matters which the Court is required by subsections 184C(2)(b) and (c) to take into account in determining whether to sanction derivative proceedings (whether the proposed...