Analysis
The case concerned various agreements (including a sale purchase agreement, a headstay agreement and an alleged oral agreement) transacted between the claimants and the defendant (among others) in connection with a business venture. It was alleged that the oral agreement obliged the defendant to redevelop, restructure, manage and/or dispose of assets within a hotel portfolio in order to maximise the financial benefit realised from such assets, and then to pay a share of the net financial benefit from such activity to the claimants. The true intention behind the oral agreement was a matter of dispute, the claimants maintaining that it was intended principally to provide for the sharing of profits between the first claimant and the defendant, while parties whom it was proposed would be added as defendants maintained that the true object had been to deceive a third-party creditor of the defendant.
The case involved many claims arising out of the agreements. The central such claim was that the defendant had failed to account for the agreed portion of the profits made from the sale of various entities, as required under the agreements.
The claimants sought permission to amend the claim form and particulars of claim to include a claim based on the alleged oral agreement, and to add four further defendants in addition to the original defendant, whom they intended to pursue on various bases including that assets in which the claimants had a proprietary interest could be traced into the hands of the proposed defendants and that some of the proposed defendants were liable in knowing receipt. They further sought permission to serve the prospective defendants out of the jurisdiction, and proprietary injunctions against them, together with ancillary relief, including permission to enforce the orders obtained abroad.
The defendant also sought permission to amend his defence and to bring counterclaims against the claimant and claims against various proposed parties, in respect of the transfer of the assets from a trust in which he had previously alleged he had no beneficial interest, but which he now explained he was interested in insofar as the only two discretionary beneficiaries were, he alleged, his nominees. The transfer of the assets had been made from the trust to the claimants by way of settlement (the Isle of Man settlement) of claims which the claimants had intimated against the trustees of the trust. Those claims had alleged that the beneficiaries were nominees for the defendant, and that as such the assets held in the trust were held on constructive trust for the claimants, by reason of the wrongdoing alleged against the defendant in these proceedings.
The parties were agreed as to the legal tests applicable to the various applications. As to permission for amendment, as a general rule amendments should be allowed as long as any prejudice to the other party can be compensated for in costs. Permission would be refused where an amendment had no realistic prospect of success. In relation to service out, the questions were whether there was a serious issue to be tried on the merits and whether there was a good arguable case that the claims fell within the jurisdictional gateways.
As to the claimants’ application to amend their particulars, it was argued that no such oral agreement had ever existed. The formal agreements told against the existence of any such oral agreement both by reason of their general contents and because they contained an entire agreement clause. It was moreover suggested that, insofar as the intention of the agreement had been to deceive a creditor, the contract would be unenforceable on grounds of illegality.
As to the application to join further defendants, arguments were raised as to, among other things, whether the claimants had established that there was a serious issue to be tried in respect of the various constructive trust and tracing claims raised, especially in light of what was described as the complete lack of focus of the claimants in identifying the property to which the constructive trusts were said to attach.
As to the defendant’s potential proprietary claim to the assets transferred to the claimants under the Isle of Man settlement, two principal arguments were developed. First it was said that the new case put forward by the defendant was an abuse of process insofar as he had previously maintained in these very proceedings that he had no beneficial interest in the trust and had received no benefit from it, and now sought to raise a claim on the basis that he did have an interest in that trust. Secondly, it was maintained that the claims raised were bad in law. It was submitted that even on the new claim raised by the defendant, he would never have had any proprietary interest in the trust at all because he could have no better title than his claimed nominees, the named beneficiaries, who were discretionary beneficiaries only, with no vested interest in the trust funds and only a right to be considered by the trustees for appointments to them. No allegation was being made by the defendant that the trustee had acted in breach of trust or that such trustee was aware of the nominee arrangements, so the defendant could not be making any claim for breach of trust, and could only sustain a claim on a proprietary basis, which again would be defeated by the fact that the most the defendant could have had through his nominees was status as an effective discretionary beneficiary.
For the defendant it was contended that his nominees, since they were the only two discretionary beneficiaries, were collectively entitled to the entire property and could call in the trust pursuant to the principles of Saunders v Vautier [1841], notwithstanding that they were merely discretionary beneficiaries. On that basis, the defendant had a proprietary and/or equitable interest in the trust assets since he could direct his nominees to exercise their Saunders rights or, through them, could exercise his negative right to prevent breach of the trust and to follow any trust property appointed to their order in breach of trust. To this, two replies were made. First, the nominees were not collectively entitled to the trust assets, since the class of beneficiaries was not closed; pursuant to clause 5 of the trust, the trustee could, with the consent of the protector, direct that any person be added to the class of beneficiaries. Secondly, the transfer of the assets under the Isle of Man settlement was not a breach of trust, whether or not it was done at the direction of the nominees, since the trust itself conferred upon the trustee the power to compromise any claims against it as trustee.
Held:
Permission would be given to the claimants to amend their claim to plead the additional facts relied on against the defendant, but would be refused for the addition of the proposed defendants and for service out of the jurisdiction upon them. The application for injunctions against any of them would be refused.
As to the amendments to the claim against the defendant, although there were powerful points to be made against the existence of any such agreement, there was a serious issue to be tried as to the alleged oral agreement, and the court could not resolve the issues involved without hearing the evidence of the parties. As to the suggestion that the agreement was invalid on grounds of illegality, that matter also could only properly be resolved at a trial, the application of the doctrine of illegality being fact-sensitive.
As to the pursuit of the additional prospective defendants, although the claimants’ case against them may have had realistic prospects of success, full recovery had already been made in respect of the claim for the profit shares alleged through the Isle of Man settlement. The court should not countenance permitting service out of the jurisdiction in those circumstances, since the principle against double recovery would prevent any further recovery in respect of these matters. It followed that permission to serve prospective defendants out of the jurisdiction would be refused, as would the application for a proprietary injunction and ancillary relief against those proposed defendants.
As to the defendant’s application to raise a proprietary claim in respect of the transfers pursuant to the Isle of Man settlement, the court held that the raising of such a claim was not an abuse of process. The alleged abuse was exhibited by the original defence, which was now being abandoned, not the defence and claims which the defendant now wished to advance. It had been accepted that the defendant had an arguable case on the merits of these claims, and it would require extreme facts for a court to deny a claimant the opportunity to pursue legitimate claims and therefore to deny the claimant justice in respect of them. Justice required that the defendant be permitted to pursue the case which he wished to pursue.
The court also rejected the argument that it was clear that the defendant’s proprietary claims were bad in law. It was at least arguable that the existing class of discretionary beneficiaries was closed and that as such they were entitled to call in the trust property, since the addition of beneficiaries to the class depended not upon external events, but rather upon decisions made by the trustee himself. Further, it was arguable that the nominees had exercised the power to call in the property held on trust themselves in entering into the Isle of Man settlement, in which it was recited that the nominees considered the conclusion of the settlement to be in their best interests as the only named beneficiaries under the settlement.
Although no claim for breach of trust had yet been made, this owed to the fact that the Isle of Man settlement documents had only just become available. It was to be borne in mind that there were good arguable grounds for thinking that the trustee could not be said to have been exercising the power of compromise conferred by the trust deed bona fide in concluding the Isle of Man settlement, not least given the fact that, on the nominees’ case, they were the true beneficial owners of the assets, so that any tracing claim against them ought not to have been any cause for settlement.
Therefore, there were complex factual issues to be resolved, and the proprietary claim could not be said to have no realistic prospects of success. In order to ascertain exactly what had taken place the matter would have to go to trial.
JUDGMENT COOKE J: The claimants’ applications [1] The claimants seek permission to amend the Claim Form and Particulars of Claim and to add four further defendants in addition to the original defendant Mr Ruhan. They further seek permission to serve the prospective second-fifth defendants out of the jurisdiction and a proprietary injunction against those defendants …Continue reading "Orb A.R.L & ors v Ruhan & ors [2022] WTLR 1049"