Johnson v Permanent Value Asset Management Ltd, Lipton and Mackay
| Jurisdiction | Barbados |
| Judge | Reifer, J. |
| Judgment Date | 18 July 2016 |
| Neutral Citation | BB 2016 HC 22 |
| Docket Number | No. 630 of 2014 |
| Court | High Court (Barbados) |
| Date | 18 July 2016 |
High Court
Reifer, J.
No. 630 of 2014
Mr. Barry Gale Q.C. and Ms Mawena Brathwaite, Attorneys-at-Law for the defendants/applicants
Mr. Bryan Weekes, Attorney-at-Law for the claimant/respondent
Civil practice and procedure - Pleadings — Application by the defendants for an order pursuant to CPR 2008 Part 15.2 (a) (i) and (b) and in the alternative pursuant to part 26.3(3) (b) dismissing the claimant's claim form and Statement of Claim — Application for summary judgment — Claim for financial loss arising in tort — Whether there were reasonable grounds for bringing the claim — Whether the claimant had a reasonable prospect of success — Whether the case/issue should have been disposed of at trial.
The development of a vibrant financial services sector across the jurisdictions has resulted in what may previously have been an anomalous situation, but which has now become the new norm.
It has given rise to a scenario which urges the Court to examine the boundaries of the common law to determine the state of the law as it relates to remedies available to litigants constrained by geographical location and contractual limitations. In short, to examine the law as it relates to the assumption of personal and corporate liability.
The factual matrix within which this action has arisen is as follows:
The claimant/respondent is a Canadian citizen resident in Barbados.
Through the legal vehicle of a Company registered in Guernsey Channel Islands, UK (Grange Nominees Ltd) she invested a sum of Canadian dollars in Argyle Funds SPC Inc. (hereinafter Argyle), a mutual fund registered in the Cayman Islands, authorized to issue different classes of shares. Stated differently, the account holder in Argyle is Grange Nominees Ltd, of which the claimant/respondent is the beneficial owner.
The Investment Manager of Argyle is Permanent Value Asset Management Ltd (hereinafter PVAM) the First defendant/applicant, a company (International Business Company) registered and doing business in Barbados. PVAM manages the fund. PVAM owns 10,000 management shares of Argyle.
The Second and Third defendants/applicants, Jeffrey Lipton and Katherine Mackay respectively, were at all relevant times Directors and employees of PVAM (2006 to present). The Third defendant/applicant is currently not a Director having ceased holding that office in August of 2013. The Second defendant/applicant remains up to the present time a Director of PVAM.
Counsel for the defendants/applicants makes this point: Argyle is incorporated and domiciled in the Cayman Islands, does no business in Barbados and is not a party to these proceedings. Its sub-advisor, New Solutions Financial Corporation is a Canadian Company which also has no connection whatsoever with Barbados. The investments made by Argyle are not made in Barbados. The only entity having a presence in Barbados is PVAM.
PVAM, as the Investment Manager of Argyle launched a Private Offering Memorandum in Barbados. The claimant/respondent, Grange Nominees Ltd, completed and submitted both an Application Form and Subscription Agreement in Barbados, which said document identified Cayman Islands Law as the governing law.
The inter-relationship of the major players herein is best illustrated by the affidavit evidence of the 2nd and 3rd defendants/applicants. At paragraph 11 of the Affidavit of Katherine Mackay filed November 18th 2014 the following chart appears:
This claim has arisen because the claimant/respondent alleges that one of the fund's credit advisors (New Solutions/Ovenden) has become ‘too dependent on asset backed loans rather than receivable financing’. In consequence, the claimant/respondent's investment may be, at worst, lost; at best, fatally diminished. Consequentially also, the distribution of dividends and interest to the investors, and the calculation of the net asset value of the fund, was suspended.
The Application of the defendants/applicants presently before this Court was filed November 18th 2014 pursuant to CPR 2008 Part 15.2 (a)(i) and (b) and in the alternative pursuant to Part 26.3 (3)(b). It is supported by the two Affidavits of the 2nd and 3rd defendants/applicants, Jeff Lipton and Katherine Mackay of even date.
It seeks an order from this Court dismissing the claimant/respondent's Claim Form and Statement of Claim filed herein on April 15th 2014.
This Statement of Claim was answered by Defence filed July 2nd 2014 on behalf of all three defendants/applicants.
The claimant/respondent's cause of action is best adumbrated at paragraphs 31 and 32 of the said Statement of Claim, and states as follows:
“31. The defendants assumed corporate and personal responsibility for the work entailed in managing the funds invested by the claimant in Argyle and thereby owed a duty of care to the claimant to carry out the functions of investment manager in a competent and professional manner.
32. The defendants have all breached the said duty of care and were negligent in the execution of their responsibilities as investments managers in that:
(a) They failed to request and/or demand sufficiently detailed information from New Solutions/Ovenden in relation to their investment activities otherwise they would have been aware of the deficiencies in the modus operandi and could have taken steps in a timely fashion to remove the funds from New Solutions and/or Ovenden.
(b) Alternatively, if they did receive information about New Solutions/Ovendens' investment activities they failed to take any corrective measures to safeguard the funds invested with that entity by Argyle.
(c) They failed to ensure that New Solutions carried/obtained the requisite insurance coverage to safeguard the funds provided to it for investment whether for the purpose of factoring receivables or otherwise, in clear breach of the express warranty given to the claimant by Argyle that the funds would be so protected.”
Most significantly, the claimant/respondent's cause of action is NOT in Contract, but a claim for financial loss arising in Tort. In other words, the claimant/respondent is alleging that a duty of care was owed, was negligently breached and as a result it has suffered consequential financial loss.
An alternative claim pegged to Section 228 of the Companies Act, Cap. 308 was abandoned at the hearing of the Application.
The main plank of the defendants/applicants' Defence can be found at its paragraphs 12 and 13 as follows:
“12. The defendants deny that they assumed corporate and personal responsibility for the work entailed in managing the funds invested by the claimant in Argyle as alleged in paragraph 31 of the Statement of Claim or at all and puts the claimant to strict proof thereof. The defendants further deny that they owed a duty of care to the claimant to carry out the functions of investment manager in a competent and professional manner as alleged in paragraph 31 of the Statement of Claim or at all and puts the claimant to strict proof thereof.
13. The defendants further deny that they are in breach of any duty or were negligent as alleged in paragraph 32 of the Statement of Claim or at all …”
The grounds of the application (purportedly 4 in number) are set out hereunder seriatim:
“1. The claimant has failed to set out a cause of action against the defendants and:
i. Pursuant to CPR 2008 Part 26.3 (3) (b) the insufficiency of the claimant's claim warrants the Court striking out the claimant's claim as she has no reasonable grounds of bringing the claim.
ii. Ultimately, pursuant to CPR 2008 Part 15.2 (a) (i) the claimant has no real prospect of succeeding on the claim or issue.
iii. Finally, pursuant to CPR Part 15.2 (b) there is no other reason why the case or issue(s) should be disposed of at trial.”
The claimant/respondent filed two affidavits in response: her own and that of her Investment Adviser Maurice Fortier, both dated February 6th 2015. Counsel Mr. Gale QC submits that there is nothing in the Affidavits of these two persons to challenge the Affidavits of Messrs. Lipton and Mackay and that there are no disputes of fact. Counsel Mr. Weekes submits to the contrary, that there is a significant dispute of fact.
Counsel made six main points in support of the argument that there were no reasonable grounds for bringing the claim and no real prospect of success, in both written and oral submissions as follows:
- If there is a Duty of Care owed in this scenario (be it in Contract or in Tort), it is a Duty of Care owed by PVAM to Argyle pursuant to the Investment Management Agreement between these two entities which notably the 2nd and 3rd defendants/applicants are not parties of/to (seen at Exhibit KM3). Stated differently, the Duty of Care is owed, not to the claimant/respondent, but to the fund. In other words, there is no cause of action against the defendants/applicants. 2. The claimant/respondent has no locus standi to bring this action against the defendants/applicants. Only the company by its proper organ can bring proceedings for a wrong done to that company. He raises the concept of Reflective Loss —: Prudential Assurance Co. Ltd v. Newman Industries Ltd Argyle (No. 2)[1982] Ch 204 and Johnson v. Gore Wood & Co.[2002] 2 AC 1. It is Argyle which must sue for that loss: Foss v. Harbottle(1843) 2 Hare 460. 3. There was no Duty of Care owed but if there was a Duty of Care, it would be to Grange Nominees Ltd, (the SH) neither of whom are parties to this action. Only a shareholder may bring a derivative action on behalf of the Company (the Derivative Action Point) Medley v. Finton[2012] CILR 360; Svanstrom v. Jonasson[1997] CILR 192. 4. There is...
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