CMC Holdings Ltd v Martin Henry Forster

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Deputy Bailiff
• Judgment Date: 09 October 2019
• Neutral Citation: [2019] JRC 202
• Date: 09 October 2019

[2019] JRC 202

ROYAL COURT

(Samedi)

Before:

T. J. Le Cocq, Esq., Deputy Bailiff, and Jurats Crill and Christensen

Between

CMC Holdings Limited

First Plaintiff

CMC Motors Group Limited

Second Plaintiff

and

Martin Henry Forster

First Defendant

RBC Trust Company (International) Limited

Second Defendant

The Regent Trust Company Limited

Third Defendant

and

Martin Henry Forster

Jeremiah Kiereini

Charles Njonjo

The Estate of Jack Benzimra

The Estate of Prahlad Jani

RBC Trust Company (International) Limited

The Regent Trust Company Limited

Third Parties

Advocate S. C. Thomas for the Plaintiff.

Advocate S. J. Alexander for the First and Second Defendants

Authorities

CMC and Anor v Foster and Ors [2019] JRC 004A

CMC Holdings Limited v Forster and Others [2017] JRC 188.

CMC v Forster and Ors [2018] JRC 078

Companies — an appeal from an order of the Master of 17th January, 2019.

Deputy Bailiff

THE

1 This is an appeal from an order of the Master of 17 ^th January, 2019, CMC and Anor v Foster and Ors [2019] JRC 004A contained in his judgment of that date (“the Master's Judgment”). It is brought by RBC Trust Company (International) Limited (“the Second Defendant”) and The Regent Trust Company Limited (“the Third Defendant”).

2 The order made by the Master deals with the method of identifying documentation which should be disclosed by the Plaintiffs to the Defendants in this case. It is not the first time that this issue has come before this Court. For reasons set out in a judgment of 8 ^th November, 2017, ( CMC Holdings Limited v Forster and others [2017] JRC 188), the Master made certain orders with regard to discovery in these proceedings. Those order were appealed to this Court and the judgment of this Court on that appeal is to be found at CMC v Forster and Ors [2018] JRC 078 (“the Royal Court Judgment”).

3 The background in this matter has been referred to at some length in the various judgments of the Court including those referenced above. It is not therefore necessary to set out full details of the background but the summary of the case set out in Royal Court Judgment is in the following terms:-

“The nature of the case

10. Whilst it is not necessary to go into the full details of the Plaintiffs' claim and the nature of the answer filed, it is necessary to gain some understanding in order to put the orders for discovery made by the Master in context .

11. In general terms, the nature of the case can be explained by quoting the summary of claims set out in the Plaintiffs' Order of Justice. It is in the following terms:-

“1. The Plaintiffs are long-established Kenyan companies. They import vehicles from overseas vehicle manufacturers and supply them to the East African market. The Second Plaintiff is a wholly owned subsidiary of the First Plaintiff .

2. The Plaintiffs seek relief in respect of the Defendants' participation in a secret scheme (“the Scheme”) which operated from 1977 to 2011. Under the Scheme, funds properly due to the Plaintiffs were diverted at the instruction of certain directors of the Plaintiffs, in breach of fiduciary duty and in breach of trust. The directors responsible included the First Defendant .

3. Those directors were dishonestly assisted by the Second and Third Defendants who were at all material times fiduciary and corporate services providers in Jersey. In the alternative, the Second and Third Defendants are vicariously liable for the dishonest assistance rendered by their employees and agents in the directors' breaches of duty .

4. The Scheme was funded by secret commissions paid by vehicle manufacturers that supplied vehicles to the Second Plaintiff. They were paid directly to bank accounts in Jersey operated by entities unconnected with either of the Plaintiffs and without the knowledge or authorisation of the Plaintiffs. Funds paid into the Scheme were transferred between those entities, invested, and over time substantially distributed to a small group of people, including the First Defendant and other of the Plaintiffs' directors who were privy to the Scheme .

5. The secret commissions paid into the Scheme and their proceeds were the result of breaches of fiduciary duty and breaches of trust by directors of the Plaintiffs, including the First Defendant. The Plaintiffs seek orders that the First Defendant account to the Plaintiffs for all sums that were paid into the Scheme as a consequence of his breaches of fiduciary duty and breaches of trust. The Plaintiffs also seek an order that he account to the Plaintiffs for his profit from the Scheme still in hand .

6. The Plaintiffs also seek orders for the Second and Third Defendants to account to the Plaintiffs for all sums paid into the Scheme on the ground of their dishonest assistance in these breaches of fiduciary duty and / or breaches of trust, wherein the alternative on the basis that they are vicariously liable for the dishonest assistance provided by their agents and employees.”

12. Accordingly insofar as it related to the Second and Third Defendants, the claim against them is predicated upon there being a scheme, the funding of which was provided by secret commissions paid by suppliers of motor vehicles to the Plaintiffs at the request of directors of the Plaintiffs. The secret commissions were paid into offshore companies and structures operated, so it is alleged, by the Second and Third Defendants. It is alleged that the payments were made by the directors of the Plaintiffs in breach of their fiduciary duty and that the Second and Third Defendants dishonestly assisted the directors in the Scheme. The monies held in the Scheme from the secret commissions were ultimately provided for the personal use of a group of directors of the Plaintiffs.”

4 On the earlier occasion this Court overturned the decision of the Master and at paragraphs 54 et seq of the Royal Court Judgment said this:-

“54. However, it seems to us that in the main this appeal turns upon one point, namely whether or not the Master, in saying that “what is at the heart of this case is whether or not the alleged Scheme was approved by the Plaintiffs, or whether it was a secret Scheme. Whilst the Scheme is said to have operated over many years, the key issue is who knew about it and authorised it”, was correct. If that were the determinative issue in the case then we can see justification for the Master limiting discovery in the way that he has done .

55. Whilst the Scheme as pleaded by the Plaintiffs is not admitted by the Second and Third Defendants, it appears to be common ground that some form of Scheme existed given the assertion to that effect by the First Defendant in his answer. Is the existence of some form of Scheme, whether in the form as pleaded by the Plaintiffs or accepted by the First Defendant sufficient to limit discovery insofar as it might disclose, absent limitation, documentation relating to the details of that Scheme? We can see, looking at the picture overall, that the Master could legitimately form the view that he did. However, we are less confident in holding that that must be the case .

56. There is no doubt that the statement referred to above identifies one of the central issues to the case. That does not mean, however, that other issues are not equally important. Furthermore, to express the central issue in those terms, appears to presuppose that a scheme in the form as pleaded by the Plaintiffs existed. That is, on the face of the pleadings, not of course a position that is accepted by the Second and Third Defendants .

57. In our view, with some reluctance, we think that the case against the Second and Third Defendants must, in the light of the non-admittance contained in the pleadings, be proved in all of its elements to the appropriate standard by the Plaintiffs .

…

61. Accordingly, whilst we fully understand and sympathise with the Master's desire to limit what was otherwise a very substantial exercise in discovery, we do not feel able to uphold his order .

62. We are not intending to suggest that some appropriate limitation as to discovery process is not possible in this case. In fact, we feel it should be and is desirable. It may be, for example, that review of documentation can be limited in some way, perhaps to those where payments are known and set out in schedule 2 to the Order of Justice. It may be that this is not possible. Perhaps service records could be excluded or sampled. We are not in a position to say because we were not addressed about any alternative. We were asked to uphold the order of the Master or to overturn it in favour of a full discovery exercise .

63. Without a greater understanding, we are unable to offer any suggestions as to what may be possible, and we are left, we think, with no alternative but to overturn the order of the Master and to find that the normal discovery exercise should take place. We wish to be clear that all we are doing at this point is expressing the view that a 10% dip sampling process will not, in our view, suffice to meet the justice of this case as it is currently pleaded. However, were those parameters to alter, in other words were the pleadings to change or some other method limiting the discovery process to be identified, then we do not mean anything in this judgment to suggest that it would be inappropriate to explore and order discovery in accordance with those limitations .

64. We do not fault the Plaintiffs for seeking to limit discovery. We do not, however, agree that a 10% dip sampling approach meets the justice of the case. In that sense, and for that reason, we overturn the order of the Master. That being said, we also note the fact that the limitation was not originally opposed before the Master by the Second and Third Defendants. This appeal in effect represents a change of position and we think that the costs before the Master in connection...