LIBERTARIAN INVESTMENT LTD v. THOMAS ALEXEJ HALL

HCA 2533/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2533 OF 2006

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R E A S O N S   F O R   D E C I S I O N

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1.  The plaintiff obtained an interlocutory proprietary/Mareva injunction ex parte on notice before Sakhrani J on 16 November 2006 restraining the defendant from dealing with:

(1)	(a)	property acquired or representing £13,646,708.18 caused to be transferred by the defendant out of the trust account of Messrs. Berwin Leighton Paisner (“BLP”), solicitors, London;
	(b)	1,777,700 shares in Sporting Exchange Limited (“TSE”) with the proceeds of sale of all or part thereof;
(2)	the defendant’s own assets up to the value of £21.424 million.

2.  The interlocutory injunction was granted subject to, inter alia, fortified undertaking of HK$5,000,000 offered by the plaintiff.

3.  At the hearing for the continuation of the injunction, I ordered that the injunction be continued until trial with the variation that the sum of £13,646,708.18 be reduced to £8,314,680.64.  I now give my reasons.

Background

4.  Much of the facts are not in dispute.

5.  The plaintiff is wholly owned by Mr. Alan Woods, an international investor.  The defendant is a Hong Kong based businessman. 

6.  In 2003, Mr. Woods asked the defendant to acquire shares in TSE, a private company incorporated in England which operated an on-line betting game website “Betfair”. 

7.  In May 2003, Assanzon Development Corporation, a company wholly owned by Mr. Woods, transferred about £35.79 million to a trust account of BLP for Axdale Overseas Corporation.  Axdale was controlled by the defendant.  The funds were acknowledged in the BLP trust account to be from Momentum/plaintiff.  Momentum Limited was wholly owned by the plaintiff by July 2004. 

8.  After the transfer of the £35.79 million, the defendant e-mailed to Mr. Woods various statements of account of the deposits at BLP, stating that the funds were for the purchase of TSE shares.

9.  In 2002, TSE’s Article’s of Association were amended by imposing a regime of pre-emptive rights for existing shareholders governing all sales and/or transfers of shares in TSE.  Under Article 36.2, the shares of any members may not be sold, transferred or otherwise disposed of except with the prior written consent of the Board, or the member wishing to sell its shares shall send a transfer notice offering the shares to the other members.  On 22 June 2002, TSE’s Articles were further amended refining the regime of pre-emptive rights.

10.  In May 2003, the defendant prepared a general offer for TSE shares on behalf of Momentum.  The move was unsuccessful.  

11.  In August 2003, the defendant prepared a second general tender offer for TSE shares by Axdale on behalf of Momentum.  Momentum acquired 5,598,918 TSE shares at £3.11 per shares (i.e. about 6%).  

12.  Momentum entered into a Deed of Undertaking dated 14 January 2004 with TSE (“the Momentum Undertaking”) in that:

(1)     Momentum represented that as at the date of the undertaking, neither it, its subsidiary, its parent, nor any subsidiary of its parent had any direct or indirect interest in any securities (including shares) in TSE:

(2)     Momentum agreed not to acquire further TSE shares unless with the prior written approval of the TSE board.

13.  In September 2003, Mr. Woods asked the defendant to acquire up to 10% of TSE shares.

14.  In December 2003, the defendant said that he was negotiating with one Mr. Mark Davies to acquire 3.2% of TSE shares.

15.  Sometimes in 2004 (the date of which is disputed by the parties), the defendant handed a file to Mr. Woods containing a note prepared by the defendant stating:

“Davies-Samos and Caledonian Information

1,777,700 Shares in Samos and Caledonian Holding Co’s are held by Momentum Limited by way of Davies Family Settlement.  Copy of relevant info to be forwarded to Alan to complete file.”

16.  As at January 2004, TSE’s share register showed that 1,777,700 shares were held by Samos Investments Limited and Caledonian Heritable Investments Limited. 

17.  On about 30 March 2004, the defendant e-mailed a statement of account relating to the funds in BLP and another London firm of Solicitors Tarlo Lyons showing, inter alia, £5.56 million were used to purchase 1,777,700 shares at £3.11 per share with disbursements for stamp duty and legal fees.

18.  The defendant e-mailed a Summary Overview as at 5 June 2004 showing, inter alia, 1,777,700 shares of Samos/Caledonian (via Davies Settlement) were purchased at £3.11 per share, and all the shares purchased were assigned 100% to the plaintiff.

19.  Since early 2005, the plaintiff has been demanding the defendant to arrange for the 1,777,700 TSE shares to be brought under the plaintiff’s control. 

20.  The relationship between Mr. Woods and the defendant deteriorated.  Mr. Woods asked Mr. Tim Levene, founder and shareholder of TSE, to be his representative to discuss with the defendant, inter alia, on bringing the 1,777,700 TSE shares under the plaintiff’s control.

21.  In March 2006, Mr. Levene instructed the defendant to cause the registered shareholders of the 1,777,700 TSE shares to accept a general cash offer to all TSE shareholders by the Softbank Corporation of Japan at £13.2005 per share.

22.  On 30 July 2006, the plaintiff obtained a copy of the ledger of the BLP trust account, which stated that sums totalling £13.646 million (as stated in the tracing injunction) were transferred on the instruction of the defendant to the Swiss bank account of Axdale as follows:

(1)     £7.51 million on 15 May 2003;

(2)     £5.46 on 14 October 2003;

(3)     £0.66 million on 20 April 2004.

The plaintiff alleged that the above transfers were unauthorized.

23.  The TSE share register showed that at the material times, 1,587,700 shares were held by Samos and Caledonian (i.e. only 190,000 of the 1,777,700 TSE shares were sold).

24.  Just shortly before the present hearing, the plaintiff was informed by Samos and Caledonian that:

(1)     they had not dealt with the defendant or Mr. Michael Schultz (their nominee as alleged by the defendant);

(2)     they did not make any agreement with the defendant in relation to the 1,777,700 TSE shares;

(3)     they did not execute any declaration of trust in respect of the 1,777,700 TSE shares.

25.  It also transpired that in the sale of the 5.5 million TSE shares to Momentum, Samos and Caledonian received only £2.71 instead of £3.11 per shares.

Plaintiff’s case

26.  The plaintiff case is that the £35.79 million belonged to the plaintiff and were transferred by Assanzon on behalf of the plaintiff, and the funds at BLP were under the control of the defendant for the specific purpose of acquiring TSE shares.

27.  Mr. Woods said the in early 2004, the defendant gave him the Davies-Samos/Caledonian note and the defendant said that the 1,777,700 TSE shares were acquired.  The defendant said about £5.5 million in the BLP trust account were applied for the acquisition of the 1,777,700 TSE shares.  The defendant asserted that the 1,777,700 TSE shares were held by Samos and Caledonian on trust for the defendant.

28.  In November 2005, the defendant told Mr. Levene that:

(1)     the plaintiff was precluded from directly or indirectly becoming a shareholder of TSE because of the Momentum Undertaking;

(2)     the defendant was the sole beneficiary of a formal written trust for the 1,777,700 TSE shares;

(3)     the trust documents would be ready in a few weeks;

And the defendant agreed to bring the 1,777,700 TSE shares under direct control of the plaintiff.

29.  In December 2005, the defendant told Mr. Levene that:

(1)     the 1,777,700 TSE shares were held under written declarations of trust;

(2)     the declaration of trusts could not be changed;

(3)     on the anniversary of the creation of the trust, the trust company could be changed from the defendant to a non-excluded party (i.e. not the plaintiff or any member of Mr. Woods’ family).

30.  In February 2006, the defendant told Mr. Levene that:

(1)     the defendant had settled the Hall of Fame Trust, which wholly owned Hoflim Limited, which in turn wholly owned the beneficial entitlement to the 1,777,700 TSE shares by the two shareholders registered with TSE;

(2)     Neither the trust nor Hoflim was permitted to transfer its underlying assets;

(3)     On the anniversary of the creation of the trust, it would be possible to wind up the trust or transfer the shares in Hoflim.

31.  Softbank announced that the offer was oversubscribed and scaled down, and it acquired 42% of all TSE Shares offered for sale.  The plaintiff argued that had the instruction to sell the TSE Trust Shares to Softbank been carried out, 746,634 of the 1,777,700 TSE shares would have been sold to Softbank for £9.85 million, and leaving a balance of 1,031,066 TSE shares.

32.  The defendant was instructed to sell the balance of the TSE shares at a 15% of the Softbank offer price.  Had that been done, there would have been proceeds of £11,568,998.

33.  The plaintiff alleged that the defendant had failed or refused to:

(1)     arrange for the plaintiff to have direct control of the 1,777,700 TSE shares;

(2)     provide information and documents to show the holding of the 1,777,700 TSE shares on trust by the defendant for the plaintiff;

(3)     account for the proceeds of the sale TSE shares to Softbank;

(4)     to provide accounts for the 1,777,700 TSE shares and profits therefrom or property representing the 1,777,700 TSE shares.

34.  The plaintiff asserted that the £13.64 million transferred out of the BLP trust account to Axdale were without authorization of the plaintiff.

35.  The plaintiff’s primarily claim is for account, enquiry and transfer or equitable compensation of the property held by the defendant as constructive trustee, in particular:

(1)     £13.64 million misappropriated by the defendant from the BLP trust account;

(2)     beneficial entitlement to the 1,777,700 TSE shares if the defendant had used the plaintiff’s funds to acquire them;

(3)     if not, whatever property acquired with the plaintiff’s funds;

(4)     if the defendant were unable to reconstitute the trust property, to compensate the plaintiff by restoring the trust to the position but for the breach of trust, i.e. restitution of £21,424 million representing:

(a)    £9.855 million as proceeds of 746,634 TSE shares which should have been sold to Softbank;

(b)   £11.568 million as proceeds of the remaining 1,031,066 TSE shares which should been sold at 15% discount of the Softbank offer.

36.  Alternatively, the plaintiff claimed damages for misrepresentation.

37.  Mr. Barlow SC, for the plaintiff, submitted that the above claims were famed on the basis of the report by the defendant that he had acquired the 1,777,770 TSE shares and was holding them on behalf of the plaintiff.  By reason of the recent indication from Samos and Caledonian, there is a possibility that no interest in the 1,777,700 TSE shares was acquired by the defendant.  Be that as it may, that issue is to be decided at the trial.  In any event, the potential profits that would have been earned had the instructions been carried out by the defendant would be the measure of the restitutionary equitable compensation.

Defence case

38.  The defendant said the funds at the BLP account had been fully accounted for save for the £5.5 million he paid to Mr. Schultz, the nominee for Samos and Caledonian for the 1,777,700 TSE shares. Samos and Caledonian were not prepared to proceed with the transaction.  No beneficial ownership of the 1,777,700 TSE shares were acquired for Mr. Woods.  Samos and Caledonian were willing to arrangement for payment of the £5.5 million together with accrued interest upon the plaintiff’s instructions to do so.

39.  The defendant said that the Davies-Samos and Caledonian note was handed to Mr. Woods in June 2004 and not early 2004.  He only intended to indicate that he had obtained the agreement of Caledonian and Samos to sell shares in TSE for the ultimate benefit of Momentum.  It was denied that Mr. Woods reasonably understood that the plaintiff had at that time acquired proprietary rights in the 1,777,700 TSE shares, as Mr. Woods knew or ought to have owned that by reason of the Momentum Undertaking and the terms of TSE Articles of Association, the plaintiff was unable to acquire proprietary rights in the 1,777,700 TSE shares.  Samos and Caledonian had not executed any declaration of trusts declaring they hold the TST Trust Shares for anyone.

40.  Mr. Levene did ask him to bring the 1,777,700 TSE Trust Shares under the plaintiff’s control.   He told Mr. Levene that by reason of the Momentum Undertaking and/or TSE Articles, the plaintiff could not directly or indirectly become the beneficial owners of additional shares in TSE.  He did tell Mr. Levene that he was the settlor of the Hall of Fame Trust, and briefly explained the structure of the trust that it wholly owned Hoflim.

41.  Mr. Levene did ask him to arrange for the sale of as many TSE shares as possible to Softbank, but he only said he would pass the request on to Samos and Caledonian but could do no more.

42.  With regard to the other questioned transfers out of the BLP trust account, the £7.51 million and £0.66 million were part of the £17.35 million used for the acquisition of the 5.5 million TSE shares (at £3.11) by Momentum.

Relevant principles

43.  The grant of an interlocutory injunction is discretionary and the court will consider whether there is a serious issue to be tried, and where the balance of convenience lies and whether damages will be adequate remedy (see American Cyanamid Co v. Ethicon Ltd [1975] AC 396.)

44.  On the grant of a Mareva injunction, in Derby & Co Ltd & ors v. Weldon & ors [1989] 2 WLR 276, Parker LJ said at p. 283 B-E:

“There are in essence only three issues: (i) has the plaintiff a good arguable case; (ii) has the plaintiff satisfied the court that they are assets within and where an extraterritorial order is sought without the jurisdiction; and (iii) is there a real risk of dissipation or secretion of assets so as to render any judgement which plaintiff may obtain nugatory.  Such matters should be decided on comparatively brief evidence.  In American Cyanamid Co v Ethicon Ltd [1975] AC 396, 407-8, Lord Diplock, dealing in that case with an application for interlocutory injunction, said:

‘It is no part in of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend or to decide different questions of law which calls for detailed argument and mature considerations.  These are matters to be dealt with at the trial.  One of the reasons for the introduction of the practice of requiring an undertaking is to damages upon the grant of an interlocutory injunction was that ‘it aided the court in doing that which was is great object, viz. abstaining from expressing any opinion upon the merits of the case until the hearing’: Wakefield v.  Duke of Buccleugh 918650 12 LT 628, 629.’

In my view the difference between an application for an ordinary injunction and a Mareva lies only in this, that in the former case the plaintiff need only establish that there is a serious question to be tried, whereas in the letter the test is said to be whether the plaintiff shows a good arguable case.  The difference, which is incapable of definition, does not however affect the applicability of Lord Diplock’s observations to Mareva cases.”

45.  In Deak v. Deak Perera Far East Ltd (in liquidation) [1991] 1 HKLR 551, Kemspter JA in dealing with an application for service out of the jurisdiction said at p. 554E that:

“By ‘good arguable case’ is meant a good prospect of success at trial.  It does not mean that the applicant would probably succeed or obtain judgement in Order 14 proceedings and may be consistent with the availability of the good arguable defence.”

46.  Practically speaking, the Mareva injunction is more relevant in the context of the present case, and I shall consider whether the plaintiff has shown a good arguable case.

Discussion

47.  The plaintiff’s tracing claim was based upon constructive trust and alternatively, Quitclose trust. 

48.  The constructive trust claim was based on fraudulent misappropriation of the plaintiff’s funds by the defendant (see Snell’s Equity, 31^st Ed. 24-01 & 24-08).  A fiduciary relationship arises where one person has undertaken to act for another in a particular matter in circumstances giving rise to a relationship of trust and confidence.  The distinguishing feature of such a relationship is the fiduciary’s duty of loyalty to his principal (see Snell, 19-04). 

49.  Alternatively, a trust may arise where a person, A, advances money to another, B, on the understanding that B is not to have the free disposition of the money and that it may only be applied for the purpose stated by A.  The effect of the trust is to preserve in A the beneficial interest in the money, so providing him with some proprietary security for his advance.  A trust will not be imposed on B unless A intends to restrict B’s freedom to dispose of money by requiring that it should not be applied for any purpose other than that stipulated (see Snell, 23-01 & 23-02; Barclays Bank Ltd v. Quitclose Investments Ltd [1970] AC 567).  The Quitclose trust is not restricted to loan situation and there is a wide range of situations in which parties entered into commercial arrangements which permitted one party to have limited use of the other’s money only for a stated purpose and must return it if that purpose was not carried out (see Typhoon 8 Research Ltd v. Seapower Resources International Ltd & anor [2002] 2 HKLRD 660).

50.  On equitable compensation, in Target Holdings v. Redferns [1966] 1 AC 421, Lord Browne-Wilkinson said at p. 434C-F:

“The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trust where the only way in which all the beneficiaries’ rights and be protected is to restore to the trust fund what ought to be there.  In such a case the basic rule is that the trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss.  Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v. Lord Ashburton [ 1914] AC 932, 952, 958, per Viscount Haldane LC.  If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had breach not been committed: Caffrey v. Darby (1801) 6 Ves 488; Clough v. Bond (1838) 3 M&C 490…  Thus the common law rules of remoteness of damage and causation do not apply.  However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach: see also In re Miller’s Deed Trusts (1978) 75 LSG 454; Nestle v. National Westminster Bank Plc [1993] 1 WLR 1260.”

51.  Thus, Mr. Barlow submitted if the defendant failed to acquire the 1,777,700 TSE shares, it ought to compensate the plaintiff with the supposed profits of £21.424 million had the acquisition been effected according to instructions.

52.  Mr. Wright, for the defendant raised the following points in argument for the discharge of the interlocutory injunction:

(1)     The plaintiff was not entitled to sue.

53.  Mr. Wright submitted that the funds were transferred by Assanzon and Assanzon was the proper plaintiff.

54.  Mr. Barlow submitted that there is uncontroverted evidence that the funds belonged to the plaintiff, and the plaintiff was the intended beneficial owner of the 1,777,700 TSE shares.  I agree with Mr. Barlow.

(2)     The defendant was the wrong party.

55.  Mr. Wright submitted that the funds were transferred to BLP on account for Axdale, and not the defendant. 

56.  Mr. Barlow submitted that it is beyond argument that the funds at BLP were under the control and at the disposal of the defendant.  If a fiduciary agent misapplies funds which are in their hands or under their control, he commits a breach of trust (see Belmont Finance v. William Furniture (No 2) [1980] 1 All ER 393, 405b-d).

57.  Mr. Wright submitted that in Belmont Finance, the alleged constructive trustee had become the owner of the particular property alleged to have been impressed with a constructive trust.  Here, the £35.79 million were deposited in the bank account of BLP, and the chose in action was held by BLP.  Although Axdale had the right to demand the use of the funds, Axdale held no chose in action.  Hence, the proper defendant should have been BLP.

58.  Mr. Wright also pointed out that the plaintiff’s pleaded case was based upon the defendant being a trustee of a declared trust and not on fiduciary relationship. 

59.  A constructive trust is a remedy against an agent who has been given the control of property to use it for specific purpose under circumstances of a duty to account for it and has misapplied it for unauthorized purpose.   The defendant had control of the BLP funds, and he had made reports to Mr. Woods  for the use of the funds which turned out to be far from accurate.   As I see it, the case of fiduciary relationship is open on the facts pleaded.  The plaintiff has shown a good arguable case on breach of fiduciary duty on the part of the defendant in relation to the funds in the BLP account.  Hence, the defendant is liable to account for the use thereof.

(3)     All the funds in BLF account fully were accounted for except for £5.48 million used for the purchase of 1,777,700 TSE shares.

60.  Mr. Barlow accepted that the 5.5 million TSE shares acquired by Momentum were paid for through the BLP trust account, and due credit must be so given.  However, by reason of the fact that the price for those shares was £2.71 instead of £3.11 per share, only £15,173,067 instead of £17,356,646 were used.  There is no indication that the defendant was allowed to make a secret profit.  Hence, there is prima facie a duty to account for the shortfall of £2.18 million instead of £7.51 million.

61.  As to the £0.66 million, the defendant earlier said in his affidavit that this sum was unrelated to any matter involving the plaintiff.  Prima facie, there is a duty to account for it.

62.  I find there is a good arguable case that the defendant has to account for the £2.18 million and £0.66 million.

(4)     £5.46 million were paid over to Samos and Caledonian and the defendant was not liable for failure by Samos and Caledonian to complete.

63.  Mr. Wright submitted that although the e-mails from the defendant might have suggested that the defendant had acquired 1,777,700 TSE shares, the defendant is not a lawyer and a layman’s understanding of the e-mails is not inconsistent with the defendant’s case that there was only an agreement with Samos and Caledonian without completion.  The defendant was authorized to pay money for the acquisition of the shares, and is not liable for Samos and Caledonian’s failure to complete. 

64.  Mr. Wright submitted that the reticence on the part of Samos and Caledonian must be viewed with certain circumspect in the light of the restriction on disposal in TSE’s Articles.

65.  Mr. Barlow submitted that the defendant had a duty to safeguard and preserve the plaintiff’s funds coming under his control.  The explanation that the money was paid over to a disappearing mysterious person is simply unacceptable.  Further, there is a conflict between the defendant’s claim now and his earlier versions in the contemporaneous documents, and there is no documents to contradict the assertions of Samos and Caledonian of lack of dealing with the defendant. 

66.  Hence, I consider that the plaintiff has shown a good arguable case for an account of the £5.46 million.

(5)     Samos and Caledonian had not divested themselves of the beneficial ownership of the 1,777,700 TSE shares and it was impossible for the defendant to hold them on trust.

67.  Mr. Wright referred to Snell19-02 at p. 464:

“An essential feature of the trust is that there should be property vested in the trustee.  This is one feature which often distinguishes the office of trustee from that of agent. I should be noted, however, that there are situations where a person who has neither received nor is in possession of property may be called the constructive trustee, as where a third person incurs liability to the principal in a fiduciary relationship by assisting the fiduciary to breach his duties.  The description of such a person as trustee is inaccurate.  He may not necessarily have vested in him any relevant property belongs to the beneficiary in equity.  The description of the defendant as its trustee is merely a formula to describe his equitable liability to account for the losses caused by his wrongful conduct.  Accordingly, such a person will not be described as a trustee in this book.”

68.  Mr. Barlow submitted that Mr. Wright’s proposition was only true for express trust, and the plaintiff’s case was based on constructive and/or Quitclose trust, which arose by the operation of law.  In fact, Mr. Barlow’s proposition is also reflected in the passage cited by Mr. Wright.

(6)     In any event, it is unknown to the law that a person with mere beneficial entitlement can hold that entitlement on trust for another.

69.  Mr. Wright’s position seems to have overlooked the long recognized specie of sub-trusts.  In footnote 8 to para. 19-02 in Snellcited, a proposition contrary to that of Mr. Wright is proffered:

“It is not always the case that the trustee has the legal interest in the property.  The interest of the trustee may be (and often is) equitable only, as where a beneficiary under a settlement makes a settlement of his interest while the legal ownership is still in the hands of the trustees of the former settlement, or for some other reason the legal estate is outstanding.  See e.g. Gilbert v. Overton (1864) 2 H&M 110.”

(7)     Any acquisition of TSE shares after the Momentum Deed would be in breach of the undertaking and was knowingly designed to circumvent the provisions of TSE’s Articles of Association.

70.  The relevance of an argument of illegality of the arrangement concerning the purchase of the 1,777,700 TSE shares is on the measure of the restitutionary compensation, and hence, the extent of the Mareva injunction.

71.  Mr. Wright submitted that he who seeks equity must do equity.  In the circumstances, the court, exercising its equity jurisdiction, will not enforce the transaction, and the plaintiff would not have acquired any beneficial interest in the 1,777,700 TSE shares.

72.  Mr. Barlow submitted that the plaintiff would rely at trial on the argument that the plaintiff is not a party to the Momentum Undertaking, and there was no misrepresentation by Momentum as to the state of shareholding as at the date of the undertaking (i.e. 14 January 2004).

73.  As to the TSE Articles, Mr. Barlow submitted that the 2002 Articles and not the Articles adopted in June 2004 were the relevant articles, as on 30 March 2004, the defendant had e-mailed a statement of account showing, inter alia, £5.56 million were used to purchase 1,777,700 shares with disbursements for stamp duty and legal fees.  Correctly construed, the 2002 Articles were only addressed to the sales, transfers or other dispositions of the legal title, the only title TSE recognized.  No notice of trust was recognized under the Companies Act and Table A adopted as part of the Articles of TSE.  There is nothing illegal or unlawful in shareholders arranging their affairs so as to avoid the effect of provisions in a company’s Articles of Association.  According to the defendant himself, the structure was deliberately chosen so as not to conflict with TSE’s Articles.  Even if there were an arguable defence of illegality, that would be a matter for the trial judge.

74.  The argument on the TSE Articles is complex and I do not attempt to resolve it now.   At this stage, I do not agree that the plaintiff would in all probabilities not have acquired any interest in the 1,777,700 shares by reason of the pre-emptive provisions in the TSE Articles even if the defendant had carried out the instructions.  I consider that the plaintiff has a good arguable case that if specific restitution of the trust property is not possible, the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had breach not been committed.

(8)     There was no misrepresentation inducing the transfer of funds into the BLP trust account.

75.  Mr. Wright submitted that the plaintiff’s pleaded case was that the plaintiff was induced to transfer the funds into the BLP trust account by the representations of the defendant that the funds were used to purchase the 1,777,700 shares.  The funds were transferred in 2003, and those representations were made sometime in 2004, and could not possibly have induced the transfer.

76.  Be that as it may, the facts pleaded clearly support a good arguable case that the defendant was given the continued control of the funds by reason of the representations.

(9)     The measure of damages for misrepresentation is tortious as opposed to contractual.

77.  Mr. Wright submitted that the only damages to which the plaintiff would be entitled would be those necessary to put it in the same position as if the alleged representations had not been made, not as if the statement were true as claimed.

78.  Mr. Barlow relied primary on restitution and/or equitable compensation, and damages for fraudulent misrepresentations was an alternative claim.

79.  In Target Holdings v. Redferns op. cit., Lord Browne-Wilkinson referred to the minority judgment of McLachlin J  (as the Chief Justice of Canada then was) in Canson Enterprises Ltd v. Boughton & Co (1991) 85 DLR (4^th) 129, 162:

“A related question which must be addressed is the time of assessment of the loss.  In this area tort and contract law are of little help…  The basis of compensation at equity, by contrast, is the restoration of the actual value of the thing lost through the breach.  The foreseeable value of the items is not in issue.  As a result, the losses are to be assessed as at the time of trial, using the full benefit of hindsight.”

80.  As said earlier, I consider that the plaintiff has a good arguable case on equitable compensation.

(10)   Delay in seeking the interlocutory injunction.

81.  Mr. Wright submitted that the plaintiff had obtained the BLP trust account ledger by August 2006, and there was a delay in seeking the interlocutory injunction until November 2006.  Hence, there is no urgency and no need for the injunction. 

82.  Mr. Barlow submitted that the parties were in negotiations concerning a wide range of disputes and settlement was reached on 14 November 2006 on other matters except the present one.  The time frame is not suggestive of delay.

83.  Moreover, delay which does not give rise to substantive defences of laches or acquiescence does not disentitle a plaintiff to an injunction unless it has caused irreparable prejudice to the defendant (see Spry on Equitable Remedies, 6^th Ed., pp. 488-490).  No prejudice has been suggested to or deposed in the present case.

84.  By reason of the conduct of the defendant in the transaction and the representations in contemporaneous correspondence which he now seeks to argue out of, I am satisfied that there is a real risk of dissipation of assets.  The plaintiff’s explanation as to why it has not come to the court earlier is reasonable.  Hence, I do see that the plaintiff is guilty of such delay to disentitle it from seeking the interlocutory injunction.

Conclusion

85.  By reason of the above considerations, I ordered that the interlocutory injunction be continued until trial save that the amount of the sum of £13,646,708.18 in the tracing injunction be reduced to £8,314,680.64.

Costs

86.  I make an order nisi that the costs of the application (including the hearing) be costs in the cause.

87.  The plaintiff has taken out an half hour appointment on 8 May 2007 to vacate the hearing of the present application.  Mr. Barlow submitted that by reason of the voluminous affidavits filed in the present case, the time to be taken for the hearing of continuation of the injunction would probably be as much as the trial itself.  The court could order that the affidavits be deemed the witness statements and the parties would be ready for trial.  By reason of the admissions made by the defendant, the court could adopt the approach by Sir Nicolas Browne-Wilkinson (as he then was) in Dormruil Feres SA & anor v. Nicolian International (Textiles) Ltd [1988] 1 WLR 1362, i.e. to continue the injunction, order an early trial and stand over the argument for discharge to the trial.  Mr. Wright briefly outlined the arguments he wished to be heard on.  I consider that the matter could not have been dealt with within half an hour.  Hence, I refused the application to vacate the hearing date and reserved the costs thereon.

88.  Mr. Barlow did not rely Dormeuil Feres at the substantive hearing of continuation.  Be that as it may, he has achieved more in the end and that is not to be held against him.  However, to take out only an half hour appointment effectively for the continuation of the injunction is not appropriate in the circumstances of this case.  Hence, I order costs nisi against the plaintiff in respect of the 8 May 2007 application.