RGI International Ltd & Anor v Synergy Classic Ltd & Ors

This is an application by Timothy Fenwick, the Fifth Party, to set aside the order of Field J. dated 16 March 2011 pursuant to which Mr. Fenwick was joined as a party to these proceedings and/or to strike out and/or summarily dismiss the claim made against him by Synergy Classic Limited, the Defendant.

Mr. Fenwick is an independent non-executive director of RGI International Limited, the First Claimant. He makes this application on three grounds:

The dispute between Synergy and Mr. Fenwick arises out of a dispute between RGI and Synergy.

RGI is owned by Mr. Kuzinez and Mr. Kriesler, through the Second Claimant DES, and by Mr. Shura, through Synergy. Synergy acquired its shareholding in the spring/summer of 2010 by subscribing US$90m. under the terms of a Subscription and Option Agreement (“SOA”) dated 23 May 2010. Mr. Shura was appointed to the board of RGI in August 2010. Very shortly thereafter the shareholders fell out.

Mr. Shura says that at a board meeting on 19 September (which he secretly recorded) Mr. Kuzinez told him in Russian that some of the monies Mr. Kuzinez had received from RGI had been used to pay a bribe in Russia. On 15 October 2010 Synergy served a notice on RGI claiming to exercise a put option which required RGI to procure the re-purchase of Synergy’s shares. On 29 October 2010 RGI and DES brought proceedings against Synergy seeking a declaration that the put option notice was invalid and an injunction restraining alleged breaches of confidence by Synergy. On 8 November 2010 Synergy served a defence in which it was said that Mr. Kuzinez and Mr. Kriesler had received payments of US$4.9m in breach of the SOA (which prescribed the uses to which Synergy’s US$90m. could be put).

On 11 November 2010 Mr. Fenwick made a statement in connection with the dispute between RGI, DES and Synergy. Shortly after this Synergy’s solicitors wrote to Mr. Fenwick on 10 December 2010 demanding to know whether he was aware of the payments to Mr. Kuzinez and Mr. Kriesler and of the alleged bribe. Mr. Fenwick regarded the correspondence as menacing and said that the allegations were without foundation. By an email dated 9 February 2011 Synergy’s solicitors said that the obvious inference from Mr. Fenwick’s refusal to answer those questions was that he knew of “that criminal activity” and was party to a conspiracy. However, they said they would withdraw the allegation if Mr. Fenwick swore on oath that he did not know of the alleged matters.

It was in those circumstances that Synergy applied on 10 March 2011 without notice to Mr. Fenwick for leave to make Mr. Fenwick party to the proceedings. Field J. gave leave on 16 March 2011.

The counterclaim sought to be brought against Mr. Fenwick is set out in paragraphs 37-39 of the Amended Counterclaim. The amendments were not settled by counsel.

Paragraph 37 provides as follows:

“37.

Mr Kuzinez and Mr Kriesler have knowingly and intentionally induced or procured the breaches of contract described in paragraphs 35 and 36 above, and/or conspired with each other and/or with Mr Fenwick in the case of paragraph 36.1above, and with RGI to use unlawful means, that is those breaches of contract. ……….”

Paragraph 36.1 had alleged a breach of clause 7.1 of the SOA in that RGI, Mr. Kuzinez and Mr. Kriesler had used the subscription proceeds to pay US$4.9m. to Mr. Kuzinez and Mr. Kriesler in July and August 2010.

Thus the effect of paragraph 37 is to allege that Mr. Kuzinez, Mr. Kriesler and Mr. Fenwick conspired with each other to use unlawful means, namely, the breach of clause 7.1 of the SOA. Paragraphs 37.1-37.3 are particulars of the allegation but nothing in them mentions Mr. Fenwick.

Paragraph 38 provides as follows:

“38.

Mr Fenwick has knowingly and intentionally, induced or procured the breach of contract described in paragraph 36.1 above, and/or conspired with Mr. Kuzinez and Mr Kriesler and with RGI to use unlawful means, that is that breach of contract. In the alternative, Mr Fenwick has recklessly allowed that breach of contract to occur. In either case, Mr Fenwick breached his fiduciary duties and his duty of care towards RGI and its members.”

The first sentence of paragraph 38 alleges that Mr. Fenwick has committed the tort of knowingly and intentionally inducing a breach of clause 7.1 of the SOA and that he has conspired to use unlawful means, namely, that breach of contract. The second sentence alleges a breach of fiduciary duties and of a duty of care owed to RGI and its members. It was, however, common ground at the hearing before me that the only two causes of actions sought to be advanced against Mr. Fenwick are the tort of inducing a breach of contract and the tort of conspiracy.

Paragraph 39 provides:

“39.

Specifically, Mr. Fenwick is, and was during the relevant period, Chairman of the Remuneration Committee, which is responsible for setting the scale and structure of executives’ remuneration and the basis of their respective agreements, whilst having due regard to the interests of shareholders. As such, Mr. Fenwick was, or should have been, aware that expenses were being paid to Mr. Kuzinez and Mr. Kriesler in July and August 2010 in breach of an agreement between the independent directors, Mr. Kuzinez and Mr. Kriesler.”

The use of the word “specifically” indicates particulars of the allegation in paragraph 38. Thus, in support of both alleged causes of action the particulars are that, as Chairman of the Remuneration Committee of RGI Mr. Fenwick was or should have been aware that expenses were being paid to Mr. Kuzinez and Mr. Kreisler. However, most confusingly, such payments are then said to have been made, not in breach of clause 7.1 of SOA, but in breach of an agreement between the independent directors, Mr. Kuzinez and Mr. Kriesler. That appears to be a reference to an agreement alleged in paragraph 18.4 of the Defence to the effect that there was an agreement between the independent directors, Mr. Kuzinez and Mr. Kriesler that the latter would not be paid any sums until RGI returned to profit. However, since such breach is not alleged to be the subject of the tort of inducement of breach nor of the alleged conspiracy it is wholly unclear how the alleged breach fits into the pleading.

Counsel for Synergy recognised that at least two amendments were required to this sparse and confusing pleading. The first proposed amendment is to add the following text to the first sentence of paragraph 37:

“…(which contractual provisions were, in the case of Mr. Fenwick, already known to him by reason of his position as a director of RGI who held office at the time that RGI entered into the said contract and were bound to be considered and assessed by him as a director of RGI before RGI had entered into the same.)”

Since knowledge of the contact breach of which has allegedly been induced is an essential part of the cause of action this amendment is necessary.

The second proposed amendment is to add to paragraph 37 the following averment:

“…with the intention of so advancing the personal interests of Messrs. Kuzinez and Kriesler and thereby intending to cause inevitable resulting damage to Synergy.”

Since an intention to injure is an essential part of the tort of conspiracy this is also a necessary amendment.

The application before the court has been brought under three heads, CPR 3.4(2)(a), CPR 3.4(2)(b) and CPR 24.2. There is no exact dividing line between those three grounds. Many cases fall within all three; see The White Book Vol.1 3.4.2 (p.71) and 3.4.6 (p.80-81). The matters complained of by Mr. Howe, counsel for Mr. Fenwick, may be summarised as follows:

Mr. Dougherty, counsel for Synergy, did not challenge any of Mr. Howe’s propositions of law. He did not defend the pleading of the counterclaim and accepted that it required amending in (at least) the two respects which I have already mentioned. However, he submitted that with those two amendments there was a serious case to be tried. He described that case in a number of propositions. (1) Mr. Fenwick, as a senior director of RGI, would have known of the SOA and the use to which the subscription proceeds could legitimately be put. It was inconceivable that he did not know. That grounded the first suggested amendment. (2) By reason of being a senior director and chairman of the remuneration committee and having regard to the size of the payments made to Mr. Kuzinez and Mr. Kriesler it is to be inferred that he knew of the intention to make such payments to them and that he permitted them to be made in breach of the SOA. (3) The payments clearly prejudiced Synergy because Synergy had a contractual right to have the subscription proceeds applied in a particular way. (4) Because such payments would inevitably harm Synergy it is to be inferred that such payments must have been seen by Mr. Fenwick as having that effect and so he must have intended harm to Synergy. That was the basis of the second suggested amendment. (5) There was no suggestion that Mr. Fenwick benefitted from the conspiracy but there was no requirement in law that he should so benefit. (6) Mr. Fenwick did not act in good faith because he acted with the intention of enriching Mr. Kuzinez and Mr. Kriesler and failed to respect the agreement between the independent directors, Mr. Kuzinez and Mr. Kriesler. Mr. Dougherty submitted that Mr. Fenwick could not be surprised by a case in those terms.

Notwithstanding the care and skill with which Mr. Dougherty sought to defend the counterclaim brought by Synergy against Mr. Fenwick I have concluded that the counterclaim against him should be struck out or summarily dismissed, for these reasons.

First, the allegation of bad faith in paragraph 19 of the Defence, which is repeated in the counterclaim, is unsupported by particulars. It is a bare allegation that Mr. Fenwick acted in bad faith by using or permitting the use of RGI’s funds in breach of clause 7.1 of the SOA. Mr. Dougherty has explained that the basis of the allegation that Mr. Fenwick “permitted” the funds to be used in breach of the SOA is that by reason of being chairman of the remuneration committee he either knew or should have known that sums were being paid in breach of the SOA (see paragraph 39 of the counterclaim). However, I do not consider that it can be inferred from the mere fact that Mr. Fenwick was chairman of the remuneration committee that he knew or ought to have known that payments were being made in breach of the SOA. There is a difference between deciding what payments are to be made to directors and making payments to directors. This is made clear by the unchallenged evidence of Mr. Fenwick that as chairman of the remuneration committee he is not involved in the authorisation or processing of payments to directors. That being so the allegation of bad faith is either unsupported by effective particulars or has no real prospect of success.

Second, for the same reason the allegation that Mr. Fenwick knowingly and intentionally induced or procured a breach of the SOA is either unsupported by effective particulars or has no real prospect of success.

Third, the allegation of a conspiracy is wholly unparticularised. No facts and matters from which the alleged conspiracy is to be inferred are pleaded. If this matter went to trial Mr. Fenwick would have no understanding of the case which was to be advanced against him under the head of conspiracy. He would not know why it was alleged against him that he and Mr. Kuzinez and Mr. Kriesler had entered into a conspiracy to injure Synergy. The absence of particulars indicates that the conspiracy claim has no real prospect of success.

Fourth, to advance serious charges involving bad faith and conspiracy without adequate particulars or any real prospect of success is an abuse of the process of this court. It amounts to no more than harassment. The counterclaim appears to have been advanced following Mr. Fenwick’s refusal to answer the questions put to him by Synergy’s solicitors as to whether he knew the payments were to be made and whether he knew bribes were being paid. However, as Mr. Dougherty accepted, Mr. Fenwick was under no duty to answer those questions and so his refusal to answer them amounted to no more than silence. Silence is equivocal and cannot, in the absence of other evidence, found a positive allegation.

For these reasons the counterclaim against Mr. Fenwick must be struck out because it discloses no reasonable grounds for bringing it, is an abuse of the court’s process and has no real prospect of success.