Consular Gestion SGHC S.A. v Optimal Multiadvisors Ireland Plc
| Jurisdiction | Ireland |
| Judge | Mr. Justice Kelly |
| Judgment Date | 27 March 2009 |
| Neutral Citation | [2009] IEHC 173 |
| Court | High Court |
| Date | 27 March 2009 |
[2009] IEHC 173
THE HIGH COURT
BETWEEN
AND
RSC O.37 r7
FIRST NATIONAL COMMERCIAL BANK PLC v ANGLIN 1996 1 IR 75 1996/11/3337
AER RIANTA CPT v RYANAIR LTD 2001 4 IR 607 2002 1 ILRM 381 2001/1/68
HARRISRANGE LTD v DUNCAN 2003 4 IR 1 2002/12/2982
PRACTICE AND PROCEDURE
Summary summons
Commercial court - Summary judgment - Applicable principles - Test - Whether arguable defence - Investor fund - Investment in sub-fund which established discretionary account with company under criminal control - Process for redemption of shares - Notification - Calculation - Reports of fraudulent "Ponzi" scheme - Emergency meeting of board of directors - Resolution to suspend all share redemptions - Articles of association - Grounds of defence - Valid exercise of power to temporarily suspend redemption of shares - Whether net asset value of shares effective to trigger payment obligation - Whether unfairness to other shareholders - Whether fundamental mistake vitiating redemption transaction - Whether power of directors had prospective effect only - Interpretation of redemption process - Undertaking not to make payments to shareholders without notice to plaintiff - First National Commercial Bank Plc v Anglin [1996] 1 IR 75; Irish Dunlop Co Ltd v Ralph (1958) 95 ILTR 70; Banque de Paris v de Naray [1984] 1 Lloyd's Law Rep 21; National Westminster Bank Plc v Daniel [1993] 1 WLR 1453; Aer Rianta CPT v Ryanair Limited [2001] 4 IR 607 and In Re Strategic Turnaround Master Partnership Ltd (Unreported, Cayman Court of Appeal, 12/12/2008) considered - Harrisrange Ltd v Duncan [2003] 4 IR 1 applied - Rules of the Superior Courts 1986 (SI 15/1986), O 37 - Leave to defend granted and case adjourned to plenary hearing (2009/656S - Kelly J - 27/3/2009) [2009] IEHC 173
Consulnor Gestion SGHC SA v Optimal Multiadvisors Ireland plc
Mr. Justice Kelly delivered on the 27th day of March, 2009
This is another piece of litigation spawned by the criminal dishonesty of the by now infamous Bernard Madoff of New York and a company under his control called Bernard L. Madoff Investment Securities LLC.
The application to which this judgment relates is one for summary judgment in the sum of €3,241,474.90 sought by the plaintiff against the defendant.
Before considering the evidence in the case it is desirable that I should briefly address the legal principles which are applicable to an application of this sort.
This application is brought pursuant to O. 37, r. 7 of the Rules of the Superior Courts. That rule describes the powers invested in the court on an application of this sort. The court may do one of three things. It may grant judgment to the plaintiff or dismiss the action or adjourn the case for plenary hearing as if the proceedings had been originated by plenary summons.
The principles applicable to an application for summary judgment have been considered in recent years by both the Supreme Court and this Court on quite a number of occasions. I mention just a few of the cases.
In First National Commercial Bank Plc v. Anglin [1996] 1 I.R. 75, Murphy J. speaking for the Supreme Court said:-
"For the court to grant summary judgment to a plaintiff and to refuse leave to defend it is not sufficient that the court should have reason to doubt the bona fides of the defendant or to doubt whether the defendant has a genuine cause of action (see Irish Dunlop Co. Ltd. v. Ralph (1958) 95 I. L. T. R. 70)."
In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd's Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W. L. R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-
'The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.'
In the National Westminster Bank case, Glidewell L. J. identified two questions to be posed in determining whether leave to defend should be given. He expressed the matter as follows:-
'I think it right to ask, using the words of Ackner L.J. in the Banque de Paris case, at p. 23, 'Is there a fair or reasonable probability of the defendants having a real or bona fide defence?'. The test posed by Lloyd L. J. in the Standard Chartered Bank case, Court of Appeal (Civil Division), Transcript No. 699 of 1990 'Is what the defendant says credible?', amounts to much the same thing as I see it. If it is not credible, then there is no fair or reasonable probability of the defendant having a defence.'"
In Aer Rianta C. P. T. v. Ryanair Limited [2001] 4 I. R. 607, McGuinness J. identified the above passage from the judgment of Murphy J. as being the correct test to be applied in deciding whether to grant summary judgment.
More recently in this Court, McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 I. R. 1, summarised the principles applicable by reference to the preceding case law. I do not intend to set out all of those principles in the course of this ruling. It is sufficient if I refer to just some of them.
In all, McKechnie J. laid out twelve matters which inform the approach of the court to an application for summary judgment. The seventh of those matters he identified as follows:-
"The test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, 'is what the defendant says credible?', which latter phrase I would take as having as against the former an equivalence of both meaning and result."
He went on to say that that test:-
"is not the same as and should not be elevated into a threshold of a defendant having to prove that his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable defence."
In the present case, counsel on both sides have accepted that that is the appropriate test to apply. They also accept that the threshold which has to be reached by the defendant in order to defeat the plaintiff's application for summary judgment is not a high one.
The defendant puts forward five different grounds upon which it says it can demonstrate an arguable defence to the plaintiff's claim. It is of course only necessary that it should demonstrate an arguable defence on any one of these to result in the application of the plaintiff for summary judgment being refused.
I set out in summary form the five separate grounds which are relied upon by the defendant by way of defence. In order to make sense of them it will be necessary to refer to the factual background against which they arise. That I will do later, but it is useful to summarise them at this juncture.
They are as follows:-
(1) The defendant contends that it has validly exercised the power under its articles of association to temporarily suspend redemption of shares in the Optimal Strategic U.S. Equity Ireland Euro Fund of the defendant. As a consequence of that suspension, there is no obligation to pay the monies the subject of this application.
(2) Because of the circumstances leading to the aforesaid suspension the Net Asset Value (NAV) of the plaintiff's shares which was struck on 10 th December, 2008 was manifestly erroneous and is no longer reliable or effective to trigger the payment obligation the subject of this application.
(3) It would be unfair to other shareholders to pay the amount claimed by the plaintiff on foot of the aforesaid NAV.
(4) There was a fundamental mistake as to the existence of the assets that were the subject matter of the NAV upon which the plaintiff relies. That mistake vitiates the redemption transaction thereby removing any payment obligation.
(5) The redemption transaction has in all of the circumstances been frustrated thereby discharging any obligation on the part of the defendant to make the payment in question.
The plaintiff is a Spanish company whilst the defendant is an Irish one. The defendant is authorised as a "Qualifying Investor Fund" (QIF) by the financial regulator in this jurisdiction.
The defendant is constituted as an umbrella fund with a number of sub-funds. The investment policy of the relevant sub-funds is to invest 100% of their assets in a series of share classes in the Optimal Strategic U.S. Equity Series of Optimal Multiadvisors Limited (Optimal Bahamas). Optimal Bahamas is a multi-portfolio investment company with two "series" each of which has a definite investment objective. The assets of each series are traded through a separate trading company.
The plaintiff invested in a sub-fund of the defendant which is known as Optimal Strategic U.S. Equity Ireland Euro Fund (Optimal Euro sub-fund). This sub-fund invested all or nearly all of its assets in shares in the Optimal Strategic U.S. Equity Series of Optimal Bahamas (the SUS Series). The assets of Optimal Bahamas corresponding to the SUS Series are held by it through its Bahamian trading subsidiary, Optimal Strategic U.S. Equity Limited (Optimal SUS). Optimal S.U.S. established a discretionary account with Bernard L. Madoff Investment...
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