Fidelity Advisor Series VIII and Others v APP China Group Ltd

• Jurisdiction: Bermuda
• Judgment Date: 25 May 2007
• Date: 25 May 2007
• Docket Number: Civil Jurisdiction 2004 No. 321
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Civil Jurisdiction 2004 No. 321

BETWEEN:

(1) Fidelity Advisor Series VIII: Fidelity Advisor Emerging Markets Income Fund

(2) Fidelity School Street Trust: Fidelity New Markets Income Fund

(3) General Motors Investment Management Corporation Emerging Markets Debt Portfolio

(4) Fidelity Emerging Markets Debt Collective Pool

(5) John Hancock High-yield Bond Fund

Plaintiffs

and

APP China Group, Ltd

Defendant

Mr J Woloniecki and Mr N Turner for the Plaintiffs

Mr N Hargun and Mr P Smith for the Defendant

The following cases were referred to in the judgment:

H v Schering Chemicals LtdUNK [1983] 1 All ER 849

Kuwait Airways Corp v Iraqi Airways Corp (No. 5)UNK [2003] 1 Lloyd's Rep 448

Flower v Lloyd (1876) 6 Ch 297

The Ampthill PeerageELR [1977] AC 547

Fletcher v Royal Automobile Club LtdUNK [2000] 1 BCLC 331

Hunter v Chief Constable of the West Midlands PoliceELR [1982] AC 529

Boswell v Coaks (1894) R 167

Boodsingh v RamnaraceUNK [2003] UKPC 50

Odyssey Re London Ltd v OIC Run-OffUNK [2001] 1 Lloyd's Rep IR 1

Meridian Global Funds Management Asia Ltd v Securities CommissionELR [1995] 2 AC 500

Beddo v Cayzer [2006] EWCA 557

El Ajou v Dollar Land plcUNK [1994] 2 All ER 685

Fraud — Application to set aside order for scheme of arrangement — Admissibility of records of telephone calls — Estoppel — Tort of deceit

JUDGMENT of Kawaley, J

Index

Introductory:	paras. 1–5
Issues for determination:	paras. 6–7
Plaintiffs' pleaded case:	para. 8
Plaintiffs' evidence:	paras. 9–28
Defendant's evidence:	paras. 29–54
Admissibility of records:	paras. 55–59
Defendant's estoppel defence:	paras. 60–63
Plaintiffs' deceit claim:	paras. 64–65
Legal findings:	paras. 66–74
Findings on primary case:	paras. 75–90
Assessing credibility:	paras. 91–94
Findings on alternative case on fraud	paras. 95–171
Findings on materiality	paras. 172–179
Discretion to set aside:	paras. 180–190
Summary:	paras. 191–196

Introductory

1. On November 7, 2003 in Civil Jurisdiction 2003: No. 381 (‘the Scheme Proceedings’), I granted an Order under section 99 of the Companies Act 1981 sanctioning a debt for equity scheme of arrangement between the Defendant company and its creditors (‘the Scheme’), for the reasons set out in my Judgment dated November 23, 20031 (‘the Order’).

2. In making the Order, I refused the Plaintiffs' affiliates (‘the Objectors’) application for an adjournment to enable them to investigate their suspicions that the statutory majorities in favour of the Scheme would not have been met unless a number of creditors voting in favour had not been influenced by affiliations with the ‘Controlling Shareholders’ of the Defendant. I also rejected the Objector's related merits complaints that, inter alia, the Explanatory Statement did not adequately reveal the extent to which the existing management would, post-Scheme, retain control.

3. The Defendant through Mr. Hargun advanced two main arguments in the Scheme proceedings as to why the Plaintiffs' application ought to be refused. Firstly, it was submitted that there was pressure from certain Chinese Banks to whom the operating subsidiaries were indebted to resolve the Company's insolvency as quickly as possible. And, secondly, it was submitted that the Court ought properly to ignore what were mere suspicions, because of the Affirmation made on or about November 6, 2006 by Mr. Indra Widjaja on behalf of the Controlling Shareholders (‘the Widjaja Affirmation’), was not contradicted by any other evidence before the Court. Paragraph 4 of that Affirmation deposed as follows:

‘The APP Controlling Shareholders are not affiliated to or otherwise connected with any of the creditors, including the Supporting Noteholders, who voted in favour of the Scheme, other than BII, whose connection to the APP Controlling Shareholders is disclosed in the Scheme Document. The APP Controlling Shareholders have not directly and/or indirectly, purchased any of the Existing Notes.’

4. On June 15, 2004, Robert Apfel of Bondholders Communications Group (‘BCG’) wrote to the Court purportedly withdrawing the Affidavits filed by BCG in support of the Scheme and expressing concerns about the true owners of Notes purportedly held by some 150 Taiwanese Noteholders (‘the Taiwanese Noteholders’) who had voted in favour of the Scheme. The previous day, the Defendant had written BCG confirming that ‘a substantial number of the Taiwanese Noteholders are members of the management of the APP's Principal Indonesian Operating Companies’. These companies are sister companies of the Defendant, not its own subsidiaries.

5. BCG's letter was copied to the Plaintiffs' US Counsel, Nathan Van Duzer, and the Plaintiffs duly applied by Specially Indorsed Writ issued on October 1, 2004 to set aside the Order on the grounds that it was procured by fraud, in that the averments made in paragraph 4 of the Widjaja Affirmation constituted perjured evidence. The Plaintiffs' primary case is that the deponent knew that the Taiwanese Noteholders were not the true beneficial owners of the Notes, because he and the other Controlling Shareholders were the true owners. The alternative and secondary case was that the deponent knew that the Taiwanese Noteholders were employees of companies controlled by the Controlling Shareholders, and deliberately concealed this fact by falsely swearing that none of the creditors were ‘affiliated to or otherwise connected with’ himself or the other Controlling Shareholders.

The issues falling for determination

6. The applicable legal principles, which I set out below, were not substantially in dispute. It follows that the key factual issues which fall for determination are, firstly, have the Plaintiffs established, by means of evidence with the cogency that the proof of fraud requires, that Indra Widjaja deliberately lied in stating that either (i) the Controlling Shareholders did not directly or indirectly purchase any of the Existing Notes, or (ii) that the Controlling Shareholders were neither affiliated nor ‘otherwise connected’ with ‘any of the creditors’. Assuming the Plaintiffs establish one or other of this initial limb of their case, they must next satisfy the Court that the relevant fraud was sufficiently material to justify setting aside the Order as a whole. If they succeed in proving the second limb of their case, they must finally demonstrate that the Court should exercise its discretion in favour of taking the unprecedented step of setting aside an order sanctioning a scheme of arrangement, for the first time.

7. Subsidiary issues falling for determination are (a) the admissibility of BCG's records of telephone calls made to Taiwanese Noteholders as part of its June 2004 investigation, (b) whether the Plaintiffs are estopped from pursuing the present claim, and (c) whether the Plaintiffs have an arguable claim for damages for the tort of deceit.

The Plaintiffs' pleaded case

8. The main allegations made in the Amended Statement of Claim are the following:

‘The Company's Fraud on the Court: The Plaintiffs' Primary Case

17. It is the Plaintiffs' primary contention that, as alleged in the Apfel letter, at the material time none of the persons identified in Exhibit A of the Apfel letter (‘the purported Taiwanese noteholders’) were the beneficial owners of the Notes and accordingly were not Creditors entitled to vote at the Scheme Meeting.

18. The Plaintiffs' rely upon the facts and matters disclosed in the Apfel letter, and in particular upon the following facts:

(i) All of the purported Taiwanese noteholders are employees of Indonesian subsidiaries of APP and are residents in Indonesia.

(ii) None of the purported Taiwanese noteholders are resident at the addresses set out in the voting forms and employees of BCG were unable to speak to any of the purported Taiwanese noteholders at the telephone numbers provided in the voting forms.

(iii) None of the persons to whom employees of BCG spoke at the Taiwanese addresses appeared to have any knowledge of the alleged beneficial ownership of any of the purported Taiwanese noteholders.

(iv) All of the purported Taiwanese noteholders are persons of limited means and do not fall within the class of persons who typically invest in bonds or notes.

(v) None of the purported Taiwanese noteholders have provided BCG with any or any sufficient evidence as to their beneficial ownership of the Notes.

(vi) As of the date of the Apfel letter, none of the purported Taiwanese noteholders had made any application to the Bermuda Monetary Authority for registration of the shares in the Company to which they are purportedly entitled under the Scheme.

19. It is to be inferred, since the same is obvious, that the Company knew the following facts at the 7 November 2003 sanctioning hearing:

(i) That the purported Taiwanese noteholders were not the beneficial owners of the notes and not entitled to vote at the Scheme Meeting.

(ii) That the beneficial owners of the notes purportedly owned by the purported Taiwanese noteholders were members of APP's Controlling Shareholders.

(iii) That paragraph 4 of the affirmation of Indra Widjaja dated 7 November 2003, in which he deposed that, ‘The APP Controlling Shareholders are not affiliated to or otherwise connected with any of the creditors … other than BII, whose connection to the APP Controlling Shareholders is disclosed in the Scheme Document …’ was false and was known by Indra Widjaja to be false.

20. Further, and/or alternatively, each of the above facts was known to the APP Controlling Shareholders, including Indra Widjaja, and the acts and knowledge of the Controlling Shareholders, including the filing of the affirmation by Indra Widjaja dated 7 November 2003 in which he perjured...