Seventh Sense Star Ltd v Khouj and Mansouri

• Jurisdiction: Bermuda
• Judgment Date: 23 March 2022
• Docket Number: Commercial Jurisdiction 2017 No 63
• Year: 2022
• Court: Supreme Court (Bermuda)

Between:

Seventh Sense Star Limited

Plaintiff

and

Azzam Faisal Khouj

Ameen Ahmed A Mansouri

Defendants

[2022] Bda LR 21

Commercial Jurisdiction 2017 No 63

In The Supreme Court of Bermuda

Application to set aside service of concurrent writ of summons and default judgment — Service of Bermuda writ in Saudi Arabia — Whether affidavit of service meets test of Bermuda Rules of the Supreme Court — Whether method of service permissible under Saudi law — Plaintiff with no standing — Whether amendment allowed to replace plaintiff — Mistake and misnomer

The following cases were referred to in the judgment:

Crane & Sons Ltd v Wallis [1915] IR 411

Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105

Tseitline v Mikhelson and ors [2015] EWHC 3065

Strategic Technologies Pte Ltd v Procurement Bureau of the Republic of China Ministry of National Defence [2020] 1 WLR 3388

Arros Invest Ltd v Nishanov [2004] EWHC 576

The Sky One [1988] 1 Lloyds Rep 238

Cookney v Anderson (1863) 1 De G J & Sm 365

The Golden Mariner [1990] 2 Lloyds Rep 215

East Bank Consultants v Ferigo [2016] Bda LR 100

International Bulk Shipping & Services Ltd v Miners and Metals Trading Corp of India [1996] 2 Lloyds Rep 474

Singh v Atombrook Ltd [1989] 1 WLR 810

Faircharm Investments Ltd v Citibank International plc [1998] EWCA 171

Hendry v Chartsearch Ltd [1998] CLC 1382

Pickthall v Hill Dickinson LLP [2009] EWCA 543

Smith v Henniker-Major & Co [2002] EWCA Civ 762

Munday v Hilburn [2014] EWHC 4496

GL Baker Ltd v Medway Building & Supplies Ltd [1958] 3 All ER 540

Evans Construction Co Ltd v Charrington & Co Ltd [1983] 1 All ER 310

Pathania v Adedeji [2014] EWCA Civ 681

Thistle Hotles Ltd v Gamma Four Ltd [2004] EWHC 322

The Sardinia Sulcis [1991] 1 Lloyds Rep 201

Cropper v Smith (1883) 26 ChD 700

Evans v Bartlam [1937] AC 473

The Saudi Eagle [1986] 2 Lloyds Rep 221

ABC and D v Cumberbatch [2020] Bda LR 67

Viscount of the Royal Court of Jersey v Shelton [1986] 1 WLR 985

Gibbons & Heyrana v DeSilva [2020] Bda LR 61

Intercontinental Natural Resources Ltd v Conyers Dill & Pearman [1982] Bda LR 1

Derry v Peek (1889) 14 App Cas 337

Ivey v Genting Casinos UK Ltd [2017] 3 WLR 1212

Standard Chartered Bank plc v Agrinvest International Ltd [2010] EWCA Civ 1400

Armitrage v Nurse [1998] Ch 241

Lines v PricewaterhouseCoopers [2021] Bda LR 105

JSC Bank of Moscow v Keklman [2015] EWHC 3073

Mr S White and Mr J McSweeney for the Plaintiff

Mr S Stevens for the Defendants

RULING of Mussenden J

Introduction

1. This matter came before me by two summonses.

2. The Defendants' Summons dated 3 July 2019 sought the following:

• i. An Order pursuant to RSC Order 12, rule 8(1) that service of the Concurrent Notice of Amended Writ of Summons dated 29 June 2017 (the “Concurrent Notice) to be served out of the Jurisdiction dated 1 December 2017 be set aside (the “Service Application”); and

• ii. An Order pursuant to RSC Order 13, rule 9 that the Default Judgment in this matter dated 22 February 2018 in the sum of $17,100,000 (the “Default Judgment”) be set aside (the “Default Judgment Application”: together the “Set-aside Applications”).

3. The Defendants' Summons was supported by the affidavit evidence of Defendants, Azzam Khouj (“Mr Khouj”) and Ameen Mansouri (“Mr Mansouri”).

4. The Plaintiff's Summons dated 17 August 2020 sought:

• i. In the alternative or if so required, the exercise of the Court's discretion to decline to set aside the service for irregularity pursuant to RSC order 2, rule 1(1) (“Deeming Application”); and

• ii. Leave to amend the Specifically Endorsed Writ of Summons (the “Writ”) to substitute Dr Ahmed Hafiz (“Dr Hafiz”) as plaintiff in place of the Seventh Sense Star Limited (the “Company”) pursuant to RSC Order 20 rule 5(3) (the “Amendment Application”)

5. The Plaintiff's Summons was supported by the affidavit evidence of Dr Hafiz, Mrs. Robin Mayor and Mr John Thomas McSweeney, and the affirmation evidence of the process server in the Kingdom of Saudi Arabia (“KSA”) attorney Mr Mamdouh Attar (“Mr Attar”).

6. The parties were granted leave to call expert evidence on the issue of proper service in the KSA. The experts who gave evidence by Zoom from the KSA were:

• i. For the Plaintiff – Mr Wael A. Alissa, expert report dated 21 April 2020; and

• ii. For the Defendants – Mr Amer AlAmr, expert report dated 5 August 2020.

The Parties

7. The Plaintiff is a Bermuda exempted company incorporated on 1 December 2006. The purpose of the Company was to purchase and own a Gulfstream V jet (the “Jet”). It entered liquidation on 27 December 2011.

8. Dr Ahmed Hafiz is one of three Directors of the Company and is its minority shareholder. He holds 500 of the 11,500 shares which were given to him by the late Sheikh Abdulrahaman Mansouri (the “Sheikh”) of the KSA as a reward for service.

9. The Defendants, Mr Khouj and Mr Mansouri, are the other two former directors of the Company. They are both Saudi nationals. Mr Mansouri is also a shareholder of the Company, and, together with his cousins Mohammed and Fareda, constitute the majority shareholders (the “Majority Shareholders”). Mr Khouj became executor of the Sheikh's estate following his death in June 2010.

Background

10. The Plaintiff's documents provide background as follows. Mr Khouj and Mr Mansouri were appointed as directors following the Sheikh's death. This was at a board meeting on 8 February 2011 to which Dr Hafiz was not invited. The Sheikh's shares were transferred temporarily into Mr Khouj's name and then to the Majority Shareholders. They subsequently held a board meeting on 27 March 2011, resolving to sell the Jet for $17.1 million, to which Dr Hafiz was again not invited.

11. The proceeds of sale did not pass through the Company's account but were instead transferred to an escrow account and distributed by Mr Khouj and Mr Mansouri to the Majority Shareholders, including Mr Mansouri, who did not make a declaration of his direct or indirect interest at the board meeting.

12. Having disposed of the Company's sole asset the Jet, Mr Khouj and Mr Mansouri appointed Mrs. Mayor as liquidator (the “Liquidator”) on 5 December 2011. The resolution to wind up was ratified at a members' meeting on 21 December 2011. Dr Hafiz was not invited to or made aware of any of these meetings. He first became aware that something had happened when he received notice of the final general meeting on 16 January 2012 and he contacted the Liquidator to find out what was going on.

13. The Liquidator contacted Mr Khouj and Mr Mansouri through their legal counsel, and demanded they return the proceeds of sale of the Jet. Their response was that they would “deal” with Dr Hafiz's share. Mrs. Mayor confirms in her affidavit that the Majority Shareholders in fact made no effort to return the proceeds of sale to the Company, or to pay Dr Hafiz; further that they “refuse to acknowledge that they must return the proceeds of sale”.

14. As a result, and given the lack of funds to pursue recovery proceedings, Mrs. Mayor concluded that her position as the Liquidator was “untenable” and pursuant to a deed of assignment dated 13 August 2012 (the “Assignment”) assigned the claims to Dr Hafiz. She also granted him a power of attorney to “commence” proceedings on the Company's behalf (the “Power of Attorney”). The Court approved the Assignment and Power of Attorney by order dated 29 June 2012.

15. These proceedings were commenced by the Plaintiff by way of the Writ dated 22 February 2016. In the Writ the Plaintiff alleges multiple breaches of duty on the part of the Defendants as directors of the Plaintiff, specifically in relation to the part they played in the sale of the Jet (the “Claim”).

16. The Concurrent Notice was issued on 29 June 2017. The Plaintiff maintains that the Concurrent Notice was personally served by Mr Attar on Mr Khouj at the court in Jeddah on 14 December 2017 and on Mr Mansouri at his home address in Jeddah on 20 December 2017. Mr Attar subsequently swore two affidavits of service. The Defendants dispute that service occurred and label the affidavits as a “fabrication”.

17. No Memorandum of Appearance was entered by the Defendants. As a consequence, Default Judgment was entered by the Acting Registrar on 22 February 2018. This was in the sum of US$17.1 million plus statutory interest.

18. On 15 May 2019, 17 months after service of the Writ, and 7 months after the (undisputed) service of the Default Judgment on them, the Defendants filed the Set-aside Applications.

19. On 16 October 2019, 12 months after having filed the applications, and 2 years after service of the Writ, the Defendants raised for the first time the issue of the Plaintiff's standing to bring the proceedings in their written submissions.

The Defendants' Position

20. First, the Defendants' position is that service of the Notice out of the jurisdiction should be set aside pursuant to RSC Order 12, rule 8(1) because:

• i. the Concurrent Notice was not in fact served personally on the Defendants (or at all); or in the alternative

• ii. even if (which is denied) the Concurrent Notice was served personally on the Defendants, the method of service said to have been employed by the Plaintiff is not permitted under the law of KSA and was therefore contrary to RSC Order 11, rule 5(3)(a).

(and in either case the Default Judgment is consequently irregular).

21. Second, the Defendants' position is that the Default Judgment in this matter should be set aside pursuant to RSC Order 13, rule 9 because:

• i. At all material times the Plaintiff had (and continues to have) no locus standi. Acting through its Liquidator, almost four years prior to commencing this action in February 2016, the Plaintiff legally assigned (inter alia) the Claim to Dr Hafiz pursuant to the Deed of Assignment. No cause of action thus vests in the Plaintiff. This fact would have resulted in the Claim...