St John's Trust Company (PVT) Ltd v Watlington and Ors

• Jurisdiction: Bermuda
• Judgment Date: 26 March 2020
• Date: 26 March 2020
• Docket Number: Civil Jurisdiction 2019 No 447
• Court: Supreme Court (Bermuda)

[2020] Bda LR 25

In The Supreme Court of Bermuda

Civil Jurisdiction 2019 No 447

Between:

St John's Trust Company (PVT) Limited

Plaintiff

and

James Watlington

Glenn Ferguson

Cabarita (PTC) Limited (sued in its personal capacity and its capacity as trustee of the Waterford Charitable Trust)

Attorney General

Defendants

Mr D Hagen QC, Mr J Elkinson and Mr B Adamson for the Plaintiff

Mr M Dield, Ms K Tornari and Ms C Herrero for the 1^st and 2^nd Defendants

Mr D Brownbill QC and Mr P Harshaw for the 3^rd Defendant

The following cases were referred to in the judgment:

Ivanishvili and Ors v Credit Suisse Life (Bermuda) Ltd [2018] Bda LR 87

Kingate Global Fund Ltd (in liquidation) v Kingate Management Ltd [2016] Bda LR 4

Altimo Holdings v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804

Airways Ltd v Bowen [1985] BCLC 355

Salomon v Salomon [1897] AC 22

Re Duomatic [1969] 2 Ch 365

Phoenix Global Ltd v Citigroup Fund Services (Bermuda) Ltd [2009] Bda LR 68

Atlas Wright v Wright [1999] BCC 163

Re Tulsesence Ltd [2010] 2 BCLC 525

Bowthorpe Holdings Ltd v RJ Hills [2002] EWHC 2331

A-G for Canada v Standard Trust [1911] AC 498

Re Express Engineering Works [1920] 1 Ch 466

Parker and Cooper Ltd v Reading [1926] Ch 975

Pender v Lushington (1877) 6 ChD 70

North West Transportation v Beatty (1887) 12 App Cas 589

Greenhalgh v Arderne Cinemas [1951] Ch 286

IRC v Bibby [1945] 1 All ER 667

In re HR Harmer [1959] 1 WLR 62

Theseus Exploration v Mining and Associated Industries Ltd [1973] Qd R 81

Browne v La Trinidad (1887) 37 ChD 1

Lang v Purves (1862) 15 ER 541

Hauxwell v Barton upon Humber DC [1974] Ch 431

Attorney General v President and Scholars of Magdalen College, Oxford (1857) 6 HL Cas 189

In the matter of H [2011] JRC 070

Re the F Trust [2015] Bda LR 116

MacDougall v Gardiner (1874–75) LR 10 Ch App 606

Burland v Earle [1902] AC 83

Bentley-Stevens v Jones [1974] 1 WLR 638

Application for strike-out of proceedings for lack of authority — Application of the Duomatic Principle to the appointment of directors — Scope of exceptions — Locus standi to enforce a charitable trust — Whether leave to should be given — Discharge of ex parte injunction

JUDGMENT of Hargun CJ

The Applications

1. Over a period of three days I heard two applications on behalf of the Defendants. The first application was made on behalf Cabarita (PTC) Limited (“Cabarita”) seeking an order that the Amended Generally Endorsed Writ of Summons issued in the name of St John's Trust Company (PVT) Limited (“SJTC”) be struck out on the grounds that the proceedings were commenced without the named Plaintiff's authority and/or pursuant to RSC O 18, r 19. The second application, made on behalf of the First to Third Defendants, sought to set aside or vary the ex parte Order made by the Court on 6 November 2019 restraining Mr James Watlington, the First Defendant, and Glenn Ferguson, the Second Defendant, from acting as directors of SJTC.

The Background

2. On 6 November 2019 I heard an ex parte application in the name of SJTC seeking an interim injunction against Mr Watlington and Mr Ferguson to prevent them from acting as directors of SJTC or holding themselves out as such. Mr Adamson and Mr Elkinson purported to appear on behalf of SJTC at the ex parte hearing.

3. Counsel explained that SJTC is a private trust company and is a corporate trustee administering a very valuable trust, the A. Eugene Brockman Charitable Trust (“the Brockman Trust”). SJTC's sole shareholder is another private trust company, domiciled in Nevis, called Cabarita. Cabarita is also a corporate trustee of a charity called the Waterford Charitable Trust, a Bermudian charitable trust. The shareholding in SJTC is a trust asset of the Waterford Charitable Trust.

4. Mr Adamson advised that SJTC has commenced litigation against a Mr Evatt Tamine, a former director of SJTC, for, in part, stealing trust assets of the value of more than $20 million and SJTC is currently seeking, in separate proceedings pending in this Court, a full accounting to determine whether Mr Tamine has stolen additional trust assets. Mr Tamine, counsel explained, is also a shareholder and director of Cabarita and recently, more than a year after resigning his position with SJTC and the week before his defence to the litigation against him in the Bermuda proceedings was due, has used his position with Cabarita to appoint Mr Watlington and Mr Ferguson as directors of SJTC. The expanded board of directors of SJTC would now consist of Mr James Gilbert, Mr Watlington and Mr Ferguson. Mr Adamson explained that SJTC's fear is that the appointment of additional directors is an attempt by Mr Tamine to derail the investigations into his activities and/or to obtain information about SJTC's litigation strategy against him.

5. Mr Watlington and Mr Ferguson were appointed directors of SJTC by a unanimous written resolution of the sole member of SJTC. Mr Adamson submitted that while the bye-laws do contemplate and provide for written resolutions of the members (bye-law 27), the wording of the bye-law is narrowly drawn. Bye-law 27, submitted Mr Adamson, only permits members to use written resolutions where the members were entitled to attend “the Meeting and vote on the resolution”, so that “the Meeting” must be convened before the written resolution process can be utilised. And only the company (acting through directors and secretary) can convene a meeting/circulate the resolution.

6. Further, Mr Adamson submitted that sections 79 and 80 of the Companies Act 1981 (the “Act”) provided detailed statutory mechanism for members to require companies to circulate members' resolutions in advance of general meetings. The statutory mechanism, Mr Adamson submitted, is inconsistent with members having a freewheeling power to circulate resolutions to themselves, by-passing the scheme. The Bye-laws provide that the directors are entitled to receive notice of and attend any general meeting (Bye-law 31). This seemingly renders, submitted Mr Adamson, impossible the by-passing of members of the need to (a) hold any general meeting at all; (b) at the very least provide notice to the director.

7. Mr Adamson also advised the Court that SJTC anticipated an action against Cabarita for seeking to derail the current litigation through, what appears to be, a clear fraud on power/improper exercise of a fiduciary duty for an improper purpose. He submitted that if Cabarita acted in excess of its powers as a trustee in appointing Mr Watlington and Mr Ferguson as directors, as a matter of trust law, their appointment was void in equity.

8. In conclusion, Mr Adamson submitted that there was no prejudice in Mr Watlington and Mr Ferguson standing down. On the other hand, the potential prejudice of allowing Mr Watlington and Mr Ferguson who are, it is to be assumed, funded by Mr Tamine to have control of the litigation against Mr Tamine enormous. The appointment of Mr Watlington and Mr Ferguson is, submitted Mr Adamson, “to be blunt, an attempt to hijack”.

9. In his First Affidavit sworn in support of the ex parte application, Mr Gilbert stated at paragraph 24, that: “I ask for an injunction to hold the ring. There is no prejudice to the Defendants if they are prevented from holding board meetings while their authority (and their interactions with Mr Tamine) is scrutinised. There is certainly prejudice to the Trust (which of course is my main concern). The danger of allowing the Defendants to purport to call director meetings, to potentially derail the litigation, and to have the access to the trust funds is extreme”.

10. On the basis that the inter partes hearing in relation to the application for an injunction would take place within the next two weeks and on an expedited basis, I made an Order at the conclusion of the ex parte hearing on 6 November 2019, that Mr Watlington and Mr Ferguson be restrained from acting as directors of SJTC or in any way holding themselves out as such. In order to regulate the affairs of SJTC for the next week or so I also made an order that SJTC may continue to conduct its business in accordance with its bye-laws, as if Mr Gilbert is the sole director.

11. For various reasons the inter partes hearing in relation to the injunction did not take place until 19 February 2020. During this period substantial evidence has been filed in the name of SJTC and the Defendants. In particular, Cabarita has filed an affidavit of Michael D Padula, an attorney acting for Mr Tamine in the US. Mr Padula states that in the course of 2018, Mr Tamine became aware that the US Department of Justice (“DOJ”) and the US Internal Revenue Service (“IRS”) were pursuing a tax and money laundering investigation which concerned SJTC and the Brockman Trust (“the Investigations”). Mr Tamine is now aware, from his involvement as a co-operating witness in the Investigations, that the Investigations related to the tax affairs of Mr Brockman and the suspected evasion by Mr Brockman of tax in relation to more than USD 2 billion of unreported gains made by entities within the Brockman Trust structure. One of the issues with which the Investigations are concerned is the extent to which Mr Brockman has control over the Brockman Trust. Mr Padula believes that if the Investigations proceed to trial then it will be one of the largest tax evasion cases by individuals in US history.

12. The Bermuda authorities became involved in the Investigations in or about August 2018 and on 29 August 2018 the Bermuda Police obtained a search warrant permitting them to search for the requested materials at Mr Tamine's home address in Bermuda. The search warrant gave authority for any police officer entering the premises to be accompanied by an officer or agent belonging to the IRS.

13. After Mr Tamine had been informed about the search warrant, his representatives made contact with the DOJ and Mr Tamine was granted immunity in the...