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Defendants 19th, 20th, 21st, 22nd, 23rd, 26th, 27th, 28th, 29th November 2012

Hearing dates:

11th June 2013

Judgment handed down:

Before: Richard James McMahon, Esq., Deputy Bailiff Counsel for the Plaintiff: Advocate G K Bell Counsel for the Defendants: Advocate M G A Dunster

Cases, legislation and materials referred to:

The Royal Court (Reform) (Guernsey) Law, 2008 The Evidence in Civil Proceedings (Guernsey and Alderney) Rules, 2011 The BVI Business Companies Act, 2004 Bebo Investment Limited v The Financial Secretary (17 January 2008) Charles Savarin v John Williams (1995) 51 W.I.R. 75 Pinner v Everett [1969] 3 All ER 257 Abel v Lee (1871) L.R. 6 C.P 365 Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231 R v City of London Court Judge [1892] 1 QB 273 Kammins Ballrooms Co. Ltd v Zenith Investment (Torquay) Ltd [1970] 2 All ER 871 Barlette v Mayfair Property Company [1898] 2 Ch. 28 The Hansard Report of the 22nd Sitting First Session of the 15th Legislative Council of the Virgin Islands The Royal Court Civil Rules, 2007 The Companies (Jersey) Law 1991 The Companies (Guernsey) Law, 2008 International Business Companies Act, 1984 (BVI)


C:\Documents and Settings\scollins\Local Settings\Temporary Internet Files\Content.Outlook\R9Q916L8\Final v BARCLAYS 11 06 2013.docx 2 The Companies Act 2006 (Isle of Man) The Companies Act 1995 (Antigua and Barbuda) Smith v South Wales Switchgear Ltd [1978] 1 WLR 165 Farstad Supply A/s v Enviroco Ltd [2010] 2 Lloyd’s Rep. 387 Viscount of the Royal Court of Jersey v Shelton [1986] 1 WLR 985 The Evidence in Civil Proceedings (Guernsey and Alderney) Law, 2009 Molineaux v London, Birmingham and Manchester Insurance Co. [1902] 2 KB 589 In re Brazilian Rubber Plantations and Estates, Limited [1911] 1 Ch 425 In re City Equitable Fire Insurance Company, Limited [1925] 1 Ch 407) Introduction

1. By a Cause tabled on 19 March 2010, the Plaintiff, Emerald Bay Worldwide Limited (hereafter referred to as “EBWL”) claims damages against its two former directors, Barclays Wealth Directors (Guernsey) Limited and Barclays Wealth Corporate Officers (Guernsey) Limited, the Defendants. EBWL is a company registered in the British Virgin Islands.

Consequently, the claim of breach of directors’ duty of care, diligence and skill falls to be resolved in accordance with the law of the British Virgin Islands. The two Defendants are Guernsey registered companies. Their parent company is Barclays Wealth Trustees (Guernsey) Limited (hereafter referred to as “BWTG”).

2. The breach of duty is said to have taken place on 23 April 2008 when a board meeting of EBWL was held at which the Defendants, as EBWL’s directors, resolved to enter into a Membership Interests Purchase Agreement (hereafter referred to as the “MIPA”) with Jetstream Limited, by virtue of which EBWL acquired GE Continental LLC (hereafter referred to as “GEC”). The reason for acquiring that Delaware limited liability company was that GEC had had assigned to it a purchase agreement for a new Hawker 4000 aircraft. By acquiring GEC, EBWL potentially obtained earlier delivery of the Hawker 4000 aircraft than it could have by placing its own order directly with the manufacturers, by that time known as Hawker Beechcraft Corporation (hereafter referred to as “HBC”), and at a price already largely determined. However, by acquiring GEC, EBWL was required to pay what was effectively a purchase price, rather than paying the manufacturer a deposit against an order. It is the non-refundability of an amount so paid that lies at the heart of EBWL’s case.

3. The Defendants deny that their decision to enter into the MIPA on the terms contained therein was a breach of their duty as directors. They deny that any of EBWL’s alleged loss and damage is attributable to them. However, if the Defendants are found to have committed a breach of their duty as directors causing EBWL the loss alleged, the Defendants claim that, in accordance with what is permitted under the law of the British Virgin Islands, a provision in the Articles of Association of EBWL affords them both an indemnity, thereby defeating EBWL’s claim in its entirety.

4. As permitted by section 13 of the Royal Court (Reform) (Guernsey) Law, 2008, following election by the parties, this case was heard by me sitting unaccompanied by Jurats. The Plaintiff was represented by Advocate Bell and the Defendants by Advocate Dunster. I am grateful to them both for the way in which they marshalled the materials and their submissions.

The evidence

–  –  –

exactly what it is that the Defendants say they are entitled to rely on, I will set out in quite considerable detail what transpired.

6. Expert evidence about the law of the British Virgin Islands was given by Philip Jones QC and Robert Levy QC on behalf of the Plaintiff and the Defendants respectively. They filed various written reports and gave oral evidence, all of which has been helpful. Counsel also submitted a short List of Agreed Facts in relation to the law of the British Virgin Islands, dated 15 November 2012. The parties also filed reports from aviation experts, Philip Seymour and Steven Rogers respectively, but, following discussions between Counsel, very little reliance was placed on the contents of them.

7. Witness statements as to fact were provided by Vladimir Chernukhin, Alicia Mulcahy, Olaf Kiener, Sharon Parr, Warner Koller and Stephen Le Ray. All of them, save Ms Mulcahy, also gave oral evidence. In Ms Mulcahy’s case, a hearsay notice was served pursuant to rule 1(2) of the Evidence in Civil Proceedings (Guernsey and Alderney) Rules, 2011, explaining that she is no longer employed as Mr Chernukhin’s personal assistant and now lives in Australia.

The Defendants served a credibility counter-notice under rule 5 of the 2011 Rules. I have, therefore, approached the content of her witness statement with appropriate caution. In Mr Chernukhin’s case, some of his evidence was given through, or with assistance from, an interpreter, although he generally wished to give his evidence in English. In addition, a number of relevant matters were set out in a List of Agreed Facts.

8. Although various documents emanating from or sent to Dustin Dryden were produced, Mr Dryden did not give evidence. As a result, I have drawn what inferences I can about his role in respect of the matters aired in this case. I have attempted to exercise due care not to attribute to Mr Dryden a particular role in these events because he has not been given the opportunity to speak for himself. However, as with Ms Mulcahy, the documents produced speak for themselves and provide a fairly clear picture of their involvement.

The events that occurred

9. EBWL was only incorporated on 6 February 2008. Until 3 October 2008, its issued share capital was held by two companies as nominees of and for BWTG as trustee of the Galaxy Trust, which had been declared by BWTG on 20 November 2007. EBWL was acquired by BWTG from Equity Trust in early April 2008. Equity Trust (BVI) Limited, EBWL’s First Registered Agent, appointed the Defendants as the first directors of EBWL on 8 April 2008.

Although the Defendants had only been directors of EBWL for a little over a fortnight when they held the board meeting about which complaint is now made, the involvement of the various people who played a part in this transaction dates back further.

The origins of the relationship

10. Mr Chernukhin is a successful businessman of Russian origin. He held various posts with Vnesheconombank from 1996. He served for a time as a Deputy Minister of Finance in the government of the Russian Federation. He was subsequently appointed by presidential decree to be the bank’s chairman. He is a high net worth individual. Mr Chernukhin’s relationship with the wider Barclays Wealth Group (hereafter referred to as “Barclays Wealth”), which includes BWTG, began around the middle of 2006, following an introduction by the accountants BDO LLP. By the middle of 2007, Ms Parr, the Managing Director responsible for the Guernsey trust and fiduciary operation, led the relationship with Mr Chernukhin on behalf of Barclays Wealth. At that time, Mr Chernukhin was able to make use of a private aircraft held as an asset of the Blue Bay Trust, which had been settled under the law of Jersey.

That aircraft was a Hawker 850XP, which was being maintained and operated by Hangar 8 Ltd (hereafter referred to as “Hangar 8”) based at Oxford Airport. The key individual involved on behalf of Hangar 8 was Mr Dryden.


11. In October 2007, Ms Mulcahy, who was employed at that time by Capital Construction & Development Ltd as an executive assistant, assisting Mr Chernukhin with both personal and business administrative-related matters, was instructed by Mr Chernukhin to organise a meeting to discuss options to upgrade the private aircraft available for his use with Mr Dryden in London. Mr Chernukhin chose to discuss these matters with Mr Dryden because he was satisfied with the service provided by Hangar 8 and so he was keen for Hangar 8 to be involved with any new aircraft once purchased. Mr Chernukhin believed that his wish for Hangar 8 to be involved would offer an incentive to Mr Dryden to assist with Mr Chernukhin’s proposal. At that meeting, Mr Dryden provided brochures and specifications for a number of different models of aircraft that might be appropriate, explaining the pros and cons of each. Without committing to anything, Mr Chernukhin expressed an interest in the Hawker 4000 model, which was a brand new aircraft model and apparently more technologically advanced. Mr Dryden indicated he would liaise with his contacts in the aviation market to identify the opportunities available to Mr Chernukhin to purchase a Hawker 4000. He further indicated that he was aware of a potential opportunity to purchase a Hawker 4000 within a relatively short timeframe.

12. On 22 October 2007, Ms Parr attended a meeting in London with Mr Chernukhin, at which Mr Chernukhin’s wife, Luba, was also present. This meeting was also organised by Ms Mulcahy. Neither the Chernukhins nor Ms Parr have any notes of what was discussed at that meeting and rely instead on their recollections, which do not entirely match. The differences between their accounts is an important issue for the Court to resolve because so much flows from what was, or was not, said and understood at the time.

13. Ms Parr described the meeting as “a pitch”, explaining that she was attempting to persuade Mr Chernukhin to engage Barclays Wealth to handle his personal affairs as well as the more business-related matters which Barclays had been handling for the previous year or so. To that extent, this is consistent with Mr Chernukhin’s recollection that “The purpose of this meeting was to explain our requirements and to determine whether Barclays Wealth would be able to assist in facilitating the purchase of the new aircraft”. It was the first occasion on which Mr Chernukhin raised with Ms Parr the acquisition of a replacement aircraft.

14. Mr Chernukhin was adamant that he made it clear to Ms Parr that he explicitly told her he wished the proposed new aircraft to be purchased directly from the manufacturer, emphasising that any monies paid by way of deposit must be refundable in the event that the purchase did not proceed for any reason. At that time, no Hawker 4000 had been delivered by the manufacturer and Mr Chernukhin wanted to have remedies should there be the type of teething problems likely to be experienced with production of a new model of aircraft. He did not have any experience in acquiring an aircraft and so was prepared to pay for professional assistance to achieve his desired outcome. In his statement, Mr Chernukhin indicated that “Barclays Wealth‟s expertise and services were required to advise on the commerciality of the agreements relating to the purchase of the aircraft and to put in place an appropriate structure”. He further explained about Mr Dryden’s role in relation to the Hawker 850XP and that Mr Dryden “had identified a potential opportunity to purchase a new aircraft more quickly than would be possible if a new order was placed”.

15. Ms Parr was equally adamant that Mr Chernukhin did not tell her that the only option to take was to purchase directly from the manufacturer. Had something as important to the relationship with Mr Chernukhin as that been said, she would have noted it and acted upon it.

Indeed, she recognised that to have wilfully ignored such an instruction would have been unprofessional. Instead, her recollection, which she said was consistent with what then happened, is that Mr Chernukhin informed her that Mr Dryden was “the guy who would be „doing the plane‟, and that everything was to go through him”. Her impression was that the issue of acquiring an aircraft was only raised with her very much at the end of the meeting.

She recalled it being a three or four-minute conversation during which a single sheet of paper 5 was given to her, which she says she annotated with the word “Dustin”, referring to Mr Dryden.

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