09/10/2014

Sabbagh v Khoury

Summary: The English court had jurisdiction to consider a claim that defendants had conspired to deprive a claimant's late father, and the claimant as his heir, of certain assets; but a claim that he had owned certain shares at his death to which the claimant was entitled had no real prospect of success.

Abstract: The defendants challenged the jurisdiction of the English court to hear proceedings brought against them by the claimant (S). S's late father (H) had been the driving force behind a large engineering and construction group in the Middle East. He had suffered a stroke and later died intestate. S sought to pursue claims against various family members, and companies owned and/or controlled by them, in relation to alleged financial wrongdoing on their part since H's stroke and subsequent death. The families and companies involved were Lebanese. The first defendant (W) was S's cousin who was resident in London and was sued as the "anchor" defendant. Five of the individual defendants were resident in Greece. S claimed that the defendants had conspired to deprive her of her entitlement to shares in the group's parent company (C), and to misappropriate H's assets, contrary to the Lebanese and/or Greek Civil Codes. S was entitled to one-third of H's assets on his death, and she alleged that on his death he had held 39.915 per cent of C's share capital, so that she was entitled to one-third of that holding. She further alleged that after H's stroke the defendants had received and misappropriated substantial dividends paid to H by C. The defendants argued that there was no good claim against W and no basis for joining the other defendants to proceedings within the jurisdiction, and that the proceedings should be stayed on the basis of the arbitration clause in C's articles of association.  Mrs Justice Carr granted the Applications in part. (1) S's claim to have been deprived of shares in C had no real prospect of success. She had at a late stage accepted the effectiveness of transactions whereby H had transferred his shares to her and her brothers during his lifetime. That concession drove her to contend that, nevertheless, ownership of H's shares in C was not transferred to her brothers under those agreements because certain formalities had not been completed, namely approval by C's board of directors, the re-issuing of share certificates and the recording of the transfers in C's share register. However, there was evidence that the transfers had been properly effected in accordance with C's articles of association and Lebanese law. Her case on the non-completion of formalities was unreal, at odds with the documents and unsustainable (see paras 104-122 of judgment). Furthermore, any want of formality had been waived by the relevant parties (para.133).

(2) Even if there had been some want of formality which had not been waived, and the transfers were not sales of the shares which would bind H's estate but gifts which would lapse on his death as a matter of Lebanese law, the evidence did not come close to establishing an arguable case of intentional wrongdoing by W. Thus the share deprivation claim was bound to fail (para.176).

(3) There were triable issues as to whether the payments challenged by S fell within the scope of a practice within C of reinvesting dividends; as to whether H still had capacity after his stroke to authorise the transactions in question and did so; as to whether the transactions were properly carried out under powers of attorney given by H; and as to whether there had been any intentional wrongdoing by W. It was arguable that there had been wrongdoing and that W could have had knowledge of it (paras 177-198). Thus the asset misappropriation claim raised a serious issue to be tried as against W and there was a good arguable case that factors existed which allowed the court to take jurisdiction against the other defendants under Regulation 44/2001 art.6(1)(paras 210, 224).

(4) S was not bound by the arbitration clause in C's articles because H, and S as his heir, would only be bound by the clause in respect of a claim based on the articles, and the asset misappropriation claim was not such a claim, but was based on the general law of delict analogous to an English law conspiracy (paras 234-252).

(5) The principal subject-matter of the share deprivation claim or the asset misappropriation claim was not succession within art.1(2) of the Regulation or the validity of decisions of C's organs within art.22(2) (para.271). (5) It followed that the defendants' applications to stay the share deprivation claim were granted, but the applications to stay the asset misappropriation claim were dismissed (para.301).”

Members of Chambers: Philip Edey QC and Andrew Fulton for the second, third, fourth, eighth and ninth defendants (instructed by Baker and McKenzie LLP), and Alexander Layton QC and Leonora Sagan for the fifth, sixth, seventh and tenth defendants (instructed by Olswang LLP)