The Court of Appeal of the Cayman Islands considered the Grand Court’s decision in Renova v Gilbertson. At first instance, Renova Resources Private Equity Limited (Renova) who was a 50 per cent shareholder of Pallinghurst (Cayman) General Part LP (GP) Limited (the Company) had brought a derivative action against one of its directors, Mr Gilbertson, for breach of his fiduciary duties to the Company.
The Grand Court found that Mr Gilbertson wrongly diverted away for his own benefit the valuable economic benefit of developing, exploiting and managing the Fabergé brand (responsible for the renowned jeweled eggs) from the Company. The Grand Court held that Mr Gilbertson had breached his fiduciary duties as director of the Company. The Grand Court also held that the co-defendant, a company used by the trustee of Mr Gilbertson’s family trust to fund his share of the Fabergé acquisition (Autumn), was liable in knowing receipt. Mr Gilbertson appealed against the first instance decision. Renova cross-appealed. The Court of Appeal dealt with a number of legal points raised in the grounds of appeal. The Court of Appeal upheld the trial judge’s decisions on:
- Standing of Renova to bring a derivative action to pursue claims on behalf of the Master Fund, of which the order granting leave was left unchallenged by Mr Gilbertson;
- Breach of director fiduciary duties owed by Mr Gilbertson in acting as he did with regards to the Fabergé acquisition;
- The value at nil of the loss which Mr Gilbertson was liable to make good to the Master fund by way of equitable compensation on the basis of the trial judge’s evaluation of expert witness evidence;
- Autumn being in knowing receipt in the Fabergé acquisition given its relationship with Mr Gilbertson, the property acquired, the person from whom it acquired the property from, and its state of knowledge at the time of receipt; and
- Autumn not being a constructive trustee on behalf of the Master Fund in the Fabergé acquisition.
The only (and relatively minor) points the Court of Appeal overruled as to the trial judge were his decisions: (i) to award pre-judgment interest for which he held Autumn accountable; and (ii) to make no order as to costs. The Gilbertson parties were directed to pay the costs of their counterclaims on the indemnity basis. The Court of Appeal judgment confirms the strict nature of a fiduciary’s duty of loyalty and will continue to take a dim view as to directors surreptitiously diverting its company’s business opportunities for personal profit. Furthermore, the Court of Appeal decision emphasizes the importance for trustees to be genuinely independent and to exercise a proper level of due diligence.