Forsyth Partners Global Distributors Limited vs Ekar Holding Limited

This case concerned the validity of a Drag Along Notice issued under a Shareholders' Agreement, leading to a dispute over the compulsory acquisition of shares in Ekar Holding Limited.

TLDR:

• Dispute over the validity of a Drag Along Notice under a Shareholders' Agreement.
• Judge declined to follow an English Court of Appeal decision, raising questions about the application of English common law in ADGM.
• Appeal focused on whether knowledge of unlawfulness is required for unlawful means conspiracy.
• Court ruled in favor of the appellants, awarding damages and costs.

The Eighth Respondent, Ekar Holding Limited ('Ekar'), is a start-up car sharing company active in Abu Dhabi, Dubai, and Saudi Arabia. On 27 April 2020, the shares of the Appellants, a group of minority shareholders in Ekar, were compulsorily acquired by the service on them of a Drag Along Notice ('Drag Notice'). It was issued on behalf of the majority shareholders under the provisions of a Shareholders' Agreement dated 29 October 2019. This resulted in the entirety of the issued shares of Ekar being purchased by, and thereafter transferred to, the Sixth Respondent, Lux 2 Invco ('Lux'), for the consideration of US$1.00.

The Appellants claimed that the Drag Notice was issued in breach of the Shareholders' Agreement by reason of four independent breaches of the provisions of that agreement. After a trial that lasted fourteen days, the judge rejected the Appellants' contentions in respect of three of them. But he upheld the fourth contention, which was that the sale of the Appellants' shares was not to a bona fide purchaser who had made an offer for them on arm's length terms.

The judge held that Lux, wholly owned by Polymath, was Mr. Hashemi's vehicle. Through the medium of Lux, he stood on both sides of the fence in the Drag process and the share expropriation that took place. No mention of the Lux offer was made to anyone other than Mr. Hedberg and Mr. Bhusari, who had decided to throw in their lot with Mr. Hashemi. The judge concluded that it was not possible to characterize Mr. Hashemi as having acted in good faith in setting the Drag Along procedure in train. It was self-serving and cynical, a maneuver calculated to benefit no one but himself. The purported sale to Lux was not made to a bona fide purchaser who had made an offer at arm's length. It was not valid and so was a contractual breach of the Shareholders' Agreement.

The judge said that the essential issue in consideration of the inducing breach claim was the issue of knowledge and intention: did Mr. Hashemi know that the issue of the Drag Notice would breach the Shareholders' Agreement, and did he intend to procure that breach? But there was no hard evidence nor inescapable inference that he knew a breach of the Shareholders' Agreement was to occur consequent upon his actions. He had made positive inquiries to confirm the lawfulness of the Drag Notice and received the advice that was given on 30 April 2020. The existence of the advice by CMS militated against the contention that at the time Mr. Hashemi was on notice that service of the Drag Notice would constitute a breach of the Shareholders' Agreement. The allegation of inducing breach of contract had not been made out, and he dismissed that claim.

There remained the case of unlawful means conspiracy. The judge said that this tort differs from the tort of inducing breach of contract in the requirement of knowledge, given that it appeared to be no longer settled in English law that knowledge of the unlawfulness of the means employed is required to establish unlawful means conspiracy. In support of that observation, the judge referred to dicta in Meretz by Arden LJ at para 127 and Toulson LJ at para 174 to the effect that it was a defense to an action for conspiracy to injure by unlawful means if the defendant acted as he did in the belief that he had the lawful right to act as he did, and then to the majority decision of the Court of Appeal in Racing Partnership by Arnold and Phillips LJJ to the effect that knowledge of the unlawfulness of the means employed was not required for unlawful means conspiracy. He said that the majority decision in Racing Partnership had injected uncertainty into the requirement for the establishment of this tort. Lewison LJ had dissented, following the approach of Arden and Toulson LJJ in Meretz.

The judge said that the Appellants' counsel, Mr. Halpern KC, went so far as to suggest that his court was sitting as an English court of first instance, and that it was bound by the Court of Appeal decision in Racing Partnership. He did not accept that argument. He said that he was sitting as a first instance court within the jurisdiction of the ADGM Courts, and not as an English court of first instance. So he was not bound by that decision.

As he saw it, his task was to ascertain the correct position under English law, having regard to all relevant decisions which form part of English jurisprudence. It appeared to him that there was a dissonance in the current state of English law, which had created an unanticipated distinction between the two torts as to what was required to establish such claims. In his opinion, the better view was that in unlawful conspiracy claims knowledge of the unlawful means should be a requirement. He accepted that Mr. Hashemi thought that he was legally entitled to act as he did, as he had gone out of his way to obtain legal advice. There was no evidence that either Mr. Hashemi or any of the alleged co-conspirators knew that the Drag Notice as issued constituted a contractual breach. The burden that was on the Appellants to show that this was so had not been discharged. So he dismissed the conspiracy allegation that had been brought against Mr. Hashemi.

The appeal raised an issue about the tort of unlawful means conspiracy. The question was whether the ADGM Courts are bound to follow a majority decision of the English Court of Appeal on the question of whether knowledge of the unlawfulness of the means employed is required to establish the tort. The answer to that question, if it was raised in an English court, would be found by applying the English common law doctrine of precedent.

The judge in the Court of First Instance, Justice Stone, having reviewed the authorities, said that the current position on that question is far from settled under English law. He held that, as he was not sitting as an English court of first instance, he was not bound as a matter of stare decisis by the decision of the English Court of Appeal in The Racing Partnership v Done Bros Ltd [2021] Ch 233 ('Racing Partnership'). So he declined to follow it. He applied what he considered to be the better view of the law on this issue, for which he had found support in an earlier decision of the Court of Appeal in Meretz Investments NV v ACP Ltd [2008] Ch 244 ('Meretz').

The first two issues before this court were whether the judge was right to decline to follow the judgment in Racing Partnership for the reason that he gave, and whether he was right to hold that it is a requirement for the tort of conspiracy to cause loss that the alleged tortfeasor knew that the unlawful means that were to be applied were unlawful. If he was right to do so, a further issue arose as to where the burden of proof lies as to the tortfeasor's state of knowledge and what the judge found to be established by the evidence.

The appeal must be allowed. Mr. Hashemi is jointly and severally liable with the First to Fourth Defendants for damages in the total sum of US$779,500, plus simple interest at 5% per annum from 27 April 2020. The Appellants are entitled to the costs of the proceedings against Mr. Hashemi in the Court of First Instance and in this Court.

Legal representatives: Mr. David Halpern KC (Instructed by Al Tamimi & Company) for the Appellants, Mr. Alain Choo Choy KC (Instructed by DLA Piper Middle East LLP) for the First to Sixth and Eighth Respondents.

Judicial Panel: Justice Stone

Case Citation Reference: [2023] ADGMCA 001