The Danger Of Striking Blindly: Bermuda Court Rejects Strike-Out Application And Denies Arbitral Stay In Valuation Dispute

Striking out Pleadings under the RSC

In its Summons, the Defendant Company had sought orders pursuant to Order 18, Rule 19(1) of the RSC that the entirety of the Plaintiff's claims against it should be struck out, on the basis that they allegedly (i) disclosed no reasonable cause of action; (ii) were scandalous, frivolous or vexatious; and (iii) were an abuse of process of the Court.

Attride-Stirling AJ began his analysis of the relevant legal principles by referring to the Court of Appeal's examination of the approach to be taken, both as regards evidence and the consideration of the actual merits of the action, in Broadsino Finance Company Limited v Brilliance China Automotive Holdings Ltd. 2m The general principles governing applications to strike out pleadings were recited by Stuart-Smith JA at pages 4 and 5 of that judgment, and for present purposes can be summarised as follows:

if an application is made to strike out a pleading under only Order 18, Rule 19(1)(a) of the RSC (i.e. on the basis it discloses no reasonable cause of action), it is permissible only to look at the pleadings; if the application is brought under the remaining, broader provisions of Order 18, Rule 19(1), the Court can admit and examine affidavit evidence; the Court's jurisdiction to strike out a claim should only be exercised in "plain and obvious cases", particularly in circumstances where there has been no discovery or oral evidence given; and the relevant test is whether there is a "fair and reasonable probability of the defendants having a real or bona fide defence" - the approach is the same as when a plaintiff is seeking summary judgment. While Attride-Stirling J had little difficulty finding that the Defendant Company had failed to make out the first two grounds of its strike-out application, the question of whether the claim could be struck out on the basis it was an abuse of process required more consideration. Essentially, the Court was being asked to decide whether there had been a departure from the contractually agreed basis for the valuation of the Plaintiff's shares which were to be repurchased by the Defendant Company. The evidence before the Court was conflicting, with the Plaintiff's affidavit claiming there had been a departure, and the Defendant Company's affidavits claiming there had not. Recognising that there was a serious question of fact to be tried, Attride-Stirling AJ held:

Challenging Share Valuations

At the heart of the dispute...