Offshore Case Digest: Issue No. 7

MARCH 2 0 1 4 — J UNE 2 0 1 4
I ss u e N o. 7
/ Bermuda
/ British Virgin islands
/ Cayman Islands
b e r m u da
british virgin islands
c ay m a n i s l a n d s
dubai
h o n g ko n g
lo n d o n
m au r i t i u s
singapore
co nye r s d i l l .co m
offshore case digest
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bermuda | british virgin islands | cayman islands
/ Editor
Bermuda
Christian Luthi
/ Assistant Editor
Bermuda
Stephanie Hanson
/ Contributors
Bermuda
Ben Adamson
Scott Pearman
British Virgin Islands
Tameka Davis
Cayman Islands
Paul Smith
Erik Bodden
Hong Kong
Norman Hau
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About Conyers Dill & Pearman
Founded in 1928, Conyers Dill & Pearman is an international law
firm advising on the laws of Bermuda, the British Virgin Islands,
the Cayman Islands and Mauritius. With a global network that
includes 140 lawyers spanning eight offices worldwide, Conyers
provides responsive, sophisticated, solution-driven legal advice to
clients seeking specialised expertise on corporate and commercial,
litigation, restructuring and insolvency, and trust and private client
matters. Conyers is affiliated with the Codan group of companies,
which provide a range of trust, corporate secretarial, accounting
and management services.
This update is not intended to be a substitute for legal advice or a legal opinion.
It deals in broad terms only and is intended to merely provide a brief overview
and give general information.
ABOUT
THE DIGEST
The Offshore Case Digest offers readers a high
level summary of the major commercial cases
decided in Bermuda, the British Virgin Islands
and the Cayman Islands between March 2014
and June 2014. Our goal is to provide a useful
reference tool for clients and practitioners who
are interested in the development of case law
in each jurisdiction.
jurisdictionpage
Bermuda3
British Virgin Islands
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Cayman Islands
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We would welcome any feedback and suggestions from readers on
the content. If you would like to obtain further information on any
of the cases feel free to contact any of the Conyers Dill & Pearman
litigation team.
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bermuda
BERMUDA
Bermuda
that the fact that a creditor is secured did not prevent it bringing a
Supreme Court
applied). The Judge ordered the winding up of the Company.
April
winding up petition (Moor -v- Anglo-Italian Bank [1979] 10 Ch 681
Stay of Execution of Enforcement Order: The Judge confirmed that
the test as to whether to stay enforcement was effectively a balance of
WINDING UP – THE COMPANIES ACT, 1981 – BERMUDA INTERNA-
convenience test and did not favour interference with the Petitioner’s
TIONAL CONCILIATION AND ARBITRATION ACT, 1993 – ABILITY OF
right to enforce the award. In this respect, the Judge placed weight on
SECURED CREDITOR TO PETITION – STAY OF EXECUTION OF
the Petitioner’s submission that the judicial process pursued by the
ENFORCEMENT ORDER
Company in Brazil (which formed the ground upon which the stay was
In the Matter of LAEP Investments Ltd (“the Company”) [2014] SC
(Bda) 23 Com (1 April 2014)
The Court was asked to consider three applications before the Court:
(1) An amended petition to wind up; (2) A Summons of the Company
to dismiss the petition and set aside the appointment of the Joint
sought) could take ten years to pursue and that a stay would result in
severe financial prejudice. The application for the stay was dismissed.
INTERIM INJUNCTION TO PREVENT PRESENTATION OF PETITION
– ABILITY TO SET ASIDE INTERIM INJUNCTION – CROSS CLAIM BY
COMPANY EQUIVALENT TO PETITIONER’S DEBT
Provisional Liquidators (“JPLs”); and (3) A Summons of the Company
Agrenco Limited (“Argenco”) -v- Credit Suisse Brazil (Bahamas)
to stay execution of a Court Order granting leave to the Petitioner to
Limited (“Credit Suisse”) [2014] SC (Bda) 24 Com (26 February 2014)
enforce an arbitral award against the Company in Brazil (the “Enforcement Order”).
This case concerned an application by Credit Suisse to set aside an
interim injunction which restrained it from presenting a petition to
Winding Up Petition: The Judge considered the Company’s argu-
wind up Argenco. The Court noted that following the grant of the
ments that the winding up was sought to subvert the judicial process
injunction there had been two material changes: (1) Argenco had
in Brazil and that the debts were already fully secured in Brazil. The
conceded that the existence of the debt upon which the Statutory
Court was not satisfied with the evidence on either point. It was noted
Demand was based was not disputed; and (2) Argenco was no longer
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bermuda
in a position to assert that it was solvent on a balance sheet basis.
In determining whether to set aside the injunction, the Court considered the legal principles governing the restraint of the presentation of
a winding up petition against a company in circumstances where there
is a cross-claim equal to the Petitioner’s debt. The Judge stated that he
was required to assess whether or not the cross-claim relied upon by
Argenco has “sufficient prima facie plausibility to merit further
investigation as to [its] truth”. Having considered the cross-claim the
Judge held that it did not withstand scrutiny. The Judge usefully
outlined that the possible extinction of Credit Suisse’s claim (when
adjudicated by liquidators considering the cross-claim) was not a
material factor justifying continuing with the injunction, particularly
having regard to the improbable nature of the cross-claim itself.
May
STAY PENDING APPEAL – RULING ON COSTS AND TERMS OF
FINAL ORDER – INDEMNITY COSTS – MISCONDUCT – RETURN OF
MONIES HELD AS SECURITY FOR COSTS
(1) Stifton Salle Modulable (2) Rütli-Stiftung -v- Butterfield Trust
(Bermuda) Limited [2014] SC (Bda) Civ 42 (28 May 2014)
This ruling followed on from a five-week trial that concluded in
December 2013. The matter was listed to enable the parties to consider
what conditions should be attached to a stay pending appeal (which it
was common ground that the Defendant was entitled to seek) and, in
particular, to hear submissions on costs.
In considering costs, the Judge held that the Plaintiffs had achieved
substantial success in their claim and should be awarded their costs.
The Judge considered the dictum of Devlin J in Anglo-Cyprian Trade
Agencies Ltd -v- Paphos Wine Industries Ltd. [1951] 1 All ER 873 at 874,
cited with approval by Hellman J in Williams -v- Bermuda Hospitals
Board [2013] Bda LR 14 which set out that: (1) A successful Plaintiff
ought not to be deprived of costs unless he is found to be guilty of
misconduct; and (2) A plaintiff who recovers nominal damages ought
not to be regarded in the ordinary sense as ‘successful’. In considering
this test, the Judge held that the success of the Plaintiff was more than
‘pyrrhic’ and they should be awarded their costs.
The Judge went on to consider the principle articulated by the Court of
Appeal in First Atlantic Commerce Ltd. -v- Bank of Bermuda Ltd.
[2009] Bda LR 18 which provided for a reduced proportion of costs
when ‘superfluous’ issues were raised unnecessarily. In considering the
various arguments advanced by the Defendants as to why costs
should be reduced, the Judge awarded a 10% reduction in costs for
failure to establish a particular argument on feasibility. The Defendants
had submitted that the feasibility argument had been advanced
through five witnesses who consumed 20% of the trial.
Having succeeded on costs, the Plaintiffs sought return of the monies
paid into Court as security for costs. The Defendant objected on the
grounds that it proposed to appeal and would have no convenient way
to enforce any costs orders which may be obtained in its favour as a
result of its proposed appeal. The Plaintiffs cited authority in support
of their right to payment out; the Defendant cited no authorities
supportive of their opposition. In reviewing the unanimous decision of
the English Court of Appeal in Tristan Investments Ltd -v- Methdrell
Industries et al [1965] EWCA Civ JO111-3, it was held that the monies
held should be returned to the Plaintiffs.
INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE
AGREEMENTS) ACT, 2005 (THE “ACT”) – PRODUCTION ORDERS –
FAILURE TO SPECIFY HOW INFORMATION IS TO BE PROVIDED –
REQUESTS THAT DO NOT CONFORM WITH THE REQUIREMENTS OF
THE RELEVANT TAX INFORMATION EXCHANGE AGREEMENT
(“TIEA”)
Ministry of Finance -and- (1) E (2) F (3) H [2014] SC (Bda) Civ 43 (30
May 2014)
Certain amendments to the Act came into force in December 2013
which required the Minister of Finance to make applications for
information or document production to the Court. A successful
application results in a production order. The party served with the
Order may apply to the Court to set it aside or vary it. In this case the
Defendants sought to do just that.
The production order in question sought information on various
matters such as the Defendants’ activities, the means used to carry
them out and the date and means of acquisition of licenses, patents
and intangible assets.
The Defendants submitted that they were unable to give effect to the
request on the basis that the request required information but failed to
specify how that information was to be provided. The Defendants
submitted that this put the Defendants in the invidious position of
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bermuda
having to provide information but not knowing what is required to
satisfy that requirement. The Judge held that there was no merit to
this objection as “Information” is defined broadly in the Act and
includes “… any fact … in any form whatsoever that is relevant or
material to tax administration or enforcement”. That definition does
not require that the fact must be provided in the form of a pre-existing
document.
The Judge was also asked to order that the Plaintiff should bear the
costs of one of the Defendant’s compliance with the production order
on the grounds that it was an independent third party operating at
arm’s length from the taxpayer under investigation. Consideration of
this point was adjourned to give the parties the opportunity to make
more detailed submissions.
Of particular interest, it was submitted by Counsel for the Minister that
any non-conformity with the requirements of the relevant TIEA was
outweighed by the concern of a possible accusation by the requesting
State that Bermuda was not complying with its treaty obligations. In
response to this argument, the Judge stated, obiter, that it was
extremely doubtful that it would be lawful to honour a request on
these grounds alone in circumstances where the request did not
conform to the TIEA.
June
ORDER 24 RULE 10 – INSPECTION – PRODUCTION THAT IS NECESSARY FOR FAIR DISPOSAL OR SAVING COSTS – RELEVANT DOCUMENTS – RES JUDICATA – TRUSTEES DUTIES OF FULL AND FRANK
DISCLOSURE
Between: (1) Trustee 1; (2) Trustee 2; (3) Trustee 3; (4) Trustee 4;
-and- (1) the Attorney General; (2) Respondent 2; (3) Respondent 3
[2014] SC (Bda) 52 Com (5 June 2014)
The Court had previously ruled on two applications for disclosure
made by the Second Defendant in the course of Beddoe proceedings
commenced by the Plaintiffs (“The Trustees”). The Court was now
asked to consider: (1) A first summons seeking inspection of a number
of documents said to have been mentioned in the Trustees’ evidence in
reply; and (2) A second summons seeking the production of various
categories of documents pursuant to the Court’s supervisory jurisdiction to administer trusts.
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In respect of the first summons, it was noted that the request must
relate to a document to which “reference is made” in the affidavit in
the sense of a “direct allusion”. However, the Court will not order the
production of a document unless it is of the opinion that its production
is necessary either for disposing fairly of the cause or matter or for
saving costs. The Judge dismissed the First Summons as the requests
did not relate to documents to which a direct allusion was made, save
in one case where production of the requested documents was not
necessary for disposing fairly of the matter or for saving costs.
In respect of the second summons, the Trustees raised the preliminary
issue of res judicata, arguing that the issue had already been before
the Court at a hearing earlier this year. See Offshore Case Digest Issue
#6. At that hearing the narrow issue of whether the Trustees’ duty of
full and frank disclosure included a duty to disclose documents was
considered together with the broader issue of whether the Court had
jurisdiction to compel the production of documents by the Trustees.
During that hearing the Court was only asked to render a decision on
the narrow issue but, in determining the point of res judicata, the
Judge held that the broader issue was impliedly raised. The Judge
upheld the Trustees’ objection and noted that the Court’s ruling on the
legal principles applicable to the applications for the production of
documents at the earlier hearing would also be applicable to any
further application for the production of documents in the continuing
Beddoe proceedings.
SHAREHOLDER AGREEMENT – INTERPRETATION OF INDEMNITY
PROVISION – PAYMENT OF INSURANCE LOSSES
Mutual Holdings (Bermuda) Limited -v- Matsen Insurance Brokers, Inc
[2014] SC (Bda) 54 Com (25 June 2014)
The Plaintiff sought damages in the amount of US$165,703 plus
interest as monies due from the Defendant under a shareholder
agreement. The Plaintiff’s case was that the shareholder agreement
was concluded as one aspect of the Defendant’s participation in an
Insurance Profit Centre “rent-a-captive” programme (“the Programme”), offered by the Plaintiff and its affiliate Mutual Indemnity
(Bermuda) Limited (“Mutual Indemnity”). The Shareholder Agreement
entitled the Defendant to a dividend if the Programme was profitable,
but obliged the Defendant to indemnify the Plaintiff in respect of any
losses suffered by Mutual Indemnity in respect of the insurance risks
relating to the Defendant’s clients.
bermuda
The issues in controversy substantially turned on the interpretation of
dividend and indemnity provisions of the Shareholder Agreement.
Mutual Indemnity had paid out US$165,703 in respect of losses on the
Programme. As such, the Plaintiff argued that the Defendant was
obliged to indemnify the Plaintiff in this amount pursuant to clause 3A
of the Shareholder Agreement.
In considering the relevant provisions of the Shareholder Agreement,
the Judge considered the proper approach to construing the indemnity obligations of a preferred shareholder and adopted the approach of
Bell J in Mutual Holdings (Bda) Limited -v- American Patriot et al
[2010] Bda LR 46. He noted that the Court of Appeal for Bermuda
went on to affirm that the intent of the relevant provisions of the
Shareholder Agreement was to indemnify the Mutual companies for
“any losses that the Program had suffered”: American Patriot Insurance
Agency -v- Mutual Holdings (Bda) Limited [2011] Bda LR 47.
The Judge found that the argument advanced by the Defendant
contended that the clear words of an indemnity ought to be ignored to
achieve a result which is commercially favourable to the Defendant but
inconsistent with the commercial object of the indemnity clause. The
Judge held that if the commercial purpose of the relevant clause was
to ensure that the preferred shareholder indemnified the Plaintiff for all
losses suffered on the Programme, it made no sense to construe the
clause as not applying to payments actually made by Mutual Indemnity. Such a construction would be inconsistent with the plain terms of
the contract.
The Judge went on to note that the exclusionary words of clause 3A
“provided, however, that the definition of incurred losses and loss
expenses in paragraph 2(C) shall for this purpose only include losses
and loss expenses which have been paid or are likely to be paid within
the following ninety (90) days” ought only to be engaged in circumstances where the relevant loss figures relied upon to support a claim
on the indemnity relate to amounts which Mutual Indemnity has not
paid and/or is unlikely to pay within the next ninety days.
APPLICATION FOR PROTECTIVE COSTS ORDER – PUBLIC INTEREST
– CAPPED COSTS
The Bermuda Environmental Sustainability Taskforce (“BEST”) -andThe Minister of Home Affairs [2014] SC (Bda) 56 Com (25 June 2014)
BEST had appealed against the Minister’s decision dismissing BEST’s
appeal to him against the decision of the Development and Applications Board (the “DAB”) granting conditional approval to four planning
applications. The present interlocutory application, sought, an Order
that: “There be a Protective Costs Order made in favour of BEST,
pursuant to sections 12 and 18 of the Supreme Court Act 1905, RSC
Order 1A, rule 1, RSC Order 62, rules 2(4), 3(2), and/or 3(3), section
61(2) of the Development and Planning Act 1974, and/or the inherent
jurisdiction of the Court”.
There was no known precedent for the Bermuda Court granting a
Protective Costs Order (a “PCO”). Despite this, it was common ground
between the parties that a PCO could validly be granted, based on the
Court’s flexible statutory discretion to deal with costs and guided by
persuasive English case law grounded in a comparable civil procedural
regime. Controversy turned on how the principles developed by the
English courts should be applied to the facts of the present case. In this
case the question was whether BEST, an environmental non-governmental organisation with admittedly limited funds and no private
interest at stake, ought in the public interest to be protected from the
usual costs consequences of pursuing its appeal, in the event that it
failed, and if so, on what terms.
Applying a flexible approach to the guideline principles articulated in
the English Court of Appeal case in R (Corner House) -v- Trade and
Industry Secretary [2005] EWCA Civ 192, it was found that (1) BEST
was raising issues of public importance and it was in the public interest
that they be resolved; (2) Having regard to the financial resources of
the parties, and the likely costs, it was fair and reasonable to make the
PCO; and (3) There is a risk that BEST might discontinue the proceedings if the PCO is not made. The Judge held that BEST was entitled to
a PCO and as such, in the event that its appeal is dismissed, it is
protected from any adverse costs order. In the event that its appeal
succeeds, its costs are capped at US$75,000.
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british virgin islands
BRITISH VIRGIN ISLANDS
BRITISH VIRGIN ISLANDS
Commercial Court
March
APPLICATION BY JOINT COURT APPOINTED LIQUIDATORS FOR
INTERIM REMUNERATION - TWO OF THE FOUR LIQUIDATORS ARE
HONG KONG RESIDENT INSOLVENCY PRACTITIONERS - MEANING
AND EFFECT OF SECTION 432(5)(a)(vi) OF THE INSOLVENCY
ACT, 2003 CONSIDERED
In the Matter of Titan Group Investment Limited (In Liquidation) Claim
No BVIHC (COM) 2012/0056
This case concerned an application by Mr Russell Crumpler of KPMG
(BVI) Limited, Mr Patrick Cowley and Mr Edward Middleton (in their
capacity as Joint and Several Liquidators of Titan Group Investment
Limited [In Liquidation]) for an interim payment of their remuneration.
The application was opposed. In the course of resolving various issues
important general points of practice and legal construction emerged.
The Learned Commercial Judge substantially approved all the sums
sought by the Liquidators he held that in enacting Section 432(5)(a)
(vi) of the Insolvency Act, 2003 the legislature did not intend that the
Court was to take account of rates chargeable by insolvency practitioners in every jurisdiction and that it must be taken as knowing that
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many BVI Court ordered liquidations were multi-jurisdictional and
would require the appointment of liquidators operating elsewhere.
The Judge held that where foreign liquidators were involved, Section
432(5)(a)(vi) required the Court to take into account the rates charged
by firms of similar standing for carrying out similar work in the
jurisdiction within which the foreign resident liquidators resided, as
well as the current rates in the BVI in respect of the remuneration of
the BVI resident liquidator.
The Court also held that liquidators were entitled to recover charges by
service provided for work done, provided that the charges were
properly incurred, unless those charges were “manifestly excessive”.
SHAREHOLDER REQUESTING MEMBERS MEETING UNDER SECTION 82(2) OF THE BUSINESS COMPANIES ACT, 2004 (“BCA”)
- NO BOARD MEETING HELD FOR PURPOSE OF CONVENING
MEMBERS MEETING - ONE OF TWO DIRECTORS PURPORTING TO
CONVENE MEMBERS MEETING - WHETHER MEMBERS MEETING
VALIDLY CONVENED - IN RE STATE OF WYOMING SYNDICATE
[1901] 2 CH 432 CONSIDERED AND FOLLOWED – SHAREHOLDER
APPLYING IN ALTERNATIVE FOR COURT TO CONVENE MEMBERS
MEETING PURSUANT TO SECTION 86(1)(A) AND (B) BCA - SECTION 86(1)(B) CONSIDERED – WHETHER CONDITIONS FOR
CONVENING MEETING UNDER SECTION 86(1)(A) MET - IN RE EL
british virgin islands
SOMBRERO LTD [1958] 1 CH 900 CONSIDERED AND APPLIED WHETHER FACT THAT PURPOSE OF MEETING WAS TO REMOVE
DIRECTOR MEANT THAT SECTION 86(1)(A) OF NO APPLICATION
- ROSS -V- TELFON [1997] BCC 945 CONSIDERED
Chang Ho Kwok David and Silver Shadow Company Limited -v- Winbless Inc and Amazing Inc Claim No BVIHC (Com) No 149 of 2019
This case concerns a claim by Silver Shadow Company Limited (“Silver
Shadow”) for a declaration that a resolution passed by the Second
Defendant, Amazing Inc (the “Company”) was effective to remove the
First Defendant Winbless Inc (“Winbless”) and Mrs Chang (the First
Claimant’s mother), who along with Silver Shadow were members of
the Board of the Company, from its board. In the alternative, Silver
Shadow sought an order convening a meeting of members of the
Company under Section 86(1) of the BCA and an order that Winbless
votes its shares at the meeting in accordance with the directions of the
first Claimant.
The Court held that the resolution was not validly passed and effected.
Only the directors of the Company may convene a meeting at which
resolutions passed otherwise then unanimously would be capable of
binding the Company. It was not open to one out of a number of
directors to convene a meeting of members on its own initiative. The
Court then considered whether it should convene a meeting in
accordance with either Section 86(1)(a) or Section 86(1)(b) of the BCA.
Section 86(1)(a) provides that the Court may convene a meeting if it is
impracticable to call or conduct a meeting in a manner specified in the
BCA or the Company’s constitution. Section 85(1)(b) confers a
discretion on the Court to call a meeting when it is in the interest of the
members to do so. The UK equivalent statute does not have a provision corresponding to Section 85(1)(b). In dealing with the discretion
under that section the Court held that it did not depend on difficulties
in convening or conducting meetings but was intended to provide the
Court with a general power to direct a meeting where it considers that
the membership of a company would benefit from the holding of a
meeting. It determined that this section would have no application in
this case.
Section 86(1)(a) is materially identical to the UK predecessor of
Section 371. In construing the ambit of the Court’s discretion under that
provision the Judge relied on the definition of “impracticable” in Re EL
Sombrero Ltd namely that impracticable was not synonymous with
impossible and the question was whether as a practical matter the
meeting could be conducted. The Judge was also cognisant of the
English Court of Appeal decision in Ross -v- Telford where the court
held that Section 371 could not be used to arrange matters that a
member without any previous ability to do so could defeat opposition
to a decision at board level. He found that the convening of the
meeting in this case was impracticable and said that although the
Court of Appeal in Ross had approved a submission that Section 371
had nothing to do with board meetings, this had to be read in context.
The function of Section 371 was not to engineer changes in company
boardrooms by interfering with entrenched rights. He held that the
meeting in that case would not destroy entrenched rights or shift the
balance of power in the Company and the necessary conditions for
making an order under Section 86(1)(a) had been satisfied. The Court
made an Order convening a meeting.
Court of Appeal
CIVIL APPEAL – COMMERCIAL LAW – INTERLOCUTORY APPEAL
– RULE 13.3 OF THE CIVIL PROCEDURE RULES 2000 – SETTING
ASIDE A DEFAULT JUDGMENT
Sylmord Trade Inc -v- Inteco Beteiligungs AG Claim No BVIHCMAP
2013/0003
This was an appeal by Sylmord Trade Inc (the “Appellant”) against the
decision of the Learned Commercial Judge to dismiss its application to
set aside judgment in default which was entered for Inteco Beteiligungs AG (the “Respondent”) against the Appellant. The grounds of the
appeal were that the Judge erred in (1) deciding that the Appellant
had not advanced a good explanation for its failure to acknowledge
service; (2) holding that the Appellant did not have real prospects of
successfully defending the claim; and (3) finding that the commencement of proceedings in breach of contract, and an express provision
which provided for arbitration, was not itself a sufficient reason to set
aside the default judgment. The appeal was dismissed. The Court of
Appeal’s determination in relation to grounds 1 and 3 are the most
important. In relation to ground 1, the Court held that the Appellant’s
“apparent indifference to the legal proceedings instituted in the BVI
connotes real or substantial fault on its part” and accordingly the
Appellant could not be said to have offered a good explanation for its
failure to file an acknowledgment of service or defending the proceedings within the time prescribed by the Rules. In seeking to determine
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what was a “good explanation” in the context of Rule 13.3(1), the Court
stated that while it had not come across any cases from that court
which defined good explanation, it found the analysis in the Privy
Council case of Attorney General -v- Universal Projects Limited [2001]
UKPC 37 of what would not constitute a good explanation in the
context of a summary judgment application to be useful. At paragraph
23 of the Privy Council judgment, Lord Dyson stated that “if the
explanation for the breach … connotes real or substantial fault on the
part of the defendant, then it does not have a good explanation for the
breach … Oversight may be excusable in certain circumstances. But it is
difficult to see how inexcusable oversight can even amount to a good
explanation. Similarly if the explanation for the breach is administrative
inefficiency”.
Applying the case of Vann et al -v- Awford et al (1986) 83 LSG 1725,
the Court of Appeal also held that filing claims arising from contracts
with compulsory arbitration clauses was far from being an exceptional
circumstance with the meaning of CPR 13.3(2) and of itself was not
sufficient reason for the Court to set aside default judgment.
CIVIL APPEAL – INTERLOCUTORY APPEAL – APPEAL AGAINST
CASE MANAGEMENT DECISION – RULE 56 OF THE CIVIL PROCEDURE RULES 2000 – RULE 26.9 OF THE CIVIL PROCEDURE RULES
2000 – WHETHER TRIAL JUDGE ERRED IN STRIKING OUT CLAIM
ON THE BASIS OF ALLEGED BREACH OF THE RULES – WHETHER
LEARNED TRIAL JUDGE EXERCISED HIS DISCRETION PROPERLY
IN NOT UTILISING HIS CASE MANAGEMENT POWERS TO RECTIFY
MATTERS WHERE THERE WAS A PROCEDURAL ERROR
Savita Indira Salisbury -v- The Director of the Office of National Drug
and Money Laundering Control Policy ANUHCVAP 2012/0044
This was an appeal by Savita Salisbury (the “Appellant”) against the
decision of the Trial Judge to strike out the Appellant’s claim on the
basis of her non-compliance with Rule 56.7(3) of the CPR.
The appeal was allowed. The Court of Appeal (sitting by a single
justice) made a number of important findings on (i) the application of
Rule 26.9(3) (i.e. the rule to correct matters where there has been a
procedural irregularity) and (ii) when it might be appropriate to strike
out a claim where there has been non-compliance and the rule or
order does not provide for a sanction.
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In relation to the second point, the Court held that “in circumstances
where the rule or order of the court does not provide for sanctions
where there is a default in procedure, it is not open to the court to read
any sanction into the rule”. In examining the application of Rule
26.9(3), the Court held that it conferred jurisdiction to put matters
right where there has been a procedural error. The Court felt that it was
important that the Respondent would not have been prejudiced by an
order to put matters right and that such an order furthered the
overriding objective to deal with matters justly. The Court found that
the Judge, by refusing to exercise his discretion under Rule 26, erred
and was blatantly wrong.
Privy Council
April
APPEAL TO HER MAJESTY IN COUNCIL – CALCULATING THE NET
ASSET VALUE OF AN INSOLVENT FUND - LIABILITY TO DISGORGE
– CONSTRUCTION OF THE ARTICLES OF THE FUND - MEANING OF
CERTIFICATES
Fairfield Sentry Limited (in Liquidation) et al -v- Migani and et al [2014]
UKPC 9
In this case, the Privy Council was invited to consider the vexed issue of
how to establish the net asset value of an insolvent, fraud-tainted fund.
Fairfield Sentry was the largest feeder fund into what transpired to be a
Ponzi-based scheme that was Bernard L. Madoff Investment Securities
LLC (“BLMIS”).
Upon the revelation of the true nature of the Ponzi Scheme being
perpetuated by BLMIS, Fairfied Sentry was placed into liquidation. In due
course, its liquidator took the view that those investors who had made
redemptions prior to the suspension of the calculation of NAV (which
was quickly followed by the fund’s liquidation), had unfairly profited at
the expense of those who were still investors at the time of its collapse.
The basis upon which they had been redeemed was, he contended,
mistaken, and they were liable to disgorge their payment, in favour of a
rateable payment to all investors, irrespective of when they redeemed
(or indeed, whether they had redeemed).
At first instance, the Commercial Court Judge determined that (i) the
documents relied upon by the redeemed investors as binding were not
“certificates” for the purpose of Article 11 of the Funds Articles but (ii)
british virgin islands
that by surrendering their shares, the redeemers had given good
consideration, and on that basis he dismissed, summarily, the liquidator’s
claim.
(ii) the Court of Appeal was correct in concluding that Cukurova had
not been unable to present its case before the Tribunal within the
meaning of Section 36(2) (c) of the Act; and
The first instance decision was affirmed, on both points, by the Eastern
Caribbean Court of Appeal.
(iii) the Court of Appeal was correct to conclude that enforcement of
the Final Award would not be contrary to the public policy of the
British Virgin Islands within the meaning of Section 36(3) of the
Arbitration Ordinance.
The Privy Council conducted a root and branch analysis of the Fund’s
Articles and relevant contractual documents, including the subscription
agreements. Applying a literal (and it is respectfully suggested, a
common sense approach) Lord Sumption in providing the judgment of
the Court concluded that the monthly e-mails, contract notes and
monthly statements of account provided by the fund administrator were
plainly “certificates” for the purpose of the Fund’s Articles. They satisfied
all of the touchstones of a certificate, namely: (i) a statement in writing,
(ii) issued by an authoritative source, which (iii) is communicated by
whatever method to a recipient or class of recipients intended to rely on
it, and (iv) conveys information, (v) in a form or context which shows
that it is intended to be definitive.
On this basis, the liquidator’s appeal was dismissed. The decision has
generally been welcomed both for the certainty that it brings to a
formerly confused area, and also for its plain and sensible analysis.
May
APPEAL TO HER MAJESTY IN COUNCIL – ARBITRATION ORDINANCE (“THE ACT”) – CONSTRUCTION OF SECTION 36(2)(C) AND
36 (2)(D) OF THE ACT – JURISDICTION OF THE ENFORCING COURT
TO SET ASIDE THE REGISTRATION OF AN AWARD
Cukurova Holdings A.S -v- Sonera Holdings B.V. [2014] UKPC 15
Cukurova Holdings A.S.’s (“Cukurova”) appeal to the Board was against
the Commercial Court and Court of Appeal’s refusal to set aside the
registration of an ICC arbitration award. The appeal raised three
questions, namely whether:
(i) the Tribunal had jurisdiction to grant the relief in the final Award or
whether enforcement of the final award should be refused
pursuant to Section 36(2)(d) of the Act. Section 36(2)(d) provides
that enforcement of a Convention award may be refused if it is
proven that the award deals with a difference not contemplated
by or falling within the terms of the submission or contains
decisions on matters beyond the scope of the submission;
The Board unanimously dismissed Cukurova’s appeal emphasising that
the BVI Court as the enforcing Court had no jurisdiction to set aside an
award on the basis of an error of fact or law and that the sole question
was whether the enforcement of the award should be upheld under
Section 36. The Board emphasised that the Court could only refuse to
enforce a Consideration Award on narrow grounds and confirmed that
the general approach to the enforcement of an award should be in
favour of enforcement. In relation to Section 36(2)(d) the Board
indicated that it was common ground that the court must determine
this question for itself although it must have regard to the reasoning
and conclusion of the Tribunal (see example in Dallah Real Estate and
Tourism Co -v- Ministry of Religious Affairs of the Government of
Pakistan). On the facts the Court held that the Judge was correct to
hold that the Tribunal had jurisdiction to make the award it did.
The Board referred to the decision of Coleman J in Minmetals Germany
Gmbh -v- Ferco Steel Ltd [1999] CLC 647 in relation to the English
equivalent of Section 36(2)(c) wherein it was said that what was being
contemplated was an enforcee being prevented from presenting his
case by matters outside his control which will normally cover the case
where the procedure adopted operated in a manner contrary to
natural justice. The Board accepted that it was still open to the court to
refuse to enforce an award on the ground of public policy even if a
particular breach did not fall within Section 36(2)(c) and cited as an
example where the foreign proceedings violated the principles of
natural justice. The Board said that they detected no breach of natural
justice and that both the Judge and the Court of Appeal were correct
in rejecting Cukurova’s allegations that it was unable to present its case
and enforcement would be contrary to public policy.
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Court of Appeal
PARTNERSHIP IN LIQUIDATION – ARTICLES OF PARTNERSHIP –
CONSTRUCTION – ALLOCATION OF ASSETS – ENTITLEMENTS OF
PARTNERS TO ASSETS OF PARTNERSHIP IN LIQUIDATION – CONSTRUCTION OF CLAUSES IN ARTICLES OF PARTNERSHIP AFFECTING PARTNERS’ ENTITLEMENTS – MEANING TO BE GIVEN TO
WORD ‘SALE’ IN PHRASE ‘FOLLOWING THE SALE OF ALL INVESTMENTS OF THE PARTNERSHIP’ – WHETHER ‘SALE’ SHOULD BE
GIVEN PLAIN ORDINARY MEANING OR ALTERNATIVELY EXTENDED
MEANING SO THAT IT IS READ INSTEAD AS ‘SALE OR DISTRIBUTION IN SPECIE’ – WHETHER SALE OF ALL INVESTMENTS OF
PARTNERSHIP HAD TO TAKE PLACE DURING TERM OF PARTNERSHIP – WHETHER LEARNED JUDGE ERRED IN HOLDING THAT THE
WORD ‘SALE’ OUGHT TO BE GIVEN AN EXTENDED MEANING
The Chief Justice considered the Respondent was seeking a fairer
interpretation of the clauses by reading in that which was not there. It
was, in her view, “an attempt to introduce terms into the contract in
order to improve upon it”. As unfair as it may appear to the Respondent,
such interpretation did not make the scheme devoid of any commercial
purpose or lead to a ridiculous or absurd result. She went on to approve
Lord Hoffmann’s dicta in Attorney General of Belize -v- Belize Telecom
(above): “The Court has no power to improve upon the instrument it is
called upon to construe, whether it be a contract, a statute or articles. It
cannot introduce terms to make it fairer or more reasonable. It is
concerned only to discover what the instrument means”.
CIVIL APPEAL – COMMERCIAL APPEAL – ARBITRATION PROCEEDINGS – SHARE AND SALE PURCHASE AGREEMENT – APPLICATION
TO SET ASIDE STATUTORY DEMAND – WHETHER THERE IS A
SUBSTANTIAL DISPUTE AS TO WHETHER DEBT IS OWING OR DUE
Kenneth Krys and John Greenwood and New World Value Fund et al
Claim No BVIHCMAP 2013/0017
Vendort Traders Inc -v- Evrostroy Grupp LLP Claim No BVIHCVAP
2012/0041
This case concerned the construction of articles of partnership. The
decision is not authority for any proposition of partnership law but
instead has significance in outlining principles of construction in
questions of commercial contract interpretation generally. The argument
turned on the meaning of the word “sale” and whether it was broad
enough to apply to a distribution in specie.
This was an appeal by Vendort Traders Inc (the “Appellant”) against an
order of the Learned Commercial Court Judge dismissing its application for an order to set aside a statutory demand served on it by
Evrostroy Grupp (the “Respondent”). The statutory demand was
based on an unsatisfied arbitral award. The Appellant fully participated
in the arbitral proceedings which gave rise to the Award. The grounds
of the appeal were that (i) no debt was owing because the Award had
not been enforced in the BVI and an unenforceable award could not
form the basis of the statutory demand; (ii) there was a substantial
dispute as to whether the Award was enforceable in the BVI because
the Award was either procured by fraud or its enforcement was part of
a fraudulent scheme to divest it of its assets; and (iii) the Judge erred
in holding that it had accepted that the Award created an estoppel
between it and the Respondent.
In taking this opportunity to state the current applicable legal principles
on the construction of commercial contracts, the Chief Justice applied
English case law to establish the relevant principles; Rainy Sky SA -vKookmin Bank [2011] 1 WLR 2900; Al Sanea -v- Saad Investments Co Ltd
[2012] EWCA Civ 313; Attorney General of Belize and Others -v- Belize
Telecon Ltd [2009] 1 WLR 1988. The principles can be summarised as:
1.
Starting with the words used, the objective is to determine what
the parties meant by the language used, thus the need to ascertain
what a reasonable person with the level of knowledge known to the
parties, would have understood the parties meant;
2. The Court will not re-write the bargain. Unambiguous language
must be applied; and
3. Where ambiguous, the Court should adopt an interpretation most
consistent with business common sense taking into account
consequences and context.
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In dismissing the appeal the Court of Appeal, applying the decision in
Re International Tin Council [1987] Ch 419, held that it was not necessary for an award to be enforced before a statutory demand could be
presented in reliance on it. The Court said that there were no statutory
provisions or common law principles in the BVI prohibiting a person in
whose favour an award had been rendered from serving a statutory
demand or issuing a winding up petition based on an unenforced
foreign award or judgment. The Court also held that Section 28 of the
Arbitration Ordinance could not be read as compelling enforcement
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but merely prescribed the procedure for enforcing an award.
In relation to the second point of appeal, the Court held that for a
court to set aside a statutory demand on the basis that there is a
substantial dispute as to the validity of the debt “there must be so
much doubt and question about the liability to pay the debt that the
Court sees that there is a question to be decided”. On those facts the
Court found that there was no substantial dispute that the debt was
owing and due under the Award and on the third issue that the
Learned Judge had been correct in acknowledging that the Appellant
was estopped, save in exceptional circumstances, from re-litigating
the issues which had already been decided by an arbitral tribunal of
competent jurisdiction.
INTERLOCUTORY APPEAL – JOINER OF PARTIES – APPLICATION
MADE BY APPELLANTS IN COURT BELOW TO BE JOINED AS
PARTIES TO FIRST RESPONDENT’S APPLICATION FOR LEAVE TO
BRING DERIVATIVE ACTION IN NAME AND ON BEHALF OF
SECOND RESPONDENT – WHETHER LEARNED JUDGE ERRED IN
DISMISSING APPELLANTS’ APPLICATION – SECTION 184C BVI
BUSINESS COMPANIES ACT, 2004 – RULE 19.3 CIVIL PROCEDURE
RULES 2000
Fok Hei Yu & Others -v- Basab Inc BVIHCMAP 2014/0010
The Appellants in this matter, directors of the Respondent company
(Accufit), sought to be joined to the First Respondent’s (Basab Inc,
the sole shareholder of Accufit) application for leave to bring a
derivative application in the name and on behalf of Accufit. The
Judge in the Court below dismissed the Appellants’ application to be
joined as parties to the leave application.
The Appellants appealed the dismissal on the basis that the Judge at
first instance failed to take into account the wording of Section 184C
of the BVI Business Companies Act, 2004, which implies that evidence from the directors of the company should be heard at the
hearing of the application for leave to bring the derivative action and
that denying the Appellants the opportunity to be joined as parties
and adduce evidence would result in there being no evidence from
the company or any of its officers. The Appellants also claimed that
the Judge failed to take into account the scope of CPR 19.3(2) in
relation to the Appellants’ entitlement to be joined as parties.
The Court of Appeal dismissed the appeal, finding that the Appellants’ joinder application in the Court below was “wholly misconceived and totally unnecessary” since Accufit was already a party to
Basab’s application for leave to bring the derivative action, and
Accufit essentially acts through the Appellants. By Section 184C(4) of
the BVI Business Companies Act, 2004, Accufit was entitled to appear
and be heard on Basab’s application and it was the Appellants who
would cause Accufit to appear and be heard, by putting in evidence
on behalf of the company. The Court found that no additional
advantage would be gained by the Appellant’s being made a party to
the action.
The Court further held that Section 184C(2)(b) states that the Court,
in determining Basab’s leave application, must take into account ‘the
views of the [Accufit’s] directors on commercial matters’. The
Appellants, as Accufit’s only two directors were the only persons able
to provide this evidence. However, having regard to the nature of
Basab’s application for leave to bring a derivative action, the Appellants’ assertion that they wished to be heard on the application in
their capacity as ‘receivers’ did not provide a proper basis for seeking
to be joined as parties to the application. Joining the Appellants in
their capacity as receivers of Accufit at the permission stage served
no useful purpose.
Commercial Court
JUDICIAL REVIEW – THE TELECOMMUNICATION ACT, 2006 –
RULES 56.13 AND 65.6 OF THE EASTERN CARIBBEAN SUPREME
COURT RULES CONSTRUED
Digicel (BVI) Ltd -v- The Telecommunications Regulatory Commission
Claim No BVIHCV 214/2012
The Claimant, Digicel (BVI) Ltd (“Digicel”) issued a claim for judicial
review of a decision made by the Telecommunications Regulatory
Commission. The Commission found that Digicel was in breach of
Section 75(1)(a)(iii) of the Telecommunications Act, 2006 (anti-competitive effect contrary to public interest) and imposed a fine of
US$314,250. Digicel’s complaints against the Commission were that
the decision was (i) ultra vires; (ii) an abuse of power; (iii) unreasonable; (iv) procedurally unfair; and, (v) the fine disproportionate.
Digicel successfully argued grounds (iv) and (v) and an order was
made quashing the Commission’s decision, and for repayment of the
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fine with costs. The decision is relevant for its guidance on costs.
The relevant cost provisions for administrative proceedings are found
under CPR 56.13. The Commission submitted that Digicel should be
disallowed its costs on the basis that they are “A substantial trading
entity which is part of a large international group of companies and …
[the] claim [was] being brought not in order to test the legality of
some provision of general application … but rather to challenge a
targeted regulatory decision which is directed specifically and only at
that corporate entity”.
The Court found no merit in this argument and referred to the clear
provisions of CPR 56.13(6), which provides for no order as to costs
being made against an applicant if the court considers that the
applicant acted unreasonably. The Court held that the provision cannot
carry over to a successful litigant. There being no specific provision
which relates to a successful applicant in administrative matters, the
Court accepted the general rule that costs follow the event is applicable.
June
Court of Appeal
INTERLOCUTORY APPEAL – ARBITRATION – OPTION TO ARBITRATE – CONSTRUCTION OF ARBITRATION CLAUSE IN SHAREHOLDERS’ AGREEMENT – APPLICATION BY APPELLANT IN COURT
BELOW UNDER SECTION 6(2) OF ARBITRATION ORDINANCE FOR
STAY OF PROCEEDINGS COMMENCED BY RESPONDENT – WHETHER LEARNED JUDGE ERRED IN REFUSING TO STAY PROCEEDINGS
– WHETHER PARTIES OBLIGED TO REFER TO DISPUTES FALLING
UNDER SHAREHOLDERS AGREEMENT TO ARBITRATION
Anzen Ltd and others -v- Hermes One Ltd BVIHCMAP 2014/0013
A shareholders agreement (“the SHA”) contained an arbitration clause
which stated that: ‘If a dispute arises out of or relates to this Agreement or its breach … any party may submit the dispute to binding
arbitration’. Following a dispute, the claimant commenced proceedings
without referring the dispute to arbitration. This case concerned an
application for a stay of proceedings pursuant to Section 6(2) of the
Arbitration Act which states that: ‘If any party to an arbitration
agreement … commences any legal proceedings in any court against
any other party to the agreement … any party to the proceedings may
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at any time after appearance … apply to court to stay the proceedings’.
The Learned Judge dismissed the application on the grounds that
neither party was obliged to refer a dispute falling under the SHA to
arbitration and the failure to exercise such an option was fatal.
The Defendants appealed and the Court of Appeal was required to
decide: (1) whether the clause obliged the parties to refer disputes
under the SHA to arbitration; and (2) if the clause is bypassed by one
party whether the other party is entitled to a stay of proceedings.
In dismissing the appeal, the Court held that an arbitration clause
which provides for an option to arbitrate did not create an immediately
binding contract to arbitrate. However, as soon as one of the parties
invoked the arbitration clause by referring the dispute to arbitration,
there was a binding agreement to arbitrate.
If the arbitration clause is bypassed, the other party still has the option
to invoke the arbitration clause, refer the matter to arbitration and
apply for a stay of the court proceedings. If the party against whom
the court proceedings were brought does not refer the matter to
arbitration, or submits to the Court’s jurisdiction, the dispute will
proceed under the Court’s jurisdiction.
Because the Appellants did not refer the disputes to arbitration, there
was no binding agreement and therefore a stay was not available.
Accordingly, the Court of Appeal has re-affirmed the point that parties
seeking to rely on an arbitration clause must ensure that the language
of the clause is one which makes resolution of disputes by arbitration
mandatory. If the language is optional a party may issue proceedings
which will only be stayed if arbitration proceedings have been commenced.
cayman islands
CAYMAN ISLANDS
CAYMAN ISLANDS
now increased to approximately US$123 million.
Court of Appeal
On 10 May 2013, the Millards presented petitions in the Cayman Court
for their own bankruptcy, and on 29 May 2013 Jones J made absolute
orders for bankruptcy for each of them. The effect of those orders was
that the Millards had standing to file petitions in the Bankruptcy Court
of New York seeking Chapter 15 recognition of the Cayman bankruptcy
proceedings (the “foreign main proceedings” for the purpose of the
UNCITRAL Model Law on Cross-Border Insolvency), which they did on
15 May 2013. They were subsequently granted provisional relief by the
court, staying the enforcement proceedings by the Commonwealth in
the United States. The Commonwealth was therefore left in a position
in which they were unable to enforce the judgment debt in the US
because of the Chapter 15 recognition, and also could not enforce debt
in Cayman because the jurisdiction’s policy dictates the refusal of
enforcement of foreign revenue debt.
April
BANKRUPTCY – RIGHT TO FAIR HEARING – ESTABLISH PRIMA
FACIE CASE OF INSOLVENCY
The Government of the Commonwealth of the Northern Mariana
Islands -v- William H Millard and Patricia Millard, Court of Appeal of the
Cayman Islands C.I.C.A. (Civil) CACV013-14/2013, per Chadwick J,
Campbell J, Martin J (15 April 2014)
The Millards moved to the Northern Mariana Islands (the “Commonwealth”) in 1986 because of a tax incentive designed to encourage US
citizen migration to that jurisdiction. In 1987 they sold their interest in a
computer business for US$76.8 million and filed US tax returns and
paid approximately US$4.7 million in taxes. They were soon after
notified that the Commonwealth considered that tax payment to be
insufficient, but, at least as the Millards submitted, the Commonwealth
subsequently accepted their position (a point still disputed by the
Commonwealth). In 1990 the Millards left the Commonwealth and
moved to the Cayman Islands. In 1994, the Commonwealth obtained
judgments (in their own jurisdiction) in default of defence against the
Millards in the amount of US$36 million, which, because of interest, has
The Commonwealth appealed Jones J’s bankruptcy orders firstly on
the basis that the way in which the Judge dealt with the hearing
amounted to a serious procedural irregularity. There was some
confusion as to whether the hearing in which the orders were made
was to be substantive or simply a directions hearing, and there were
also issues with the presentation of additional evidence. The Court of
Appeal found the circumstances to amount to a substantial denial to
the Commonwealth of a fair hearing and allowed the appeal on the
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first complaint.
The Court of Appeal then went on to consider the Commonwealth’s
second complaint, which related to the Judge’s substantive decision
to make the bankruptcy order. In doing so, the Court of Appeal
considered first whether insolvency is essential to a debtor’s petition
for bankruptcy, and secondly, what assets and liabilities may be taken
into account for the purpose of establishing insolvency if it was in fact
a requirement.
In respect of the first point, the Court of Appeal stated that the
assumption underlying the whole of the Bankruptcy Law is that it is
dealing with insolvency. Therefore, although a debtor’s petition need
not allege any grounds, it is nevertheless necessary that the material
supporting it must establish a credible case of insolvency.
In respect of the second point, the Court of Appeal stated that the
debts that are capable of being taken into account do not have to be
debts incurred in the Cayman Islands; they may be taken into account
no matter where in the world they were incurred, so long as they are
enforceable in the Cayman Court. Similarly, assets may be taken into
account wherever they may be situated, and furthermore, the ability
to take into account foreign assets may enable the existence of debts
that are unenforceable in the Cayman Court to be taken into account
as a matter of valuation.
The Millards had argued that they were insolvent and had initially
included the U.S. judgment debt as a liability in proving their insolvency. Once this liability was removed from the valuation, because of its
unenforceability in the Cayman Courts, the Millards had a substantial
surplus of assets over liabilities. The Court of Appeal therefore
allowed the appeal on the basis that the Millards could not establish
a prima facie case of insolvency and so were not entitled to present
petitions for their own bankruptcy.
The Court of Appeal then went on to consider the Commonwealth’s
second complaint, which related to the Judge’s substantive decision
to make the bankruptcy order. In doing so, the Court of Appeal
considered first whether insolvency is essential to a debtor’s petition
for bankruptcy, and secondly, what assets and liabilities may be taken
into account for the purpose of establishing insolvency if it was in fact
a requirement.
In respect of the first point, the Court of Appeal stated that the
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assumption underlying the whole of the Bankruptcy Law is that it is
dealing with insolvency. Therefore, although a debtor’s petition need not allege any grounds, it is nevertheless necessary that the material
supporting it must establish a credible case of insolvency.
In respect of the second point, the Court of Appeal stated that the
debts that are capable of being taken into account do not have to be
debts incurred in the Cayman Islands; they may be taken into account
no matter where in the world they were incurred, so long as they are
enforceable in the Cayman Court. Similarly, assets may be taken into
account wherever they may be situated, and furthermore, the ability
to take into account foreign assets may enable the existence of debts
that are unenforceable in the Cayman Court to be taken into account
as a matter of valuation.
The Millards had argued that they were insolvent and had initially
included the U.S. judgment debt as a liability in proving their insolvency. Once this liability was removed from the valuation, because of its
unenforceability in the Cayman Courts, the Millards had a substantial
surplus of assets over liabilities. The Court of Appeal therefore
allowed the appeal on the basis that the Millards could not establish a
prima facie case of insolvency and so were not entitled to present
petitions for their own bankruptcy.
TRANSACTION AVOIDANCE – FOREIGN INSOLVENCY PROCEEDINGS
Irving Picard & Bernard Madoff Investment Securities LLC -v- Primeo
Fund (in official liquidation), Court of Appeal of the Cayman Islands
CICA 1-2/2013, per Chadwick J, Mottley J, Campbell J (16 April 2014)
This was an appeal from a decision of Jones J on preliminary issues
raised by the parties relating to the proceedings brought by the
Trustee for the Madoff liquidation against Primeo Fund, founded on
transaction avoidance provisions of the US bankruptcy law (including
Sections 547, 548 and 550 of the U.S. Bankruptcy Code and transferee claims under the New York Debtor and Creditor Law) and also
claims founded on Section 145 of the Companies Law (voidable
preference) or equivalent common law rules.
The three specific issues for determination on appeal were: (1)
whether the Court has jurisdiction under Sections 241 and 242 of the
Companies Law to apply transaction avoidance provisions of foreign
insolvency law (and, in particular, provisions of US Bankruptcy Law) in
cayman islands
aid of foreign insolvency proceedings; (2) whether the Court has
jurisdiction under Sections 241 and 242 of the Companies Law to
apply transaction avoidance provisions in Cayman Islands’ insolvency
legislation in aid of foreign insolvency proceedings; and (3) whether
the Court has jurisdiction at common law to apply transaction
avoidance provisions in Cayman Islands’ insolvency law in aid of a
foreign insolvency proceeding, or, in the alternative, whether the
Court has such jurisdiction but only in a case where it would have
jurisdiction under Section 91 of the Companies Law to make a
winding up order in respect of the foreign company in question.
The Court of Appeal handed down an interim judgment, addressing
only the first two issues, on the basis that the answer to the third
issue could be influenced by another case in Bermuda (PricewaterhouseCoopers -v- Saad Investments Company Limited and Singularis
Holdings Ltd [2013] Bda LR 82), currently on appeal to Privy Council.
That case involves the consideration of whether the observations by
Lord Hoffman in Cambridge Gas -v- Unsecured Creditors of Navigator
Holdings plc [2007] 1 AC 508 should be followed in light of the
subsequent comments of Lord Collins in Ruben -v- Eurofinance SA
[2012] UKSC46.
In respect of the first issue, the Court of Appeal held that the Cayman
Court does not have jurisdiction under Sections 241 and 242 of the
Companies Law to apply transaction avoidance provisions of foreign
insolvency law. Chadwick J acknowledged that it is illogical to apply
domestic law to transaction avoidance issues when the distribution
regime is governed by a foreign law, however, His Lordship took the
view that that would represent such a radical departure from
common law that had the legislature intended that result, they would
have been expected to say so in clear terms.
In respect of the second issue, the Court of Appeal held that the
Cayman Court does have jurisdiction under Sections 241 and 242 of
the Companies Law to apply transaction avoidance provisions of
Cayman Islands insolvency law in aid of a foreign insolvency proceeding. This conclusion was reached on the basis that, firstly, the power
conferred by Section 241 is to be exercised only for one or more of the
purposes described in paragraphs (a) to (e) of Subsection(1); which
meant the relevant question was whether a power to make transaction avoidance orders is a power which is exercisable for one or more
of those purposes.
Secondly, Section 242(1)(c) of the Companies Law is a clear indication
that it was intended by the legislature that the Court, in exercising the
powers under that section, would have regard to the need, in the
context of the foreign bankruptcy proceeding, to avoid preferential or
fraudulent dispositions.
Thirdly, that Section 242(1)(c) was also included as a guide to the
exercise of the power to make orders ancillary to foreign bankruptcy
proceeding described in Section 241(1)(e). Fourthly, it can properly be
said that the making of a transaction avoidance order in aid of a
foreign bankruptcy proceeding is the making of an order “ancillary to
a foreign bankruptcy proceeding for the purposes of (e) ordering the
turnover to a foreign representative of any property belonging to a
debtor”.
Finally, the avoidance of “preferential or fraudulent dispositions of
property comprised in the debtor’s estate” has the effect of restoring
the property to the debtor; so enabling an order to be made for the
turnover to the foreign representative of “property belonging to the
debtor” in the strict sense. Therefore, the reference to “property
belonging to a debtor” in Section 241(1)(e), rather than to “property
comprised in the debtor’s estate”, is appropriate and gives rise to no
difficulty.
May
WASTED COSTS – WITHDRAWAL OF WINDING UP PETITION
Aramid Entertainment Fund Limited -v- KBC Investments V Limited,
Court of Appeal of the Cayman Islands CICA 38/2013, per Chadwick
J.A. Campbell J.A. Martin J.A.(5 May 2014)
This was a successful appeal from a judgment digested in the
Conyers’ Offshore Case Digest Issue #6 and concerns liability for
costs on the withdrawal of a creditor’s winding up petition. At first
instance the judge had not ordered costs against the petitioning
creditor and held that the Court has a broad discretion to depart from
the usual rule that a petitioner of an unsuccessful winding up petition
should pay the costs of that failure. The Judge found that the
appropriate question for the Court to consider in those circumstances
was whether the presentation of the petition was reasonable.
The decision was overruled by the Court of Appeal, where the general
rule (found in Re Fernforest Ltd [1990] BCLC 693) was interpreted
strictly. Chadwick J.A. found that, “save in exceptional circumstances,
the reasonableness, or otherwise, of the petitioners’ conduct, in a case
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where the debt is known to be disputed at the time when the petition
is disputed, is not a matter for enquiry. In a disputed debt case, the
petitioner presents his petition at his own risk”.
and outside of the jurisdiction. Jones J also discussed the type of
litigation funding and contingency fee agreements the Court would
be willing to sanction and what they should contain.
The Court of Appeal indicated that the reason for this is that if the
Court was required to go into the history of each case to assess
whose conduct was reasonable or unreasonable, a great deal of the
court’s time and costs would be wasted. The present case provided a
clear illustration of this point, as Foster J had conducted a two day
hearing, substantial affidavit evidence was prepared and filed, and the
judgment itself was some 28 pages in length.
In respect of application by liquidator for sanction to commence proceedings, Jones J confirmed that the Court must be satisfied that the
causes of action against the proposed defendants have a reasonable
prospect of success and that the interests of the creditors will be best
served by allowing proceedings to be commenced.
The Court of Appeal did, however, cite Re Sykes & Sons Ltd [2012]
EWHC 1005 (Ch) as an example of an exceptional case where the
court would depart from the general rule in Fernforest. In that case
the Judge took into account communications between the parties
prior to the presentation of the petition and found the fact that the
company did not give any meaningful account of its defence prior to
the petition and only belatedly produced unauthenticated documents
in support of its case, to be enough to justify departing from the usual
order as to costs.
Grand Court
May
FRAUDULENT TRADING – LITIGATION FUNDING AND CONTINGENCY FEE AGREEMENTS – LIQUIDATORS APPLICATIONS FOR
SANCTION TO COMMENCE LEGAL PROCEEDINGS
In the matter of ICP Strategic Credit Income Fund Ltd, Grand Court of
the Cayman Islands (Financial Services Division) Cause No. 82/269 of
2010, per Jones J (4 April and 15 May 2014)
Liquidators applied to the Grand Court for sanction to bring proceedings in the United States against Barclays Bank PLC and DLA Piper
LLP under Section 147 of the Cayman Islands Companies Law (2013
Revision). The intention was to have those US proceedings funded
pursuant to a contingency fee agreement with Reid Collins & Tsai LLP,
a New York law firm.
The judgment is important because Jones J took the opportunity to
provide what amounts to a helpful guide in respect of the Cayman
Court’s approach to liquidator’s applications (pursuant to Section 110
of the Companies Law) for sanction to commence proceedings within
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Jones J also found that the considerations which apply to litigation
funding agreements generally apply equally to contingency fee
agreements, save that there is an additional public policy consideration which renders all contingency fee agreements unlawful and
unenforceable if they relate to litigation which will be conducted in
the Cayman Islands. However, Jones J went on to state that such
agreements, where expressed to be governed by Cayman Islands
law, which would be contrary to public policy if performed within the
Cayman jurisdiction, are capable of being valid and enforceable if the
terms require that it be performed wholly outside the Cayman Islands
and in a foreign country where performance would not be contrary to
the public policy of that country.
Furthermore, the proposed contingency agreement must: (1) comply
with the requirements of the Cayman Islands Companies Winding Up
Rules Order 25; (2) the performance of the agreement in question
must be permitted by the law and professional conduct rules applicable in the country in which the litigation is to be conducted; and (3)
the official liquidator must not fetter his fiduciary power to control the
litigation.
A secondary issue, for which Jones J provided separate reasons, was
whether “Court” in Section 147 means that the Cayman Courts have
exclusive jurisdiction to determine liability under the section. In this
respect, Jones J found that the Cayman Courts do not have exclusive
jurisdiction, and that Section 147 claims can be brought by liquidators
outside of the jurisdiction.
cayman islands
June
RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS –
DEFAULT JUDGMENT
Standard Chartered Bank -v- Ahmad Hamad Algosaibi, Grand Court
of the Cayman Islands (Financial Services Division) Cause No FSD 3 of
2013, per Henderson J (10 June 2014)
The Plaintiff Bank obtained a Bahrain decision of the Bahrain Chamber for Dispute Resolution, acknowledging the Defendants’ indebtedness to the Bank in the amount of US$25 million. The Bank then
sought to have that decision recognised and enforced in the Cayman
Islands.
The Defendant was served outside the jurisdiction with a Writ of
Summons and Statement of Claim and ultimately (after first indicating that they intended to contest the claim) filed an acknowledgement of service stating that they were not intending on contesting
the claim. The Defendants did not file a defence.
The Bank was concerned that if they sought a Judgment in Default of
Defence pursuant to Order 19 Rule 2 of the Grand Court Rules, they
may have issues with enforcement in other jurisdictions; as such, a
judgment may not be viewed as a final judgment. They instead asked
the Judge to give direction and set the matter for trial, even though it
was clear that the trial would be uncontested.
Henderson J considered Berliner Bank AG -v- Karageorgis et al [1996]
1 Lloyds Law Reports 426, and found that Order 19 Rule 2 is permissive in nature and that if a defendant fails to serve a defence the
plaintiff “may” enter final (i.e. default) judgment. By refraining from
entering default judgment when a defendant fails to plead, a plaintiff
becomes entitled to a directions hearing and a trial date.
conyersdill.com /
18
index
Index
Cases By Subject
Section:
General Civil/Commercial
4
Bermuda - International Cooperation (Tax Information Exchange Agreements) Act,
2005 (the “Act”) – Production Orders – Failure to Specify How Information Is to Be
Provided – Requests That Do Not Conform with the Requirements of the Relevant
Tax Information Exchange Agreement (“TIEA”)
5Bermuda - Shareholder Agreement – Interpretation of Indemnity Provision
– Payment of Insurance Losses
7BVI - Shareholder Requesting Members Meeting under Section 82(2) of the
Business Companies Act, 2004 (“BCA”) - Whether Members Meeting Validly
Convened – Whether Conditions for Convening Meeting under Section 86(1)(a)
Met
11BVI - Civil Appeal – Commercial Appeal – Arbitration Proceedings – Share and
Sale Purchase Agreement – Application to Set aside Statutory Demand –
Whether There Is a Substantial Dispute as to Whether Debt Is Owing or Due
12BVI - Interlocutory Appeal – Joiner of Parties – Application Made by Appellants
in Court below to Be Joined as Parties to First Respondent’s Application for
Leave to Bring Derivative Action in Name and on Behalf of Second Respondent
– Whether Learned Judge Erred in Dismissing Appellants’ Application – Section
184C BVI Business Companies Act, 2004 – Rule 19.3 Civil Procedure Rules 2000
11BVI - Partnership in Liquidation – Articles of Partnership – Construction
– Allocation of Assets –Entitlements of Partners to Assets of Partnership in
Liquidation – Construction of Clauses in Articles of Partnership Affecting
Partners’ Entitlements – Meaning to Be given to Word ‘Sale’ in Phrase ‘following
the Sale of All Investments of the Partnership’ – Whether Learned Judge Erred
in Holding That the Word ‘Sale’ Ought to Be given an Extended Meaning
14Cayman - Bankruptcy – Right to Fair Hearing – Establish Prima Facie Case of
Insolvency
15Cayman - Transaction Avoidance – Foreign Insolvency Proceedings
16Cayman - Wasted Costs – Withdrawal of Winding Up Petition
17Cayman - Fraudulent Trading – Litigation Funding and Contingency Fee
Agreements – Liquidators Applications for Sanction to Commence Legal
Proceedings
Procedure
4Bermuda - Stay Pending Appeal – Ruling on Costs and Terms of Final Order
– Indemnity Costs – Misconduct – Return of Monies Held as Security for Costs
12BVI - Judicial Review – The Telecommunication Act, 2006 – Rules 56.13 and
65.6 of the Eastern Caribbean Supreme Court Rules Construed
5Bermuda - Order 24 Rule 10 – Inspection – Production That Is Necessary for Fair
Disposal or Saving Costs – Relevant Documents – Res Judicata – Trustees
Duties of Full and Frank Disclosure
13BVI - Interlocutory Appeal – Arbitration – Option to Arbitrate – Construction of
Arbitration Clause in Shareholders’ Agreement – Application by Appellant in
Court below under Section 6(2) of Arbitration Ordinancefor Stay of Proceedings Commenced by Respondent
6Bermuda - Application for Protective Costs Order – Public Interest – Capped
Costs
Insolvency
3Bermuda - Winding Up – The Companies Act, 1981 – Bermuda International
Conciliation and Arbitration Act, 1993 – Ability of Secure Creditor to Petition
– Stay of Execution of Enforcement Order
3Bermuda - Interim Injunction to Prevent Presentation of Petition – Ability to Set
Aside Interim Injunction – Cross Claim by Company Equivalent to Petitioner’s
Debt
7BVI - Application by Joint Court Appointed Liquidators for Interim Remuneration - Two of the Four Liquidators Are Hong Kong Resident Insolvency
Practitioners - Meaning and Effect of Section 432(5)(a)(vi) of the Insolvency
Act, 2003 Considered
9BVI - Appeal to Her Majesty in Council – Calculating the Net Asset Value of an
Insolvent Fund - Liability to Disgorge – Construction of the Articles of the Fund
- Meaning of Certificates
19
/ conyersdill.com
8BVI - Civil Appeal – Commercial Law – Interlocutory Appeal – Rule 13.3 of the
Civil Procedure Rules 2000 – Setting aside a Default Judgment
9BVI - Civil Appeal – Interlocutory Appeal – Appeal Against Case Management
Decision – Rule 56 of the Civil Procedure Rules 2000 – Rule 26.9 of the Civil
Procedure Rules 2000 – Whether Trial Judge Erred in Striking out Claim on the
Basis of Alleged Breach of the Rules
10BVI - Appeal to Her Majesty in Council – Arbitration Ordinanace (“the Act”)
- Construction of Section 36(2)(C) and 36 (2)(D) of the Act – Jurisdiction of the
Enforcing Court to Set aside the Registration of an Award
18Cayman - Recognition and Enforcement of Foreign Judgments – Default
Judgment
Trusts
5Bermuda - Order 24 Rule 10 – Inspection – Production That Is Necessary for Fair
Disposal or Saving Costs – Relevant Documents – Res Judicata – Trustees
Duties Of Full and Frank Disclosure
Bermuda
Hong Kong
Clarendon House
2 Church Street
P.O. Box HM 666
Hamilton HM 11
Bermuda
2901 One Exchange Square
8 Connaught Place
Central
Hong Kong
Tel: +1 441 295 1422
[email protected]
Narinder K. Hargun
Head of Litigation, Co-Chair
[email protected]
b e r m u da
british virgin islands
Tel: +852 2524 7106
[email protected]
British Virgin Islands
london
Commerce House, Wickhams Cay 1
P.O. Box 3140
Road Town, Tortola
British Virgin Islands VG1110
10 Dominion Street
London EC2M 2EE
Tel: +44 (0)20 7374 2444
[email protected]
Tel: +1 284 852 1000
[email protected]
Mark J. Forte
Head of Litigation
[email protected]
c ay m a n i s l a n d s
dubai
h o n g ko n g
lo n d o n
m au r i t i u s
singapore
co nye r s d i l l .co m
Cayman Islands
mauritius
Boundary Hall, 2nd Floor
Cricket Square
P.O. Box 2681
Grand Cayman
KY1-1111
Cayman Islands
Level 3, Tower I
Nexteracom Towers
Cybercity, Ebene
Mauritius
Tel: +230 404 9900
[email protected]
Tel: +1 345 945 3901
[email protected]
Nigel K. Meeson Q.C.
Head of Litigation
[email protected]
Dubai
singapore
Level 2
Gate Village 4
Dubai International Financial Centre
P.O. Box 506528
Dubai, U.A.E.
9 Battery Road
#20-01 Straits Trading Building
Singapore 049910
Tel: +9714 428 2900
[email protected]
Tel: +65 6223 6006
[email protected]