conyersdill.com / 1

offshore case digest

bermuda

british virgin islands

cayman islands

dubai

hong kong

london

mauritius

singapore

conyersd i l l .com

/ bermuda

/ british virgin islands

/ cayman islands

march 2014 — June 2014

issue no. 7

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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

about conyers dill & pearmanFounded 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.

conyersdill.com / 33 / conyersdill.com

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.

aBoUt the digest

jurisdiction page

Bermuda 3

British Virgin islands 7

cayman islands 14

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

supreme court

april WINDING UP – THE COMPANIES ACT, 1981 – BERMUDA INTERNA-TIONAL CONCILIATION AND ARBITRATION ACT, 1993 – ABILITY OF SECURED CREDITOR TO PETITION – STAY OF EXECUTION OF ENFORCEMENT ORDER

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

Provisional Liquidators (“JPLs”); and (3) a summons of the company

to stay execution of a court order granting leave to the Petitioner to

enforce an arbitral award against the company in Brazil (the “enforce-

ment order”).

Winding up petition: the Judge considered the company’s argu-

ments that the winding up was sought to subvert the judicial process

in Brazil and that the debts were already fully secured in Brazil. the

Court was not satisfied with the evidence on either point. It was noted

that the fact that a creditor is secured did not prevent it bringing a

winding up petition (Moor -v- Anglo-Italian Bank [1979] 10 ch 681

applied). the Judge ordered the winding up of the company.

stay of execution of enforcement order: The Judge confirmed that

the test as to whether to stay enforcement was effectively a balance of

convenience test and did not favour interference with the Petitioner’s

right to enforce the award. in this respect, the Judge placed weight on

the Petitioner’s submission that the judicial process pursued by the

company in Brazil (which formed the ground upon which the stay was

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

Agrenco Limited (“Argenco”) -v- Credit Suisse Brazil (Bahamas)

Limited (“Credit Suisse”) [2014] sc (bda) 24 com (26 February 2014)

this case concerned an application by credit suisse to set aside an

interim injunction which restrained it from presenting a petition to

wind up argenco. the court noted that following the grant of the

injunction there had been two material changes: (1) argenco had

conceded that the existence of the debt upon which the statutory

demand was based was not disputed; and (2) argenco was no longer

bermuda

BERMUDA

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in a position to assert that it was solvent on a balance sheet basis.

in determining whether to set aside the injunction, the court consid-

ered 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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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 NECES-SARY FOR FAIR DISPOSAL OR SAVING COSTS – RELEVANT DOCU-MENTS – 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 jurisdic-

tion to administer trusts.

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 Pro-

gramme”), 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.

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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 indemni-

ty 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 indemni-

ty. 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 circum-

stances 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”) -and- The 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 applica-

tions 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-govern-

mental 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 proceed-

ings 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

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 practi-

tioners in every jurisdiction and that it must be taken as knowing that

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 SEC-TION 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 - SEC-TION 86(1)(B) CONSIDERED – WHETHER CONDITIONS FOR CONVENING MEETING UNDER SECTION 86(1)(A) MET - IN RE EL

BRITISH VIRGIN ISLANDS

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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- Win-bless 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 provi-

sion 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 Beteiligu-

ngs 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 commence-

ment 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 proceed-

ings 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 PROCE-DURE 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.

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)

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that by surrendering their shares, the redeemers had given good

consideration, and on that basis he dismissed, summarily, the liquidator’s

claim.

The first instance decision was affirmed, on both points, by the Eastern

caribbean court of appeal.

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 ORDI-NANCE (“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;

(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

(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 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.

11 / conyersdill.com

british virgin islands

Court of Appeal

PARTNERSHIP IN LIQUIDATION – ARTICLES OF PARTNERSHIP – CONSTRUCTION – ALLOCATION OF ASSETS – ENTITLEMENTS OF PARTNERS TO ASSETS OF PARTNERSHIP IN LIQUIDATION – CON-STRUCTION OF CLAUSES IN ARTICLES OF PARTNERSHIP AFFECT-ING PARTNERS’ ENTITLEMENTS – MEANING TO BE GIVEN TO WORD ‘SALE’ IN PHRASE ‘FOLLOWING THE SALE OF ALL INVEST-MENTS OF THE PARTNERSHIP’ – WHETHER ‘SALE’ SHOULD BE GIVEN PLAIN ORDINARY MEANING OR ALTERNATIVELY EXTENDED MEANING SO THAT IT IS READ INSTEAD AS ‘SALE OR DISTRIBU-TION IN SPECIE’ – WHETHER SALE OF ALL INVESTMENTS OF PARTNERSHIP HAD TO TAKE PLACE DURING TERM OF PARTNER-SHIP – WHETHER LEARNED JUDGE ERRED IN HOLDING THAT THE WORD ‘SALE’ OUGHT TO BE GIVEN AN EXTENDED MEANING

Kenneth Krys and John Greenwood and New World Value Fund et al

claim No BVihcMaP 2013/0017

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.

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 -v-

Kookmin 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.

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 PROCEED-INGS – 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

Vendort Traders Inc -v- Evrostroy Grupp LLP claim No BVihcVaP

2012/0041

this was an appeal by Vendort traders inc (the “appellant”) against an

order of the Learned commercial court Judge dismissing its applica-

tion 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 dismissing the appeal the court of appeal, applying the decision in

Re International Tin Council [1987] ch 419, held that it was not neces-

sary 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

conyersdill.com / 12

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 evi-

dence 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 Appel-

lants’ joinder application in the court below was “wholly miscon-

ceived 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 appel-

lants’ 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-com-

petitive 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) unreason-

able; (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

british virgin islands

13 / conyersdill.com

british virgin islands

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 applica-

ble. June

Court of Appeal

INTERLOCUTORY APPEAL – ARBITRATION – OPTION TO ARBI-TRATE – CONSTRUCTION OF ARBITRATION CLAUSE IN SHARE-HOLDERS’ AGREEMENT – APPLICATION BY APPELLANT IN COURT BELOW UNDER SECTION 6(2) OF ARBITRATION ORDINANCE FOR STAY OF PROCEEDINGS COMMENCED BY RESPONDENT – WHETH-ER 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 Agree-

ment 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

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 com-

menced.

conyersdill.com / 14

cayman islands

cayman islands

Court of Appeal

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 “common-

wealth”) 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

now increased to approximately US$123 million.

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.

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

CAYMAN ISLANDS

15 / conyersdill.com

cayman islands

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 insolven-

cy. 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

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 insolven-

cy. 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 PROCEED-INGS 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 transfer-

ee 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

conyersdill.com / 16

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 (Pricewater-

houseCoopers -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 proceed-

ing. 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 transac-

tion 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

cayman islands

17 / conyersdill.com

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”.

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.

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 CONTIN-GENCY 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 proceed-

ings 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

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.

in respect of application by liquidator for sanction to commence pro-

ceedings, 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.

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 consider-

ation 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 appli-

cable 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

conyersdill.com / 18

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 Cham-

ber for dispute resolution, acknowledging the defendants’ indebt-

edness 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 indicat-

ing that they intended to contest the claim) filed an acknowledge-

ment 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 per-

missive 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.

cayman islands

19 / conyersdill.com

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”)

5 Bermuda - shareholder agreement – interpretation of indemnity Provision – Payment of insurance Losses

7 BVi - 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

11 BVi - 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

12 BVi - 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

12 BVi - Judicial review – the telecommunication act, 2006 – rules 56.13 and 65.6 of the eastern caribbean supreme court rules construed

13 BVi - 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 Proceed-ings commenced by respondent

Insolvency

3 Bermuda - 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

3 Bermuda - interim injunction to Prevent Presentation of Petition – ability to set aside interim injunction – cross claim by company equivalent to Petitioner’s debt

7 BVi - application by Joint court appointed Liquidators for interim remunera-tion - 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

9 BVi - 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

11 BVi - 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

14 cayman - Bankruptcy – right to fair hearing – establish Prima facie case of insolvency

15 cayman - transaction avoidance – foreign insolvency Proceedings

16 cayman - Wasted costs – Withdrawal of Winding Up Petition

17 cayman - fraudulent trading – Litigation funding and contingency fee agreements – Liquidators applications for sanction to commence Legal Proceedings

Procedure

4 Bermuda - stay Pending appeal – ruling on costs and terms of final order – indemnity costs – Misconduct – return of Monies held as security for costs

5 Bermuda - 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

6 Bermuda - application for Protective costs order – Public interest – capped costs

8 BVi - civil appeal – commercial Law – interlocutory appeal – rule 13.3 of the civil Procedure rules 2000 – setting aside a default Judgment

9 BVi - 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

10 BVi - 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

18 cayman - recognition and enforcement of foreign Judgments – default Judgment

Trusts

5 Bermuda - 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

index

BERMUDA

clarendon house2 church street P.o. Box hM 666hamilton hM 11Bermuda

tel: +1 441 295 1422 bermuda@conyersdill.com Narinder K. hargun head of Litigation, co-chair narinder.hargun@conyersdill.com

HONG KONG

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tel: +852 2524 7106hongkong@conyersdill.com

BRITISH VIRGIN ISLANDS

commerce house, Wickhams cay 1P.o. Box 3140road town, tortolaBritish Virgin islands Vg1110

tel: +1 284 852 1000 bvi@conyersdill.com Mark J. forte head of Litigation mark.forte@conyersdill.com

LONDON

10 dominion streetLondon ec2M 2ee

tel: +44 (0)20 7374 2444 london@conyersdill.com

CAYMAN ISLANDS

Boundary hall, 2nd floor cricket square P.o. Box 2681grand caymanKY1-1111cayman islands

tel: +1 345 945 3901 cayman@conyersdill.com Nigel K. Meeson Q.c. head of Litigation nigel.meeson@conyersdill.com

MAURITIUS

Level 3, tower i Nexteracom towers cybercity, ebene Mauritius

tel: +230 404 9900mauritius@conyersdill.com

DUBAI

Level 2gate Village 4dubai international financial centreP.o. Box 506528dubai, U.a.e.

tel: +9714 428 2900 dubai@conyersdill.com

SINGAPORE

9 Battery road#20-01 straits trading Buildingsingapore 049910

tel: +65 6223 6006singapore@conyersdill.com

bermuda

british virgin islands

cayman islands

dubai

hong kong

london

mauritius

singapore

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