JURISDICTION UPDATE - ISSUE NO. 2
BERMUDABRITISH VIRGIN ISLANDSCAYMAN ISLANDSDUBAIHONG KONGLONDONMAURITIUSMOSCOWSINGAPORESO PAULOconyersdi l l .com
n MAY 2012 SEPTEMBER 2012n ISSUE NO. 2
OFFSHORECASEDIGEST: BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS
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TheDigestattemptstogivethereaderahighlevelsummaryofthemajorcommercialcasesdecidedinBermuda,theBritishVirginIslandsandtheCaymanIslandsinthelastfivemonths.WehopethattheDigestwillbeausefulreferencetoolforclientsandpractitionerswhoareinterestedinthedevelopmentofcaselawineachofthesejurisdictions.
Thecasesaredigestedbyjurisdiction,foryoureaseofreferencewehavealsocreatedacasesubjectmatterindexonpage15.
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Bermuda 3CaymanIslands 4BritishVirginIslands 6
Wewouldwelcomeanyfeedbackandsuggestionsfromreadersonthecontent.IfyouwouldliketoobtainfurtherinformationonanyofthecasesfeelfreetocontactanyoftheConyersDill&Pearmanlitigationteam.
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SupremeCourt
May
COMPANIES-WINDINGUPJPLsAPPLICATIONFORALETTEROFREQUESTSTATUTORYBASISOFJURISDICTION
IntheMatterofSeaContainersLtd.[2012]SC(Bda)26Com(10May2012)
Inthiscase,theCompanyinquestionwaswound-upbyGroundCJinJanuary2010.TheCompanyistheparentoffourUKcompaniesundergoingliquidationproceedingsintheEnglishHighCourt.Assuch,thesettlementoftheseclaimsturnsonissuesofEnglishlaw.
TheJPLssoughtanapplicationforaLetterofRequesttoseekassistancefromanoverseascourt.TheCourttooktheopportunitytomakeclearthestatutorybasisofjurisdictiontodirectthatliquidatorsmayseekassistancefromanoverseascourtundertheCompaniesAct1981andthecommonlawprinciplesgoverningtheexerciseoftheCourtsdiscretiontosanctionthatassistance.
First,theCourtacknowledgedthatthereisnodirectauthorityrelatingtotheCourtsjurisdictiontoissueaLetterofRequest.Assuch,thecourtreferredtosection175(1)(a)oftheCompaniesAct1981whichallowsfortheJPLstoseekthepermissionoftheCourttobringany action or other legal proceeding in the name and on behalf of the company.Further,itwasnotedthatitisknownpracticeforliquidatorstobringproceedingsbothlocallyandabroad,andthatinsolvencyproceedingsoverseasmaybemotivat-edbyamorepracticalapproachofhavingtheappropriateforumdeterminetheissuesathand.
Second,theCourtpointedoutthattheexerciseoftheCourtsdiscretionwhenpermittingoverseasassistancefromaforeigncourtisbaseduponcommonlaw.TheCourtfurthernotedthatwhilelettersofrequestinrelationtoobtainingforeignevidenceinlocalcourtsisprovidedforunderOrder39Rule3oftheRulesoftheSupremeCourt,thereishowevernostatutoryequivalentunderinsolvencylaw.Whatismore,theCourtexpressedthattheissueshouldalsobedeterminedbypracticalcasemanagementandthattheCourtshouldtakeintoaccountthemostsuitableforumfordeterminingtheissues.Assuch,theCourtgrantedtheapplicationmade.
June
POSSESSIONORDERSTRIKE-OUTAPPLICATIONRESJUDICATAFRAUDULENTINVASION-ABUSEOFPROCESS
LJunosvHSBC&KTaylor[2012]SC(Bda)33Civ(29June2012)
Thiscaseconcernedanobjectionbyamortgageeinproceed-ingsissuedbytheBankseekingpossessionandsaleagainstthePlaintiffmortagee.ThePlaintiffsoughtastrike-outapplicationforthefollowingreasons:firstthattheSecondDefendantobtainedapossessionorderintheactionbyfraudulentmeans;secondtheBankobtainedthepossessionorderfraudulently;thirdthepossessionorderwasunenforceablebecauseitfailedtospecifyadateofcompliance;andlastlytheWritofPossessionandallstepstakentoenforceitwereunlawfulandanullitybyvirtueofthefailuretospecifyadateofcompliance.Further,thePlaintiffissuedaSummonsforinterimrelieftorestraintheBankfromexercisingitsrightsofpossessionpursuanttothepossessionorder.
InregardstotheSecondDefendant,alawyer,theCourtstruckouttheclaimunderOrder18rule9(1)(b)oftheRulesoftheSupremeCourt1985and/orundertheinherentjurisdictionoftheCourt,theCourtheldthattheallegationthatthepossessionhadbeenob-tainedfraudulentlybytheSecondDefendantwasboundtofail.TheCourtconsideredwhetherthedoctrineofres judicatawouldapplytotheallegationthatthepossessionorderhadbeenobtainedbyfraudandrefusedtostriketheclaimoutonthatbasis.Howev-er,itdidstrikeouttheclaimagainsttheFirstDefendantonthebasisthatitwasboundtofailandrefusedthePlaintiffsinjunctionapplicationtorefraintheBankfromexercisingitsrights.Thecasecontainsahelpfulstatementoftheprinciplesofthedoctrineofresjudicatawhenthattermisusedinitswidersense.
July
COMPANIESWINDINGUPPETITIONINSOLVENCY-NON-AS-SIGNMENTCLAUSECOLLATERALPURPOSE
IntheMatterofGerovaFinancialGroup[2012]SC(Bda)35Com(6July2012)
Thiscaseconcernedthewinding-uppetitionofthenamedCompany,whichwassoughtbyoneofitscreditors(Maxim).InMarchofthisyeartheSupremeCourthadheldthatMaximhadstandingtopeti-tion.TheCompanyarguedthatMaximsproceedingsweretainted
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byimpropermotives.FurthermuchoftheCompanysargumentwasdependentuponthefactthattheothercreditorssupportedtheirmotion;thattheapplicationforwinding-upshouldbere-fused.ThePetitionersoughtawinding-uporderonthebasisthattheCompanyisinsolventonacash-flowandbalance-sheetbasisandthatasanunpaidcreditorisentitledtoawinding-uporderasofright.
ItwasheldthatthePetitionerwasentitledtoanorderthattheCompanybewound-up,butsolelyonthebasisthattheCompanywasunabletopayMaximsdebtwhichwasdueandpayableanditgavetheCompanythecompanytimetosecurethepetitiondebt.
TheCourtfirstlyconsideredthethreereasonswhythepetitionshouldbedismissed,asarguedbytheCompany:1)becausetheCompanyhasacross-claimbasedonbreachbyMaximofanon-as-signmentclause;2)becauseMaximlackedsufficientinterestintheproceedinghavingassigneditsclaimtoanotherentity;and3)becausetheproceedingsarebeingpursuedforacollateralpur-pose.Withregardtothebreachofthenon-assignmentagreement,theCourtdidnotfindtheargumentextensiveenoughtodismissthepetition.InrelationtotheargumentofsufficientinteresttheCourtfoundthatMaximdidinfacthavesufficientinterestintheproceedingsastheywereanunpaidcreditorwithapresentlyduedebt.Additionally,onthecollateralpurposeargument,theCourtconcludedthattherewascircumstantialevidencewhichsug-gestedthatthePetitionerwasactingforanimproperpurpose.WhendealingwithsuchallegationstheCourtadoptedananalogywiththeapplicationofthecleanhandsdoctrineincaseswhereinjunctivereliefissought.ItheldthatthePetitionershouldnotbeaffordedreliefwhichgoesbeyondthescopeofthepetitionandtheovertstandinguponwhichthePetitionerrelieswhichwasthenonpaymentofadebtduetothepetitioner.
Furthertotheabove,theCourtdeclinedtomakefindingsastobalancesheetinsolvencywithoutanyexpertevidence.Italsodeclinedtomakeanorderonthebasisofthelossofsubstratumissuesraisedbythecreditorsindicatingthatitwasusuallytheshareholderswhoraisesuchcomplaintsandnotcreditors.TheCourttookintoaccountthefactthatsomeofthecreditorsopposedthepetition.TheCourtfurtherheldthatapaymentunderpressureoflegalproceedingsbytheCompanytoMaximwouldnotconsti-tuteafraudulentpreference.
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July
COMPANIESINVESTMENTFUNDSCONSTITUTIONALDOCUMENTS-SIDELETTERSPRIVITYOFCONTRACT
IntheMatterofMedleyOpportunityFundLtd.GrandCourtoftheCaymanIslands(FinancialServicesDivision),CauseNo.FSD23of2012,QuinJ.,June21,2012
FintanMasterFund(Fintan)investedinMedleyOpportunityFund(theFund)throughitsnominee,NauticalNominees(Nautical).Nauticalwastheregisteredshareholder.Fintanhad,initsownrightandname,enteredintoanagreement(theSideLetter)withtheFund.TheSideLetterprovidedthatalldistributionstoFintanuponredemption,liquidationorotherwiseshallbepaidincashand,ifcashisnotimmediatelyavailable,throughsecuritiesheldinaseparateliquidationaccountonFintansbehalf,theproceedsofwhichwillbedistributedtoFintanincashassuchsecuritiesareliquidated.
DuringthefinancialcrisistheFundfacedarunonredemptionsandpresenteditsinvestorswithtwosuccessiverestructuringplans.Inbothcases,Nautical,onbehalfofFintan,electedtostayinitsshareclass,rescindallpreviousredemptionrequests,andbenefitfromorderlypayoutsthroughquarterlydistributions.
FintanbecamedissatisfiedwiththepaceofthewindingdownoftheFundandNauticalsubmittedaredemptionrequestonbehalfofFintanrequestingtheredemptionofallitsshares.FintantookthepositionthattherestructuringshadnotmodifieditsredemptionrightsundertheSideLetter.TheFundarguedthatNauticalwasnotapartytotheSideLetterandthuscouldnotrelyonit.TheFundfurtherarguedthattheeffectofenteringintotherestructuringagreementswastoreplaceanypre-existingredemptionrights.
TheCourtdeterminedthatwhileNauticalwasthenomineeforFintanandFintanwastheultimatebeneficiary,Nauticalwastheshareholder.TheSideLetter,towhichNauticalwasnotaparty,didnotprovideNauticalwithanyenhancedrightsorfavouredstatusasaregisteredmemberoftheFund.NauticalhadthesamerightsandobligationsasanyotherregisteredshareholderundertheArticles.
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TheunderlyingcommercialpurposeoftherestructuringwastorequireNauticaltoexchangeitsexistingredemptionrightsforperiodiccashdistributionseffectedproratawithallotherinves-torsacceptingthisoption.ThisallowedtheFundtominimizealiquiditysqueezeandavoidedafiresaleofassetsandallowedthememberstobenefitfromtheexpectedrecoveryinassetpricesandavoidadisorderlyscrambleforassetsunderliquidation.Nauticalunderstoodthesetermsandoptedtoacceptthemandisthereforeboundbythem.Theredemptionrequestwasdeclaredinvalidandofnoeffect.
COMPANIESINVALIDISSUEOFSHARESMISTAKERECTIFICATONOFREGISTER
IntheMatterofS.46oftheCompaniesLaw(2011Revision)andintheMatterofFulcrumUtilityInvestmentsLimited,GrandCourtoftheCaymanIslands(FinancialServicesDivision),CauseNo.FSD82of2012,QuinJ.30July2012
Fulcrumestablishedashareincentiveschemetomotivateitsmanagementteamtoachievecertaintargets.However,anadministrativeerroroccurredwhentheincentiveshareswereissued.Fulcruminadvertentlypurportedtoissuecertainsharesatlessthanparvalue,anddidnotfollowtheproceduresetoutinsection35oftheCompaniesLawtolawfullyissuethesharesatadiscount.Sometimepassedbeforetheerrorwasdis