OFFSHORE CASE DIGEST - Conyers · The Offshore Case Digest offers readers a high level summary of...
Transcript of OFFSHORE CASE DIGEST - Conyers · The Offshore Case Digest offers readers a high level summary of...
BERMUDA
BRITISH VIRGIN ISLANDS
CAYMAN ISLANDS
APRIL 2015 – DECEMBER 2015
ISSUE NO. 1 1
BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS DUBAI HONG KONG LONDON MAURITIUS SINGAPORE / conyersdill.com
OFFSHORE CASE DIGEST
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Editor
Bermuda Christian R. 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 Nigel K. Meeson, QC Norman Hau
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.
BERMUDA | BRITISH VIRGIN ISLANDS | CAYMAN ISLANDS
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 130 lawyers spanning eight offices worldwide, Conyers provides responsive, sophisticated, solution-driven legal advice to clients seeking our expertise on corporate and commercial, litigation, restructuring and insolvency, and private client and trust matters. Conyers is affiliated with the Codan group of companies, which provides a range of trust, corporate secretarial, accounting and management services.
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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.
3 / 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 April 2015 and December 2015. 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
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.
JURISDICTION PAGE
Bermuda 2
British Virgin Islands 6
Cayman Islands 12
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SUPREME COURT
SHARE TRANSFER - INJUNCTION TO RESTRAIN COMPANY FROM HOLDING SPECIAL GENERAL MEETING TO ADOPT AMENDED BYE-LAWS - PRE-EMPTION RIGHTS
M Pulido -v- UST Holdings Ltd et al [2015] SC (Bda) 67 Com (25 September 2015)
A transferee of shares who has not yet been registered on the share
register of the company does not have standing to obtain interim relief
prohibiting an impugned meeting. Hellman J found that a transfer of
shares who contended that they were the legal owner of 50,000
shares in UST Holdings Ltd (the “Company”), but who had not yet been
entered on the company register, did not have standing to seek
injunctive relief to prevent a resolution being put to the members of
the Company to adopt restated bye-laws in full substitution for the
Company’s existing bye-laws.
Under the new proposed bye-laws, the Company could refuse to
register the Plaintiff as a shareholder without giving any reason. The
Transferee strongly suspected one of the purposes of restating the
bye-laws was to allow the Company to prevent him from becoming a
member.
It was held that a company is not bound to recognise trusts of shares;
the company can only look to the man whose name is upon the
register. A company is not obliged to recognise a person claiming title
to shares as transferee until an instrument of transfer in the prescribed
form has been submitted for registration and has been registered. The
Company could consider the restatement of the bye-laws without
regard to the Transferee’s beneficial interest. The material distinction
was held to be not between legal and beneficial ownership, but
between members and non-members. Only members have standing to
challenge a proposed restatement of a company’s bye-laws in the
courts.
CONFIDENTIALITY IN TRUST PROCEEDINGS - SECTION 47 OF THE TRUSTEE ACT - PRIVACY OF BENEFICIARIES
BCD Trust [2015] SC (Bda) 83 Civ
Confidentiality in trust proceedings, especially non-contentious
proceedings, can be a pressing issue for trustees. Trustees sometimes
need to obtain the guidance of the Bermuda Court, or the exercise of
the Court’s broad powers under Section 47 of Bermuda’s Trustee Act,
on entirely non-contentious issues. The trustees may not, however,
want undue press attention placed on the beneficiaries. Trustees may
avoid seeking the assistance of the Court if, by doing so, they might
undermine their beneficiaries’ privacy. For this reason, trustees often
seek confidentiality orders, which typically provide that the names of
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the parties involved can be anonymised in the cause book, for the
hearing to be heard in private and for subsequent access to court files
by the public to be restricted.
Confidentiality, however, is increasingly hard to find in modern courts.
The courts continually trend towards ever greater transparency. While
non-contentious trust actions were, in the past, heard in chambers
(which meant members of the public and the press were in practice,
left outside), chambers hearings are now held in court rooms to which
the public have ready access. Further, due to recent procedural
reforms in Bermuda, court papers held in the Registry are increasingly
open to public and media scrutiny.
Thus, confidentiality orders are in increasing demand. They can,
however, be hard to obtain. In England for example, such orders, even
in non-contentious matters, are treated as exceptional and only
granted on the basis of cogent evidence of need (V -v- T [2014]
EWHC 3432 (Ch) Civ). This effectively means that trustees must show
evidence of a security risk or dangers such as ‘false friends’ latching on
to minor beneficiaries.
In BCD Trust [2015] SC (Bda) 83 Civ, Kawaley CJ in an ex tempore
ruling adopted a liberal and pragmatic approach. The Chief Justice
emphasised that the Bermuda Constitution specifically permits the
Courts to hold hearings in private if it considers it necessary or
expedient for the protection of the private lives of the persons
concerned in the proceedings. He also commented that, in the
absence of any obvious public interest in knowing about internal trust
administration, it was in the public interest to deal with non-
contentious trust applications as private hearings.
Trustees who wish to obtain the Court’s guidance, while protecting the
privacy of the beneficiaries, can be confident that their privacy will be
protected.
COMPANY LAW - SHAREHOLDERS - TEST FOR UNFAIR PREJUDICE - APPLICATION TO PUBLIC COMPANIES
Annuity & Life -v- Kingboard [2015] (Bda) LR 97
Shareholders who believe that they are being treated unfairly have
several remedies. One of the most effective can be an unfair prejudice
petition. Such petitions were historically rare in Bermuda, not least
because the hurdle is a high one. A petitioner must not only show that
its interests (as shareholder) have been unfairly prejudiced. It must
also show that the prejudice is so bad that it would justify the winding
up of the company on just and equitable grounds.
In Annuity & Life -v- Kingboard [2015] (Bda) LR 97, Kawaley CJ found
that this test had been met. What makes the case particularly notable
is that Kingboard is a company publically listed on the Singapore
Stock Exchange.
The shareholder’s allegations in Kingboard were two-fold. The first
allegation was that Kingboard had intentionally depressed its own
profitability. The Claim was that Kingboard, which produced copper
foil and sold it to affiliated companies, had been selling its copper foil
at an under-value. Shareholders in Kingboard, it was claimed, suffered
at the expense of shareholders in the affiliated companies. The
second allegation was that, when minority shareholders raised these
allegations and blocked Kingboard’s ability to sell its copper foil to
affiliates, as they had the power to do, Kingboard’s reaction had been
unreasonable. (Kingboard’s reaction had been to cease producing
copper foil altogether, instead licensing its production facilities to a
third party. The third party then proceeded to supply copper foil to
the same affiliates).
Much of the trial was taken up with the allegations of transfer pricing
and allegations as to whether or not the licensing arrangement was a
sham. Ultimately, Kawaley CJ rejected the transfer pricing allegations
in their entirety and also rejected the Claim that the license
arrangement was a form of sham. He did, however, find that
Kingboard’s reaction (ceasing all production of copper foil) to the
minority shareholders’ concerns about transfer pricing had been
unreasonable and “a visible departure from the standards of fair
dealing”. He concluded that the test for unfair prejudice had been met
and that the remedy was for the majority shareholders to purchase
the petitioner’s shares at a price to be assessed.
Both sides are appealing the Judgment and any appeal will likely not
be heard until 2017. However, the Kingboard decision shows the
power of the unfair prejudice petition and that it applies equally to
publicly listed companies as to private.
INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE AGREEMENTS) ACT, 2005 (THE “2005 ACT”) - CONTEMPT - COSTS
Minister of Finance -v- A Company [2015] SC (Bda) 51 Civ (24 July 2015)
The Plaintiff alleged that the Defendant Company had failed to comply
with a Production Order made under the 2005 Act. It was common
ground that, by the date of the hearing, the Company had in fact
complied; the Plaintiff therefore sought the imposition of a fine.
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The Company denied that it had in fact breached the Order, and sought
an Order that each party bear its own costs. The Company asserted that
it had only been required to disclose documents that were in existence
and were in its custody, and also that it was only required to disclose
documents it considered relevant. The Court held that the wide
definition of “document” as held in Derby & Co Ltd -v- Weldon (No.9)
[1991] WLR 652 applied to Production Orders under the Act. The Court
also held that the scope of ‘information’, which may be requested and
made the subject of a Production Order under the 2005 Act, is much
broader than particular documents, as may be requested in foreign
judicial proceedings. As to relevance, the Court held that it is a matter for
the Court, not for the Company or its legal advisors to determine. If the
Company believed that some documents were irrelevant, or the Order
overly burdensome, it should have applied to Court to vary the Order.
The Court applied principles from an earlier Bermuda case, namely Joliet
2010 Ltd -v- Goji Ltd [2012] (Bda) Lr 75. The Court held that the terms of
the Production Order were clear, certain and unambiguous. The Court
was satisfied that the Company was in breach of the Production Order.
However, as the Company had substantially complied with the Order,
albeit belatedly, the interests of justice did not require any consideration
of whether the breaches were deliberate. As the Plaintiff had been the,
de facto, successful party, the Company was ordered to pay its costs.
The Court reaffirmed that it was in the public’s interest that Bermuda
comply with its obligations under Tax Information Exchange
Agreements, in a timely manner, to enhance its reputation in the sphere
of international tax enforcement.
DISCLOSURE OF DOCUMENTS USED BY TRUSTEE IN BEDDOE PROCEEDINGS - USE OF DOCUMENTS OUTSIDE OF BEDDOE PROCEEDINGS - APPLICATION TO VARY CONFIDENTIALITY ORDER
Trustee N and Others -v- The Attorney General and Others [2015] SC (Bda) 50 Com (13 July 2015)
At the outset of the Beddoe proceedings the Plaintiff Trustee obtained
a Confidentiality Order as is necessary to protect the information
being disclosed in the proceedings. The Trustee then filed a number of
affidavits in the proceedings and provided very considerable
disclosure.
The Second Defendant applied to discharge or vary the Confidentiality
Order so as to grant him leave to use a number of specified
documents for the purpose of other proceedings (“the Main Action”).
The Second Defendant asserted that the documents were relevant to
the pleaded causes of action in the Main Action, and would also
disclose new causes of action in the Main Action, and new causes of
action in relation to different trusts.
The traditional view, set out in Midland Bank Trust Co -v- Green [1980]
Ch. 590, was that no obligation to disclose arose, as the documents
were obtained in confidential proceedings. However, the Court noted
that a general principle had developed, that a claimant in a main
action should be permitted to participate in the Beddoe hearing as
fully as reasonably practicable.
In this case, the Confidentiality Order protected the specified
documents in any event. However, in the absence of the
Confidentiality Order, as the specified documents were not privileged
and did not disclose the Trustee’s view of the strengths or weaknesses
in the Main Action, if the Trustee wished to rely on the specified
documents, they ought to have been disclosed.
The Court also held that the purpose of a Beddoe application is to
allow the Trustees to obtain guidance from the Court, not to provide a
hostile litigant with ammunition. It was this purpose that underpinned
the Confidentiality Order. The Second Defendant got to see material
that he would not otherwise have seen (at least until discovery, if at
all). But the disclosure of that material in the Beddoe proceedings was
on condition that it could not be used for any other purpose.
It was an important consideration that the Trustee had applied for and
obtained the Confidentiality Order, and that the Second Defendant
had not sought to vary it until after the documents had been
disclosed.
The Court considered that the use of documents following disclosure
in Beddoe proceedings was analogous to the implied undertaking
given in civil disclosure generally, although it will be a more onerous
task to obtain leave to use documents obtained in Beddoe
proceedings, as there are strong policy reasons militating against
disclosure.
The Court, therefore, applied a two-limb test. Firstly, whether there
were special circumstances, meaning cogent reasons for disclosure,
that were particular to the facts of the case, which would not normally
be present in other cases, as opposed to particular examples of
generic reasons, which might apply to many cases. Secondly, whether
such disclosure would cause injustice to the disclosing party (in this
case, the Trustees).
Applying that test, the Court found that the reasons given by the
Second Defendant were examples of generic reasons which might
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apply to many cases, and as such did not amount to special
circumstances.
The Court went on to hold that the Second Defendant should receive
material that would, in fact, be discoverable in the Main Action in any
event. It was held that there was no specific prejudice to the Trustee
from this early disclosure, and, if the Second Defendant was then to
amend the pleadings in the Main Action, he could do so now, rather
than having to wait until after disclosure. However, the Court stated
that it would be wrong to waive or dilute the requirement of special
circumstances for the sake of good case management. The
application for leave to use the specified documents for purposes
other than the Beddoe proceedings was therefore dismissed.
CONTRACT - ENTITLEMENT TO FEES - UNJUST ENRICHMENT - MISTAKE
Kingate Global Fund Limited (In Liquidation) and Others -v- Kingate Management Limited and Others [2015] SC (Bda) 65 (25 September 2015)
The Plaintiffs were ‘feeder funds’ for the Bernard L. Madoff Investment
Securities LLC (“BLMIS”). As a result of the Ponzi scheme run by Mr.
Madoff, the Plaintiff Funds collapsed and were placed in liquidation.
The Plaintiffs had paid management fees to the First Defendant
(“KML”). The Defendants sought the determination of a preliminary
issue, being whether the fees actually paid were in fact payable under
the various management agreements and, if so, whether the Plaintiffs
were able to assert a claim in unjust enrichment against KML and the
other Defendants. The preliminary issue was brought about following
the decision of the Privy Council in Fairfield Sentry Ltd -v- Migani &
Others [2014] 1 CLC 611.
The management agreements provided that the management fees
would be calculated by reference to the Net Asset Value (“NAV”) of
the Plaintiffs calculated by the Administrators. The NAV was also used
to determine the subscription and redemption prices for investors
and, in the absence of bad faith or manifest error, the NAV calculation
was binding as between the Plaintiffs and investors.
The Plaintiffs alleged that as a result of the fraud committed by
Madoff, the NAV calculations were massively overstated and the
management fees were mistakenly overpaid. KML asserted that it was
contractually entitled to the fees as calculated by the Administrator
and that the NAV was binding between the Plaintiffs and KML. The
Plaintiffs’ response was that in calculating the amount, the
Administrator made a manifest error. The Plaintiff also asserted that in
practice the calculation was not carried out by the Administrator.
The Court held that in the absence of bad faith or manifest error, the
NAV, as calculated by the Administrator, was binding as between the
Plaintiff and KML for the purpose of calculating the management
fees. The Court also held that the calculation of the NAV was
undertaken by the Administrator and that, in the absence of bad faith
or manifest error, the management fees were properly due to KML
pursuant to the management agreements. A consequence of the
receipt of the fees, pursuant to a valid contract, is that the receipt
could not be unjust for the purpose of unjust enrichment and any
mistake was not such as to avoid the management agreement.
However, the Court did find that, if the mistake on the part of the
Plaintiff was induced by the Defendants, then such inducement would
negate the right to rely on the contract. Thus, the right to payment
under the contract would not be a defence to the Claim for unjust
enrichment for those sums in excess of the true NAV. No findings of
fact were made, however, as to whether there was such an
inducement.
In regards to the ‘bad faith’ or ‘manifest error’, it was held that the
impropriety of Madoff did not transfer to the Administrators so as to
render the NAV calculation invalid. It was only the bad faith or
manifest error of the Administrators themselves that was relevant.
The Court was asked to consider whether, if the facts are found in the
Plaintiffs’ favour, they would amount to manifest error. The Plaintiffs
argued that the Administrator should have spotted certain errors,
which included ignoring or failing to consider and address
inconsistencies in the information provided by Bernard L. Madoff
Investment Securities LLC. The Court was not required to resolve the
disputes of fact, but held that if the facts were as the Plaintiff
asserted, the Administrator may have made a manifest error.
The Judge concluded by noting that in order for the Plaintiff to
succeed in a claim based on mistake, they must first establish fault on
the part of the Administrator or KML.
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COURT OF APPEAL
INTERLOCUTORY APPEAL - CIVIL PROCEDURE RULES - SETTING ASIDE DEFAULT JUDGMENT - WHETHER A PERSON CAN BRING A CLAIM IN HIS OR HER BUSINESS NAME AND OBTAIN A DEFAULT JUDGMENT
Deidre Pigott Edgecombe and Nordel Edgecombe -v- Antigua Flight Training Centre Claim No. ANUHCVAP2015/0005 (June 2015)
This Appeal was against the decision of the Court below to refuse to
set aside judgment obtained in default on the ground that there were
exceptional circumstances. The Appellant contended that because the
Claim was commenced in the name of an entity that was not a legal
person the Judgment obtained was contrary to law because the
Respondent, not being a juristic person, could not be a party to and
obtain judgment in respect of the Claim.
The Appeal was heard on paper before the full panel. Dismissing the
Appeal, the Court held that Civil Procedure Rules (“CPR”) 22.2 (b)(iii)
allows a person to bring a claim if they were carrying on business in
the jurisdiction when the right to claim arose, as “X.Y.” followed by the
words “a trading name”. The Court found that this case fell within that
Rule and the omission of the words “a trading name” would not
render the Claim bad in law and in any event could be rectified by an
amendment of the Claim. The Court further held that the Claim could
be brought in the business name (although not a corporate entity at
the time) since CPR 22.2(2) provides for a Claim to be made by or
against a person in his or her business name and that the rules
regarding claims by or against partners apply as if that person had
been a partner in a firm when the right to claim arose and the
business name were the firm’s name.
Although the Appeal was concerned with whether the Appellant had
shown that exceptional circumstances existed in the context of a set
aside application, the Court of Appeal observed that since the
Appellant’s complaint was that the Judgment should be considered a
nullity or one which was irregular that the true appeal was to the
Court’s inherent jurisdiction to set aside the Judgment ex debito
justitiae. Even then, the Court found that the Appellant’s complaint did
not warrant the exercise of the Court’s inherent jurisdiction.
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INTERLOCUTORY APPEAL - DEFAMATION - LIBEL - CIVIL PROCEDURE AMENDMENT TO STATEMENT OF CASE AFTER FILING - RULE 20.1 OF THE ENGLISH CIVIL PROCEDURE RULES, 2000 - FACTORS TO BE TAKEN INTO ACCOUNT IN DECIDING WHETHER OR NOT TO ALLOW AMENDMENT TO STATEMENT OF CASE AFTER DATE FIXED BY COURT FOR FIRST CASE MANAGEMENT CONFERENCE - LEAVE TO AMEND DEFENCE TO INCLUDE ADDITIONAL DEFENCE OF JUSTIFICATION
Mark Brantley -v- Dwight C. Cozier Claim No. SKBHCAP 2014/0027
This Appeal was against the decision of the Court below refusing
permission to the Appellant, Mark Brantley to amend his defence and
refusing his application for a stay of the proceedings pending the
determination of unrelated proceedings in the Court of Appeal. The
amendment was sought four years after the Claim was issued.
Applying the decisions in Charlesworth -v- Relay Roads Ltd. and
Others [2000] 1 WLR 230, Clarapede & Co. -v- Commercial Union
Association (1883) 32 WR 262 and George Allert (Administrator of the
Estate of George Gordon Matheson, deceased) et al -v- Joshua
Matheson et al GDAHCVAP2014/0007 (delivered 24 November 2014,
unreported), the Court held that in exercising its discretion in relation
to amendments the Court should be guided by the general principle
that amendments should be made where they are necessary to ensure
that the real question in controversy between the parties is
determined, provided that such amendments could be made without
causing injustice to the other party and could be compensated in
costs. The Court further held that the amendment should be allowed
regardless of how negligent or careless the omission from the
statement of case may have been, and no matter how late the
proposed amendment was.
CIVIL APPEAL - SETTING ASIDE STATUTORY DEMAND - SECTION 157(1) AND SECTION 157(2) OF THE INSOLVENCY ACT, 2003 - WHETHER STATUTORY DEMAND CONTRARY TO ARBITRATION CLAUSE IN CONTRACT - WHETHER THE RESPONDENT WAS BARRED BY THE CONVENTION ON THE LIMITATION PERIOD IN THE INTERNATIONAL SALE OF GOODS (NEW YORK, 1974).
C-Mobile Services Limited -v- Huawei Technologies Co Limited Claim No. BVIHCMAP 2014/0006 (September 2015)
This Appeal concerned the decision by the Court below to refuse the
Appellant’s application to set aside the service of a statutory demand
on it. The Appellant relying on Section 157(1) of the Insolvency Act,
2003 (the “Insolvency Act”), sought to set aside the statutory demand
on various grounds, which it was alleged amounted to there being a
substantial dispute as to the debt.
Dismissing the Appeal, the Court held that while Section 157(2) of the
Insolvency Act gives the Court a discretionary power, Section 157(1)
did not. Moreover, to exercise the discretion given under Subsection
(2) the Applicant would need to adduce evidence showing that a
“substantial injustice would be caused”, unless the demand was set
aside, this had not been done. The Court held that the test for
determining whether there was a substantial dispute as to a debt was
as set out in Sparkasse Bregenz Bank AG -v- Associated Capital
Corporation Appeal 10 of 2002, an earlier decision of the BVI Court of
Appeal. The Court also found that since the application to set aside
had not been made under Section 157(2) of the Insolvency Act, the
Learned Judge was not being asked to exercise a discretion.
Accordingly, if having examined the evidence, he was of the view that
a substantial dispute (as distinct from a fanciful or make-believe or
mere trifling or frivolous one) existed, he was bound to set aside the
statutory demand.
CIVIL APPEAL - ARBITRATION - STAY PURSUANT TO SECTION 6(2) OF THE ARBITRATION ORDINANCE - APPLICATION FOR APPOINTMENT OF LIQUIDATORS - WHETHER ARBITRATION CLAUSE IN CONTRACT BROUGHT THE LIQUIDATION PROCEEDINGS WITHIN THE AMBIT OF SECTION 6(2) OF THE ARBITRATION ORDINANCE
C-Mobile Services Limited -v- Huawei Technologies Co Limited Claim No. BVIHCMAP 2014/0017 (September 2015)
Here, the issue on appeal was whether the application to appoint
liquidators should be stayed pursuant to Section 6(2) of the
Arbitration ordinance, where the agreement under which the
underlying debt arose contained an arbitration clause. The Court of
Appeal dismissing the Appeal held, applying Re Sanpete Builders (S)
Pte. Ltd [1989] 1 MLJ and Community Development Proprietary Ltd
-v- Engwirda Construction Co. (1969) 120 CLR 455, that, as a starting
point, the winding up proceedings were not intended to be caught
within the ambit of the mandatory stay provisions contained in the
Arbitration Ordinance unless the Arbitration Agreement itself was so
drawn to encompass such a proceeding. The Court found that under
the Arbitration Clause of the agreement it was only matters “arising
out of or in connection with the formation, construction, or
performance of” the contract that was required to be referred to
arbitration and that these winding up proceedings were outside the
stay provisions of the Arbitration Act.
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CIVIL APPEAL - EX PARTE HEARING - COURT’S COSTS JURISDICTION - CIVIL PROCEDURE RULES - SERVICE OUT OF JURISDICTION OF NON-PARTY COSTS APPLICATION - WHETHER JUDGE ERRED IN DISMISSING APPLICATION TO SERVE PARTY OUT OF THE JURISDICTION - RULE 7.3 OF THE ENGLISH CIVIL PROCEDURE RULES, 2000 - RULE 7.14 OF THE ENGLISH CIVIL PROCEDURE RULES, 2000 - SECTION 11 OF THE EASTERN CARIBBEAN SUPREME COURT (TERRITORY OF THE VIRGIN ISLANDS) ACT
Halliwell Assets Inc et al -v- Hornbean Corporation Claim No. BVIHCMAP 2014/0017 (October 2015)
The Appellants were granted costs orders against the Respondent,
Hornbeam Corporation and by notice of application sought a third
party costs Order against Mr. Shulman. Mr. Schulman was not a party
to the Claim and is a foreigner. This Appeal is against the decision of
the Learned Judge below to grant permission to serve the application
notice out of the jurisdiction on Re Shulman. The Court of Appeal held
that although Rule 7.3(10) (on service of a claim where jurisdiction was
provided for by an enactment) did not apply to an application for third
party costs, it was fairly arguable that Rule 7.14 could provide the Court
with the requisite jurisdiction to serve the application out of the
jurisdiction if Mr. Schulman could be successfully joined to it and the
Claim would qualify for service out of the jurisdiction.
While recognising that at first blush Rule 7.14 did not appear to be
limited to parties who were already parties to an action and after
examining the relevant English authorities, which construed similar
provisions under the English Civil Procedure Rules, the Court of Appeal
recognised that service out of the jurisdiction of an application under
Rule 7.14 was not permissible without more and it was necessary to
show that the proceedings in which the application was issued would
be one which would qualify for service out under one of the gateways
contained in Rule 7.3.
The Court found that the appropriate course would be for the Court to
consider the joinder application and to determine it, on its merits,
along with the non-party costs application and permissions to serve
out. The Appeal was allowed and the matter remitted to the Court
below.
CIVIL APPEAL - TRUST DEED - DISCRETIONARY TRUSTS - DEED OF APPOINTMENT - POWER OF APPOINTMENT UNDER TRUST - WHETHER POWER OF APPOINTMENT IN TRUST DEED PERMITS TRUSTEE TO EXCLUDE A NAMED BENEFICIARY FROM THE OBJECTS OF A DISCRETIONARY TRUST IN ADVANCE OF APPOINTING CAPITAL TO OTHER NAMED BENEFICIARIES
Re: Royal Fiduciary Group Limited Claim No. BVIHCMAP 2013/0022
This is an Appeal against the Learned Judge’s refusal to sanction the
terms of a draft deed of appointment, the effect of which would be to
disentitle the Settlor from benefiting under the trust deed, on the
basis, inter alia, that the Trustee had no power to vary the Trust deed
as contemplated by the draft deed of appointment and would be a
nullity.
In allowing the Appeal and granting the declarations sought in the
Court below, the Court held applying Muir -v- Inland Revenue
Commissioners [1966] 1 WLR 1269 and Blausten -v- Inland Revenue
Commissioners [1972] Ch. 256 that a trustee, in the absence of any
contrary indication and in the face of a power of appointment in the
Trust deed authorising the Trustee to appoint property among
beneficiaries could validly appoint property among two or more
objects of the Trust while excluding altogether one or more objects.
The Court, after examining the facts of the case, primarily the
justification for the intended variation, found that it could “see no
reason based on principle, in terms of the powers of trustees in the
exercise of powers of appointment under a trust deed, why the trustee
in this case could not properly exercise the power of appointment
conferred on him by the trust instrument in excluding the settlor from
benefiting under the trust, with the resulting increase in the property
interests available for distribution to the children and remoter issue of
the settlor, who are obviously the intended beneficiaries of the settlor’s
benefaction”.
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both complex and defended, did not predispose themselves to a
cursory review and required the Court to evaluate the evidence before
it and the arguments advanced by both parties in order to determine
“whether the proceedings are likely to succeed”.
However, having exercised its discretion afresh, the Court held that the
evidence did not show that the proceedings were likely to succeed
and dismissed the Appeal on that basis.
INTERLOCUTORY APPEAL - CIVIL PROCEDURE RULES - APPELLANTS’ DEFENCE STRUCK OUT IN COURT BELOW BY LEARNED JUDGE FOR NON-COMPLIANCE WITH PREVIOUS ORDER OF COURT WHICH REQUIRED THAT COSTS BE PAID PRIOR TO LATE FILING OF DEFENCE - JUDGMENT ENTERED FOR RESPONDENT IN HER ABSENCE - WHETHER LEARNED JUDGE ERRED IN STRIKING OUT APPELLANTS’ DEFENCE AND ENTERING JUDGMENT FOR RESPONDENT IN HER ABSENCE - WHETHER STRIKING OUT OF DEFENCE AND ENTRY OF JUDGMENT BY LEARNED JUDGE WAS CONTRARY TO CIVIL PROCEDURE RULES (“CPR”) 27.2(3) AND RULES OF NATURAL JUSTICE
Agnes Danzie et al -v- Cecil Anthony Claim No. SLUHCVAP 2015/0009 (December 2015)
This Appeal is against the decision of the Court below to strike out a
defence following the failure by the Respondent to satisfy an Order
that costs be paid prior to the filing of its defence, and to enter
summary judgment in the Respondent’s absence without taking
evidence.
In allowing the Appeal, the Court of Appeal held that while Civil
Procedure Rule (“CPR”) 26.3(1)(a) gave the Court a discretion to strike
out a statement of case or part of one where it appears to the Court
that there has been a failure to comply with a rule, practice direction,
order or direction given by the Court in the proceedings, it is a
well-established principle that this power should only be used
sparingly. The Court further held that in exercising his discretion, the
Learned Judge was required to consider what was the appropriate
response having regard to all of the circumstances, including whether
there were other alternatives available that would be just in the
circumstances and that having regard to the very wide case
management powers of a Judge, striking out the Appellants’ defence
was not an appropriate response to the breach of the order of the
Learned Judge by the Appellants. (Real Time Systems Limited -v-
Renraw Investments Limited and Others [2014] UKPC 6 applied).
INTERLOCUTORY APPEAL - DERIVATIVE PROCEEDINGS - INTERPRETATION OF SECTION 184C(2)(C) OF BVI BUSINESS COMPANIES ACT, 2004 (AS AMENDED) - MEANING OF ‘LIKELY’ IN WORDING ‘WHETHER THE PROCEEDINGS ARE LIKELY TO SUCCEED’ - APPEAL AGAINST FINDINGS OF FACT MADE BY LEARNED JUDGE
Basab Inc. -v- Accufit Investment Inc. and Double Key International Limited Claim No. BVI HCMAP 2014/0020(November 2015)
The Appeal concerns the refusal by the Court to grant leave to the
Appellant pursuant to Section 184C(2)(c) of the BVI Business
Companies Act, 2004 (as amended) (the “BCA”) to commence
derivative proceedings on behalf of the first Respondent, for what it
contends was the sale at an undervalue of the shares in its wholly
owned subsidiary.
The Learned Judge’s refusal was based on his Judgment that the
intention and effect of Section 184C(2)(c), was that for a claim to be
”likely to succeed” it must be obvious, without any substantial
consideration of or debate on the merits that it is likely to succeed and
the proposed Claim must appear to the Court to be self-evidently
strong without conducting an inquiry. He observed the application for
leave under Section 184C was not an occasion for painstaking analysis
of valuation or other evidence and based on a limited examination of
the evidence found that the Appellant’s Claim was not likely to
succeed.
The Court of Appeal dismissed the Appeal. They found that the
Learned Judge’s interpretation and application of Section 184C(2)(c)
of the BCA was wrong because it seemed to be moving into the realm
of requiring a strong likelihood or almost requiring certainty that the
proceedings would succeed. Applying the case of Cream Holdings
Limited and Others -v- Banjeree and Others [2004] UKHL 44, the
Court found that the correct meaning of the phrase “whether the
proceedings are likely to succeed” in Section 184C(2)(c) of the BCA
was “whether it is more probable than not that the proceedings will
succeed”. The Applicant was therefore not required to demonstrate
that success was an absolute certainty, or that the probability of
success was very strong. The Court further held that with regard to
the level of examination of the evidence required in the present case,
the threshold for the grant of leave to bring derivative proceedings –
“whether it is more probable than not that the proceedings will
succeed” – would require a full and proper examination of the
evidence then before the Court. The Court further held that the
potential nature of derivative claims, especially those that may be
10
that there was no basis in law or as a matter of discretion for the
Judge to grant a stay pursuant to Rule 56.4(8).
As it related to injunctive relief, the Court held applying Regina -v-
Secretary of State for Transport, Ex parte Factortame Ltd. And Others
(No. 2) [1991] 1 AC 603 that when dealing with restraining a public
body, whether from enforcing the law or from performing their public
duties as required and contemplated by the law, the balance of
convenience must be looked at more widely by taking into account
the public interest in the performance of those responsibilities and
duties with which the public body is tasked and in seeking to arrive at
a just result in all the circumstances. The Court found that TRC should
not be restrained from undertaking and performing its duties in
serving the wider public interest and the balance of convenience was
not in CCT’s favour when considered in the wider context having
regard to what the TRC had sought to accomplish given its mandate
and that allowing the Spectrum Award 2015 process posed the least
risk of injustice.
INTERLOCUTORY APPEAL - LOAN AGREEMENT BETWEEN APPELLANT AND RESPONDENT - INTERPRETATION OF CLAUSES OF MEMORANDUM OF UNDERSTANDING - CONVERSION OF LOAN INTO EQUITY - APPOINTMENT OF LIQUIDATORS - WINDING UP - WHETHER APPELLANT BECAME SHAREHOLDER OF RESPONDENT BY IMPLIED AGREEMENT TO CONVERT LOAN TO EQUITY IN RESPONDENT OR WHETHER APPELLANT CONTINUED TO BE CREDITOR OF RESPONDENT AND WAS ENTITLED TO APPOINT LIQUIDATORS OF RESPONDENT - WHETHER LEARNED JUDGE ERRED IN STRIKING OUT APPELLANT’S APPLICATION TO WIND UP RESPONDENT ON JUST AND EQUITABLE GROUND - STANDING - ARBITRATION - EFFECT OF ARBITRATION
Jinpeng Group Limited -v- Peak Hotels and Resorts Limited Claim No. BVIHCMAP2014/0025
This was an Appeal against the decision of the Judge below to strike
out an application to appoint liquidators over the Respondent (the
“Application”) on just and equitable grounds. The Respondent applied
to strike out the Application on the grounds that the Appellant had
impliedly agreed to convert the loan which it had given to the
Respondent into equity and therefore was not a creditor and did not
have standing to apply for liquidators on the just and equitable
ground.
The Court below in striking out the Application and after carrying out
a very limited analysis on the nature of the dispute between the
parties, said that any challenge by the Respondent to the Appellants
In relation to the Summary Judgment hearing the Court of Appeal
held that while CPR 27.2(3) empowered the Court to treat the first
hearing as a trial of the Claim, and that trial could be dealt with
summarily, that doing so did not mean entering Summary Judgment.
The process contemplated by Rule 27.2 (3) required the Claimant to
prove its case and a trial conducted. The Respondent did not attend,
so the Court was wrong to enter judgment.
INTERLOCUTORY APPEAL - STAY OF SPECTRUM AWARD 2015 PROCESS - CIVIL PROCEDURE RULES - RULE 56.4(8) OF THE ENGLISH CIVIL PROCEDURE RULES, 2000 (the “ECPR”) - WHETHER A ‘STAY OF PROCEEDINGS’ UNDER ECPR 56.4(8) INCLUDES A STAY OF AN ADMINISTRATIVE DECISION OR PROCESS - EXERCISE OF JUDICIAL DISCRETION IN GRANTING INTERIM RELIEF - INTERIM INJUNCTION AGAINST PUBLIC BODY - ASSESSING WHERE BALANCE OF CONVENIENCE LIES - DETERMINING RISK OF INJUSTICE
Telecommunications Regulatory Commission -v- Caribbean Cellular Telephone Limited Claim No. BVIHCVAP 2015/0015 (December 2015)
This Appeal by the Telecommunications Regulatory Commission (the
“TRC”) was against the decision of the Judge below to stay the
implementation of the Spectrum Award, 2015 process. The Spectrum
Award Process as it was called by the TRC was the procedure to be
adopted for the allocation of spectrum under various bans to mobile
network operators in the BVI. The Respondent, Caribbean Cellular
Telephone Limited (“CCT”) was one such operator and successfully
obtained leave to make a Claim for judicial review of TRC’s conduct,
generally, including in relation to the Spectrum Award Process. The
Respondent also obtained a stay of the Spectrum Award Process
purportedly pursuant to Section 56.4(8) of the ECPR and applied for
interim injunctive relief. Injunctive relief was refused and the
Respondent cross-appealed in relation to same.
In allowing the Appeal and setting aside the stay of the Spectrum
Award 2015, the Court held following the decision in Ministry of
Foreign Affairs, Trade and Industry -v- Vehicles and Supplies Ltd [1991]
1 WLR 55 that the term “proceedings” as used in ECPR 56.4(8) was to
be confined to proceedings before a lower court or tribunal exercising
judicial or quasi-judicial functions and would not include an
administrative decision or action such as the decisions and actions of
the TRC. The Court also found that if the evidence (as it had done)
failed to meet the quality for the grant of injunctions, it would similarly
fail the test for the grant of a stay as the tests for satisfying either were
to be treated as essentially the same. Consequently, the Court found
BRITISH VIRGIN ISLANDS
11
BRITISH VIRGIN ISLANDS
decision to dismiss the Appellant’s application for permission to serve
the Claim out of the jurisdiction on the foreign defendants. The Court
dismissed the Appeal on the basis that on the alleged scheme taken
at its highest was nothing more than a failed investment in an illiquid
real estate development and did not have the trappings of a
conspiracy to deliberately deprive the Appellants of their investment.
However, the Court did find that the Learned Judge erred in finding
that the relationship of principal and agent between the Company and
its direct/sole shareholder defeated the allegation of conspiracy.
The Court of Appeal applying Belmont Finance Corporation Ltd.
-v- Williams Furniture Ltd. and Others [1979] Ch. 250 and Lim Leong
Huat -v- Chip Hup Hup Kee Construction Pte Ltd [2009] 2 SLR 318
that a director, even if he/she is the controlling mind of a company,
could combine with that company to injure a third party in
circumstances where the company was not the victim, but the
beneficiary of the conspiracy.
In so far, it concerned the application for service out of the jurisdiction
the Court of Appeal held that the Learned Judge was right in finding
that the BVI was not the appropriate forum for the trial of the
conspiracy claim notwithstanding that some of the alleged
conspirators were BVI companies because the Appellants and the
main parties to the alleged conspiracy were not resident in the BVI
and the events underlying the claims for breach of trust and
conspiracy all occurred in Singapore. (Nilon Limited and Another -v-
Royal Westminster Investments SA and Others [2015] UKPC 2
applied.)
standing, other than a hopeless one, would be sufficient to establish a
sufficient dispute for the purpose of removing the Appellant’s status
as a creditor. In setting aside the order striking out the Appellants
Application the Court held, inter alia, (i) following Sparkasse Bregenz
Bank AG -v- In the Matter of Associated Capital Corporation
BVIHCVAP2002/0010, that while the Learned Judge was correct to
observe that the winding up Court should not be used to resolve
disputes about debts or to decide issues of fact on a summary basis,
the Court had a duty to carry out a preliminary investigation of the
facts to determine whether a dispute that a debtor company raises in
relation to a debt in winding up proceedings is one which has been
raised on genuine and substantial grounds and thus he erred in failing
to apply the correct legal test in the circumstances, which was
whether the dispute raised by the Respondent, was one that was
raised on genuine and substantial grounds, (ii) notwithstanding that
the Application was presented by the Appellant as creditor on the just
and equitable grounds alleging misconduct, it was still a creditor’s
application and therefore, the applying creditor was seeking a
collective remedy on behalf of itself and all the other creditors of the
Respondent, accordingly this was not a Claim by the Appellant to
recover its debt from the Respondent Company and (iii) while the
arbitration clauses were designed to resolve disputes between the
contracting parties, once the Appellant had submitted its dispute to
the Court as the basis of a creditor’s winding up application, it became
an issue between the Respondent and its creditors over the
Company’s ability to pay its debts as they fall due and therefore fell
outside the scope of Section 18(1) of the Arbitration Act (i.e. the
Section which provides for a stay of arbitration proceedings).
INTERLOCUTORY APPEAL - CONSPIRACY - LAWFUL MEANS CONSPIRACY - INTENTION TO INJURE - AGENCY - LIABILITY OF DIRECTOR FOR CONSPIRACY TOGETHER WITH COMPANY OF WHICH HE/SHE IS DIRECTOR - WHETHER LEARNED JUDGE EXERCISED HIS DISCRETION IMPROPERLY - APPLICATION BY RESPONDENT TO STRIKE OUT APPELLANTS’ CLAIM IN COURT BELOW - APPLICATION BY RESPONDENT FOR SUMMARY JUDGMENT - APPLICABLE LEGAL TESTS - WHETHER BVI IS APPROPRIATE FORUM FOR TRIAL OF APPELLANTS’ CONSPIRACY CLAIM
Lin Chee Keen and Steven Ng -v- Fam Capital Management Limited Claim No. BVIHCMAP2015/0002 (December 2015)
This was an Appeal against the decision of the Learned Judge below
to strike out the Claim for conspiracy on the basis that a conspiracy
could not arise between a company and its sole controller and his
12
CAYMAN ISLANDSCAYMAN ISLANDS
COURT OF APPEAL
CAYMAN ISLANDS TAX INFORMATION AUTHORITY - REQUESTS FOR INFORMATION - AUSTRALIAN TAX INFORMATION EXCHANGE AGREEMENT
Cayman Islands Tax Information Authority -v- MH Investments and another CICA 31 of 2013 G391/2012 (31 July 2015)
In February 2011, the Australian Tax Office (the “ATO”) made a request
of the Cayman Islands Tax Information Authority (the “Authority”) for
information pursuant to Article 5 of the Australian Tax Information
Exchange Agreement. The request was in connection with an active
investigation into the Australian taxation affairs of Mr. Vanda Russell
Gould (“Mr. Gould”) and Mr. John Scott Leaver (“Mr. Leaver”). The ATO
had identified that Mr. Gould and Mr. Leaver and their respective
associated entities had made multiple transactions with offshore
entities registered in the Cayman Islands. The Cayman Islands entities
that were identified were J.A. Investments Limited (“JA”) and M.H.
Investments Limited (“MH”). The ATO was concerned that the
transactions represented attempts by the Australian residents to
evade tax properly payable in Australia by establishing offshore
arrangements. The ATO believed that Mr. Gould and/or Mr. Leaver
were the ultimate beneficial owners and controllers of JA and MH and
had omitted income and/or claimed deductions in their Australian tax
returns.
In April 2011, following the request from the ATO, the Authority issued
and served on FCM Limited (the registered agent of JA and MH) a
notice to produce the information required by the ATO. In order to
take this step, the Authority was taken to have determined: (i) that the
request was in compliance with the Australian Tax Information
Exchange Agreement and (ii) that the information was not required
for proceedings in Australia or for related investigations. FCM Limited
provided the information requested on 4 May 2011 and the Authority
forwarded this information to the ATO. The ATO sent a further request
for information on 27 May 2011 and the Authority sent to FCM Limited
two further notices to provide information. On 20 September 2011 the
Authority sent the information produced by FCM Limited to the ATO.
Further requests followed and on 19 October 2011, the ATO sent a
request seeking the Authority’s consent to disclose documents
obtained from FCM Limited relating to the Cayman Island entities to
HMRC in the United Kingdom. The ATO also requested consent to use
the documents obtained from FCM Limited in proceedings before the
Australian Federal Court, which were subsequently provided by the
Authority.
CAYMAN ISLANDS
13
CAYMAN ISLANDS
On 18 September 2012, JA and MH applied to the Grand Court for
judicial review of the decisions of the Authority. The relief sought was:
(i) a declaration that the decisions were ultra vires of the powers
granted to the Authority by the Law; (ii) an order of certiorari,
quashing of the decisions and (iii) an order that the Authority provide
JA and MH with copies of all documents which it held relating to the
requests.
Quin J made orders including, amongst others, an order of certiorari
quashing the decisions of the Authority and a declaration that the
decisions to comply with the requests from the ATO were unlawful
because the Authority had failed to apply to the Grand Court under
the relevant sections of the Tax Information Authority Law (the
“Law”).
The Authority appealed challenging the Judges finding that the
Respondents should have been served with notices of the requests
under Section 17(c) of the Law.
The Court of Appeal held that JA and MH were the subjects of the
requests and on that basis it was bound to find that decisions to
execute the requests without having served the Section 17(1) notices
on JA and MH were necessarily ultra vires and dismissed the Appeal.
It followed that the decisions to serve notices under Section 8(4)(b) of
the Law, requiring FCM Limited to provide information, were made
without taking into account material which the Law required that the
Authority should take into account; and that the Judge of first
instance was correct to conclude that those decisions should be set
aside.
GRAND COURT
DETERMINATION OF FAIR VALUE - SECTION 238(1) COMPANIES LAW - VALUATION ACTION - APPRAISAL ACTION
In the Matter of the Companies Law (2013 Revision) and In the Matter of Integra Group FSD 92 of 2014 (AJJ) (13-17 April and 26 May 2015)
This is the first time that the Court has considered the meaning of “fair
value” within Section 238(1) of the Companies Law (2013 Revision) (the
“Law”). A petition, being described as a “valuation action” or an
“appraisal action”, was presented by the Integra Group (the “Company”),
by which the Court was required to determine the fair value of its Class A
Common Shares in accordance with the provisions of Section 238(11) of
the Law.
Under Section 238, dissenting shareholders are not required to accept a
merger or consolidation agreement which has been approved by the
requisite majority. Instead, they are entitled to dissent and demand
payment for the fair value of their shares. Section 238(1) provides that:
“A member of a constituent company incorporated under this Law shall
be entitled to payment of fair value of his shares upon dissenting from a
merger or consolidation.”
The Company’s offer was not accepted by the dissenting Shareholders
and after the requisite period a petition was duly presented on 20
August 2014. The Court was therefore required, in accordance with
Section 238(11) of the Law, to determine fair value of the dissenting
Shareholders’ shares and to determine a fair rate of interest, if any, to be
paid by the Company upon the amount determined to be payable in
respect of the shares.
The Court held that the point, immediately before the merger decision
was made, was the appropriate valuation date (the “Valuation Date”).
The Court was therefore required to determine the fair value of the
Company’s business as a going concern at the point immediately before
the merger was approved, it further held that the fair value of the
dissenting Shareholders’ shares was held to be their proportionate share
of this amount without any minority discount or any premium for the
forcible taking of their shares.
Section 238 of the Law does not dictate any valuation methodology.
However, it is well established in both Canadian and Delaware
jurisprudence that fair value should be proved by techniques or methods
which are generally considered acceptable in the financial community
and are otherwise admissible in court. Two expert witnesses were used
in the case and it was generally accepted and agreed by the witnesses
that there are three main approaches to an appraisal exercise of the kind
that was required to be performed by the Court; the market approach,
the income approach and the cost (or asset based) approach.
The Court’s approach to the valuation of the Company was to combine
an income approach, using the discounted cash flow methodology (75%
weighting) with a market approach, using a guideline public company
methodology (25% weighting). It was concluded that the fair value of
the Company at the Valuation Date was US$105 million and the fair value
of the dissenting Shareholders’ shares at the Valuation Date was their
proportionate share of US$105 million (US$11.70 per share) without any
minority discount or premium for forcible taking.
By Section 238(11) the Court was also required to determine the fair
value “together with a fair rate of interest, if any, to be paid by the
14
Company upon the amount determined to be the fair value.” The Court
determined that a fair rate of interest would be the mid-rate between the
Company’s assumed return on cash (0.2%) and the Company’s assumed
USD borrowing rate (9.7%) being 4.95% per annum.
Costs of the proceedings were ordered at a later hearing and the
Company was ordered to pay the dissenting Shareholders’ costs, to be
taxed on a standard basis if not agreed.
PETITION STRUCK OUT AS ABUSE OF PROCESS - SECTION 95(3) COMPANIES LAW - AGREEEMENT NOT TO PRESENT WINDING UP PETITION
In the Matter of the Companies Law (2013 Revision) and in the Matter of the Exempted Limited Partnerships Law 2014 and in the Matter of Rhone Holdings, L.P. (12-13 August 2015)
Rhone Holdings, L.P. was a Cayman Islands exempted limited
partnership (the “Partnership”). The Petitioners, who were all limited
partners in the Partnership, filed a winding up petition on the just and
equitable ground, seeking to have the Partnership wound up in
accordance with the Companies Law (2013 Revision) (the “Law”) and
the Exempted Limited Partnership Law (2014 Revision) (the “ELPL”).
The Partnership had two general partners: Rhone Capital (GP) Ltd.
(“Capital GP”) which was controlled by the Petitioners, and Rhone
Holdings SLP, L.L.C. (“Holdings GP”) which, along with the Director of
Holdings GP, was one of the Respondents.
On the hearing of an, ex parte, application filed with the winding up
petition, the Court made, amongst other orders, an order appointing
joint provisional liquidators (“JPLs”) of the Partnership.
Following this, the Respondents filed a Summons seeking orders and
directions that the petition be struck out as an abuse of process; that
the Petitioners pay the Respondents costs occasioned by the Petition
on the indemnity basis; and that the costs of the JPLs be paid by the
Petitioners. The Honorable Justice Ingrid Mangatal delivered the
Judgment and made the orders sought by the Respondents in
substantially the same terms.
In reaching the decision, Mangatal J considered a number of clauses in
the Amended & Restated Limited Partnership Agreement. Clause 5.12,
which was particularly relevant to the issue in the case, read as follows:
5.12 Bankruptcy. The parties agree not to cause…the appointment of a
receiver, trustee, custodian, sequestrator, liquidator, administrator,
conservator, or similar official for the Partnership or Rhone II, or (b) the
Partnership or Rhone II to (1) voluntarily commence any proceeding or
file any petition seeking winding up, liquidation, dissolution,
reorganization or other relief under any bankruptcy, insolvency,
receivership or similar law of any jurisdiction now or hereafter in
effect…
After considering the relevant sections of the Law and the ELPL,
Mangatal J determined that if partners can agree that a partnership
can only be determinable by mutual agreement, they can also agree
not to present a winding up petition and, specifically in the case, not to
do any of the other matters set out in Clause 5.12 of the LPA.
Furthermore, there was no principle of public policy that was offended
by Clause 5.12; indeed Mangatal J discussed a number of reasons why
it is, in keeping with public policy, that limited partners are allowed to
enter into agreements regarding the duration of the limited
partnership as they think fit.
WINDING UP PETITION - APPLICATION BY SHAREHOLDERS TO STRIKE OUT PETITION ON GROUNDS DIRECTORS NOT AUTHORISED
In the Matter of China Shanshui Cement Group Limited (Unreported, 25 November 2015)
The Grand Court of the Cayman Islands confirmed, in a decision by
Mangatal J, that the directors of a company do not have statutory
authority to petition the Court to wind up the company (whether the
company is solvent or insolvent) without the sanction of a resolution
of shareholders, unless the articles of association of the company
expressly provide otherwise.
In this case a winding up petition, submitted by the directors of the
company, was struck out for lack of standing to file the petition. This
decision has re-affirmed the application in the Cayman Islands of the
English case of Re Emmadart Ltd [1979] 1 Ch. 540 in which Brightman
J had concluded that:
“The practice which seems to have grown up [in England], under which
a board of directors of an insolvent company presents a petition in the
name of the company where this seems to the board to be the sensible
course, but without reference to the shareholders, is in my judgment
wrong and ought no longer to be pursued, unless the articles confer
requisite authority…”.
The decision restores what was generally understood to have been the
position under Cayman Islands law until the position was impacted by
the first instance decision of Jones J in the Cayman Islands case of Re
China Milk Products Group Ltd [2011] 2 CILR 61 (“Re China Milk”). Jones
CAYMAN ISLANDS
15
CAYMAN ISLANDS
J (applying Section 94(2) of the Companies (Amendment) Law, 2007)
held, in 2011, that the Directors of an insolvent company are entitled to
present a winding up petition on behalf of a company without
reference to shareholders and irrespective of the terms of the
company’s articles.
Section 94(2), provides as follows:
“Where expressly provided for in the articles of association of a
company the directors of a company incorporated after the
commencement of the Law have the authority to present a winding up
petition on its behalf without the sanction of a resolution passed at a
general meeting”.
Jones J concluded that the Cayman Legislature must have intended
that Section 94(2) would only apply to solvent companies.
In this matter, Mangatal J declined to follow the Judgment of Jones J
in Re China Milk. Although the Company in Re China Shanshui Cement
was incorporated before 2009 (and hence Section 94(2) was found to
be irrelevant), Mangatal J concluded that:
“…whatever the intention of the Legislature may have been, all Section
94(2) did was to provide statutory confirmation that, as was previously
held in Re Emmadart, where the articles of association of a company
expressly authorise its directors to present a winding up petition on its
behalf, the directors do not also need to obtain the sanction of a
resolution passed in general meeting”.
The restriction on directors statutory authority to petition the Court to
wind up the company, as confirmed by the Re Emmadart case, has
been criticised (and reversed by statute in England) and not followed
in some Commonwealth countries. However, as a result of this
decision, it is now clear that the position in Re Emmadart does
represent the law in the Cayman Islands.
Editor’s note – The position in the Cayman Islands should be
contrasted with the postion in Bermuda where it has been held that
the directors will have standing to petition on behalf of an insolvent
company, provided that the bye-laws do not prohibit such an
application (see Re First Virginia Reinsurance Ltd. [2003] BLR 47).
This authority has been relied on in order to facilitate director
instigated petitions in numerous cases since.
APPARENT BIAS - JUDGES SITTING IN MULTIPLE JURISDICTIONS
Wael Almazeedi -v- BTU Power Company (in official liquidation) (Unreported, 20 November 2015)
This Appeal considered two important questions. First, when sitting in
Jurisdiction A in a case concerning parties who are domiciled in
Jurisdiction B, should a judge disclose their connection with
Jurisdiction B or even recuse himself? Second, does it make a
difference that the party domiciled in Jurisdiction B is closely
connected with the government in Jurisdiction B or that the Judge’s
status as a judge in Jurisdiction B may depend on the power of the
government in that jurisdiction to terminate that status?
Justice Sir Peter Cresswell, a judge of the Financial Services Division of
the Grand Court of the Cayman Islands, heard the petition for the
winding up of the Respondent, made a winding up order and
appointed the Respondent’s liquidators. Cresswell J was also unknown
to BTU Power Company’s (“BTU”) sole director and chief executive
officer Mr. Wael Almazeedi (the “Appellant”), a supplementary judge
of the Qatar International Court.
The problem with this connection was that a number of the
preference shareholders in BTU, who had presented the winding up
petition, were in fact related to the Qatari Government. The concern in
these circumstances was that the Judge may have been subject to the
doctrine of apparent bias: that is to say that, in the absence of any
actual bias, nevertheless the appearances of the thing are such that
the Judge should not have sat on the case in question.
The modern test for apparent bias was stated by Lord Hope in Porter
-v- Magill 1 in these terms:
“The question is whether the fair-minded and informed observer,
having considered the facts, would conclude that there was a real
possibility that the tribunal was biased”.
In coming to a decision, this particular case required Right Honourable
Justice Sir Bernard Rix to consider the role that the Minister of Finance
plays in the appointment and removal of judges in Qatar. The Minister
of Finance is in fact a pivotal figure in determining certain
appointments and removals of members of the Court. His Excellency
Ali Shareef Al Emadi (“Mr. Al Emadi”) was appointed Minister of
Finance and Chairman of the Council of Ministers on 26 June 2013. The
appointment of Mr. Al Emadi was significant because he had
previously been CEO of a subsidiary of one of the original petitioners
in the winding up, and also significant preference shareholder in BTU.
1. [2011] UKHL, [2002] 2 AC 357 AT [103]
16
After a review of the common law position and applying the modern
test for apparent bias, Mr. Justice Rix came to the conclusion that as at
the time when the winding up order was made, the fair-minded and
informed observer would have concluded that it was not uncommon
for a judge to have to deal with litigation in which the government of
the country in which he was a judge was interested. However, in these
circumstances, where the litigation was brought in a different country
from that of the government interested in that litigation, it was
unnecessary for the litigation to be conducted by a judge who was
also a judge of that government’s country. When the litigation was
commenced, Mr. Al Emadi was not Minister of Finance and chairman
of the Council of Ministers in Qatar. The conclusion was that the
fair-minded and informed observer would not have concluded that
the Judge’s independence and impartiality were compromised at that
point. However, the position changed when Mr. Al Emadi became
Minister of Finance and Chairman of the Council of Ministers. At that
point Mr. Al Emadi had a direct interest in claims that BTU had made
against Mr. Wael Almazeedi and in defeating the proofs of debt that
Mr. Wael Almazeedi had brought against BTU. The fair-minded and
informed observer, knowing of the role of Mr. Al Emadi, would
consider that there was a danger that the Judge’s independence and
impartiality were compromised and in that sense that there was a
danger of bias. It was held that all Orders of the Judge in the
proceedings after Mr. Al Emadi was appointed on 26 June 2013 should
be set aside.
Judges should therefore disclose their connection with any relevant
jurisdiction and consider recusing themselves if appropriate, such as if
a judge is closely connected with the government of that jurisdiction
and the judge’s status as a judge may depend on that government.
SECTION 37 OF THE COMPANIES LAW (2007 REVISION) - STATUTORY CONSTRUCTION - SHARE CAPITAL - CLAW-BACK CLAIMS
DD Growth Premium 2X Fund (in official liquidation) -v- RMF Market Neutral Strategies (Master) Limited (Unreported 20 November 2015)
In this case, the Cayman Islands Grand Court clarified that redemption
proceeds paid to investors by insolvent companies out of share
premium cannot be clawed back by a liquidator under Section 37(6)
of the Companies Law (2007 Revision) (the “Law”).
The liquidators of DD Growth Premium 2X Fund (the “Fund”) sought
an appeal to claw-back redemption payments to RMF Market Neutral
Strategies (Master) Limited (“RMF”) made at a time when the Fund
was insolvent.
The Fund was a feeder fund incorporated in the Cayman Islands,
which fell into difficulties in late 2008 and early 2009 and faced a
large number of redemption requests. One such investor was RMF
whose request gave rise to a liability of more than US$62 million,
which was paid in part at a time when the Fund was cash flow
insolvent.
When the Fund was subsequently wound up it transpired that it had,
in effect, become a Ponzi scheme. There was no suggestion that any
of the redeeming investors knew about the fraud. The Fund’s
liquidators instigated proceedings seeking to recover redemption
payments in the amount of US$22 million paid to RMF at the end of
2008.
Due to the timing of the redemption payments, it was the construction
of the Law that fell to be considered.
The Liquidators’ argument was based upon Section 37(6)(a) of the
Law which provides that:
“A payment out of capital by a company for the redemption or
purchase out of its own shares is not lawful unless immediately
following the date on which the payment out of capital is proposed to
be made the company shall be able to pay its debts as they fall due in
the ordinary course of business”.
The liquidators sought to argue that the payments made to RMF were
payments made out of capital at a time that the Fund was insolvent
and that, in effect, payments out of either share capital or share
premium were impermissible.
At first instance, the Chief Justice dismissed this argument and found
that the provisions of Section 37(6)(a) had not been breached as only
a, de minimis, amount of US$1/1000 per share represented share
capital, with the remainder representing share premium, the use of
which was permissible pursuant to the Law. This is the position that is
found in the current version of the Law.
On appeal, the Court of Appeal held that Section 37 of the Law must
be read in conjunction with Section 34 of the Law, which provides that:
payments by a company out of share premium for the redemption or
purchase of its own shares are not payments out of capital and as such
are not subject to any solvency requirement. The Court of Appeal
attached particular importance to Section 34(2)(f), which refers to the
use of share premium “for providing for” the premium payable on
redemption which is held to cover payment for the premium due.
It is now clear that for the purposes of Section 37(6), share capital is
given its natural meaning and represents only the par value of shares.
CAYMAN ISLANDS
17
CAYMAN ISLANDS
The Judgment of the Court of Appeal makes sound commercial
common sense and comes as a relief to many investors, as well as a
disappointment to many liquidators.
SECTION 145 COMPANIES LAW - PREFERENCE - SECTION 93 COMPANIES LAW - SOLVENCY
In the Matter of Weavering Macro Fixed Income Fund Limited (In Liquidation) -v- Skandinaviska Enskilda Banken AB (Publ) (Unreported, 4 December 2015)
The Plaintiffs were the Joint Official Liquidators (the “JOLs”) of a
Cayman fund, Weavering Macro Fixed Income Fund (the “Company”).
In the months prior to its liquidation, the Company made three
redemption payments to the defendant, Skandinaviska Enskilda
Banken AB (Publ) (“SEB”), a Swedish financial institution and investor
in the Company. In these proceedings the JOLs sought a declaration
that these three payments were invalid pursuant to Section 145(1) of
the Companies Law (the “Law”) and an order that those monies be
returned.
Magnus Peterson, the Company’s controlling mind in the payment of
the relevant redemptions, made a decision to pay a number of
investors, including SEB, in priority, on the basis that those investors
were switching to another fund within the Weavering group.
Section 145(1) of the Law provides:
“Every conveyance or transfer of property, or charge thereon, and
every payment obligation and judicial proceeding, made, incurred,
taken or suffered by any company in favour of any creditor at a time
when the company is unable to pay its debts within the meaning of
section 93 with a view to giving such creditor a preference over the
other creditors shall be invalid is made, incurred, taken or suffered
within six months immediately preceding the commencement of a
liquidation”.
Before determining whether the payments were made with a view of
giving a preference under Section 145(1), Clifford J was required to
establish whether the Company was “unable to pay its debts within
the meaning of Section 93”, when each such payment was made. The
test of inability to pay debts under Section 93(3) is one of commercial
insolvency, a so-called cash flow test rather than a balance sheet test.
It is based on a Company’s present inability to pay debts as they fall
due. Clifford J was satisfied that the JOLs had discharged the burden
of proving the Company was unable to pay its debts on the relevant
redemption dates. His Lordship was then required to determine
whether the relevant redemption payments were made with a view of
giving a preference under Section 145(1).
It is important to note that the Cayman Islands legislature has not
followed the UK in replacing its voidable preference regime. Therefore,
the English authorities in the former regime there continue to be
relevant in the Cayman Islands. The Chief Justice reviewed the
applicable case law in RMF Market Neutral Strategies (Master) Limited
-v- DD Growth Premium 2X Fund [2011] 2 CILR 61 (“DD Growth”). Prior
to DD Growth there was limited Cayman authority on the relevant test
to be applied to determine the question of preference. The Chief
Justice summarised the principals as follows:
“The onus is on the person alleging a fraudulent preference to prove to
the satisfaction of the court that the payment impugned was made by
the bankrupt with the intention of preferring the payee over his other
creditors;
It is competent for the court to draw the inference of an intention to
prefer from all the facts of the case;
The intention to prefer, which must be proved, must be the principal or
dominant intention; there might, however, be a valid distinction
between an intention to prefer and the motive for that intention”.
The principles set out by the Chief Justice in DD Growth were
determined to be applicable to the current case. Therefore, it was
necessary to show that the intention to prefer SEB was the principal
or dominant intention when making the redemption payments.
Clifford J was satisfied that each of the SEB redemption payments
were made with the principal or dominant intention of preferring SEB
as a member of a particular class of creditors, the Swedish Redeemers.
In this case, there was not mere selection, but the added dimension of
conscious decision making resulting in a particular section for
payment. An Order was made that SEB repay the sums received from
the three redemption payments to the JOLs.
18
INDEX
CONTENTS BY SUBJECT
SECTION:
Injunctions
2 BERMUDA - SHARE TRANSFER - INJUNCTION TO RESTRAIN COMPANY FROM
HOLDING SPECIAL GENERAL MEETING TO ADOPT AMENDED BYE-LAWS
- PRE-EMPTION RIGHTS
4 BERMUDA - DISCLOSURE OF DOCUMENTS USED BY TRUSTEE IN BEDDOE
PROCEEDINGS - USE OF DOCUMENTS OUTSIDE OF BEDDOE PROCEEDINGS
- APPLICATION TO VARY CONFIDENTIALITY ORDER
Trusts
2 BERMUDA - CONFIDENTIALITY IN TRUST PROCEEDINGS - SECTION 47 OF
THE TRUSTEE ACT - PRIVACY OF BENEFICIARIES
8 BVI - CIVIL APPEAL - TRUST DEED - DISCRETIONARY TRUSTS - DEED OF
APPOINTMENT - POWER OF APPOINTMENT UNDER TRUST - WHETHER
POWER OF APPOINTMENT IN TRUST DEED PERMITS TRUSTEE TO EXCLUDE
A NAMED BENEFICIARY FROM THE OBJECTS OF A DISCRETIONARY TRUST
IN ADVANCE OF APPOINTING CAPITAL TO OTHER NAMED BENEFICIARIES
Companies
2 BERMUDA - SHARE TRANSFER - INJUNCTION TO RESTRAIN COMPANY
FROM HOLDING SPECIAL GENERAL MEETING TO ADOPT AMENDED
BYE-LAWS - PRE-EMPTION RIGHTS
3 BERMUDA - COMPANY LAW - SHAREHOLDERS - TEST FOR UNFAIR
PREJUDICE - APPLICATION TO PUBLIC COMPANIES
9 BVI - INTERLOCUTORY APPEAL - DERIVATIVE PROCEEDINGS -
INTERPRETATION OF SECTION 184C(2)(C) OF BVI BUSINESS COMPANIES ACT,
2004 (AS AMENDED) - MEANING OF ‘LIKELY’ IN WORDING ‘WHETHER THE
PROCEEDINGS ARE LIKELY TO SUCCEED’ - APPEAL AGAINST FINDINGS OF
FACT MADE BY LEARNED JUDGE
13 CAYMAN ISLANDS - DETERMINATION OF FAIR VALUE - SECTION 238(1)
COMPANIES LAW - VALUATION ACTION - APPRAISAL ACTION
16 CAYMAN ISLANDS - SECTION 37 OF THE COMPANIES LAW (2007 REVISION)
- STATUTORY CONSTRUCTION - SHARE CAPITAL - CLAW-BACK CLAIMS
Costs
8 BVI - CIVIL APPEAL - EX PARTE HEARING - COURT’S COSTS JURISDICTION
- CIVIL PROCEDURE RULES - SERVICE OUT OF JURISDICTION OF NON-PARTY
COSTS APPLICATION - WHETHER JUDGE ERRED IN DISMISSING APPLICATION
TO SERVE PARTY OUT OF THE JURISDICTION - RULE 7.3 OF THE ENGLISH
CIVIL PROCEDURE RULES, 2000 - RULE 7.14 OF THE ENGLISH CIVIL
PROCEDURE RULES, 2000 - SECTION 11 OF THE EASTERN CARIBBEAN
SUPREME COURT (TERRITORY OF THE VIRGIN ISLANDS) ACT
Contract
5 BERMUDA - CONTRACT - ENTITLEMENT TO FEES - UNJUST ENRICHMENT
- MISTAKE
Procedure
6 BVI - INTERLOCUTORY APPEAL - CIVIL PROCEDURE RULES - SETTING ASIDE
DEFAULT JUDGMENT - WHETHER A PERSON CAN BRING A CLAIM IN HIS OR
HER BUSINESS NAME AND OBTAIN A DEFAULT JUDGMENT
7 BVI - INTERLOCUTORY APPEAL - DEFAMATION - LIBEL - CIVIL PROCEDURE
AMENDMENT TO STATEMENT OF CASE AFTER FILING - RULE 20.1 OF THE
ENGLISH CIVIL PROCEDURE RULES, 2000 - FACTORS TO BE TAKEN INTO
ACCOUNT IN DECIDING WHETHER OR NOT TO ALLOW AMENDMENT TO
STATEMENT OF CASE AFTER DATE FIXED BY COURT FOR FIRST CASE
MANAGEMENT CONFERENCE - LEAVE TO AMEND DEFENCE TO INCLUDE
ADDITIONAL DEFENCE OF JUSTIFICATION
9 BVI - INTERLOCUTORY APPEAL - CIVIL PROCEDURE RULES - APPELLANTS’
DEFENCE STRUCK OUT IN COURT BELOW BY LEARNED JUDGE FOR
NON-COMPLIANCE WITH PREVIOUS ORDER OF COURT WHICH REQUIRED
THAT COSTS BE PAID PRIOR TO LATE FILING OF DEFENCE - JUDGMENT
ENTERED FOR RESPONDENT IN HER ABSENCE - WHETHER LEARNED JUDGE
ERRED IN STRIKING OUT APPELLANTS’ DEFENCE AND ENTERING JUDGMENT
FOR RESPONDENT IN HER ABSENCE - WHETHER STRIKING OUT OF
DEFENCE AND ENTRY OF JUDGMENT BY LEARNED JUDGE WAS CONTRARY
TO CIVIL PROCEDURE RULES (“CPR”) 27.2(3) AND RULES OF NATURAL
JUSTICE
10 BVI - INTERLOCUTORY APPEAL - STAY OF SPECTRUM AWARD 2015 PROCESS
- CIVIL PROCEDURE RULES - RULE 56.4(8) OF THE ENGLISH CIVIL
PROCEDURE RULES, 2000 (the “ECPR”) - WHETHER A ‘STAY OF
PROCEEDINGS’ UNDER CPR 56.4(8) INCLUDES A STAY OF AN
ADMINISTRATIVE DECISION OR PROCESS - EXERCISE OF JUDICIAL
DISCRETION IN GRANTING INTERIM RELIEF - INTERIM INJUNCTION AGAINST
PUBLIC BODY - ASSESSING WHERE BALANCE OF CONVENIENCE LIES -
DETERMINING RISK OF INJUSTICE
19
Arbitration
7 BVI - CIVIL APPEAL - ARBITRATION - STAY PURSUANT TO SECTION 6(2) OF
THE ARBITRATION ORDINANCE - APPLICATION FOR APPOINTMENT OF
LIQUIDATORS - WHETHER ARBITRATION CLAUSE IN CONTRACT BROUGHT
THE LIQUIDATION PROCEEDINGS WITHIN THE AMBIT OF SECTION 6(2) OF
THE ARBITRATION ORDINANCE
Insolvency/Winding Up/Liquidation
7 BVI - CIVIL APPEAL - SETTING ASIDE STATUTORY DEMAND - SECTION 157(1)
AND SECTION 157(2) OF THE INSOLVENCY ACT, 2003 - WHETHER
STATUTORY DEMAND CONTRARY TO ARBITRATION CLAUSE IN CONTRACT -
WHETHER THE RESPONDENT WAS BARRED BY THE CONVENTION ON THE
LIMITATION PERIOD IN THE INTERNATIONAL SALE OF GOODS (NEW YORK,
1974)
10 BVI - INTERLOCUTORY APPEAL - LOAN AGREEMENT BETWEEN APPELLANT
AND RESPONDENT - INTERPRETATION OF CLAUSES OF MEMORANDUM OF
UNDERSTANDING - CONVERSION OF LOAN INTO EQUITY - APPOINTMENT OF
LIQUIDATORS - WINDING UP - WHETHER APPELLANT BECAME
SHAREHOLDER OF RESPONDENT BY IMPLIED AGREEMENT TO CONVERT
LOAN TO EQUITY IN RESPONDENT OR WHETHER APPELLANT CONTINUED
TO BE CREDITOR OF RESPONDENT AND WAS ENTITLED TO APPOINT
LIQUIDATORS OF RESPONDENT - WHETHER LEARNED JUDGE ERRED IN
STRIKING OUT APPELLANT’S APPLICATION TO WIND UP RESPONDENT ON
JUST AND EQUITABLE GROUND - STANDING - ARBITRATION - EFFECT OF
ARBITRATION
14 CAYMAN ISLANDS - PETITION STRUCK OUT AS ABUSE OF PROCESS
- SECTION 95(3) COMPANIES LAW - AGREEEMENT NOT TO PRESENT
WINDING UP PETITION
14 CAYMAN ISLANDS - WINDING UP PETITION - APPLICATION BY
SHAREHOLDERS TO STRIKE OUT PETITION ON GROUNDS DIRECTORS NOT
AUTHORISED
17 CAYMAN ISLANDS - SECTION 145 COMPANIES LAW - PREFERENCE - SECTION
93 COMPANIES LAW - SOLVENCY
Administrative Law – Judicial Review
11 BVI - INTERLOCUTORY APPEAL - CONSPIRACY - LAWFUL MEANS
CONSPIRACY - INTENTION TO INJURE - AGENCY - LIABILITY OF DIRECTOR
FOR CONSPIRACY TOGETHER WITH COMPANY OF WHICH HE/SHE IS
DIRECTOR - WHETHER LEARNED JUDGE EXERCISED HIS DISCRETION
IMPROPERLY - APPLICATION BY RESPONDENT TO STRIKE OUT APPELLANTS’
CLAIM IN COURT BELOW - APPLICATION BY RESPONDENT FOR SUMMARY
JUDGMENT - APPLICABLE LEGAL TESTS - WHETHER BVI IS APPROPRIATE
FORUM FOR TRIAL OF APPELLANTS’ CONSPIRACY CLAIM
15 CAYMAN ISLANDS - APPARENT BIAS - JUDGES SITTING IN MULTIPLE
JURISDICTIONS
Tax Information Exchange Agreements
3 BERMUDA - INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE
AGREEMENTS) ACT, 2005 (THE “2005 ACT”) - CONTEMPT - COSTS
12 CAYMAN ISLANDS - CAYMAN ISLANDS TAX INFORMATION AUTHORITY
- REQUESTS FOR INFORMATION - AUSTRALIAN TAX INFORMATION
EXCHANGE AGREEMENT
INDEX
Contact Us
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Tel: +1 441 295 1422 [email protected]
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Mark J. Forte Head of Litigation
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Paul Smith Head of Litigation
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