An Application of Bdo Cayman Ltd Concerning Argyle Funds Spc Inc. (in Official Liquidation)

JurisdictionCayman Islands
Judge(Parker, J.)
Judgment Date13 February 2018
CourtGrand Court (Cayman Islands)
Date13 February 2018
IN THE MATTER OF AN APPLICATION OF BDO CAYMAN LIMITED CONCERNING ARGYLE FUNDS SPC INC (in official liquidation)

(Parker, J.)

Grand Court, Financial Services Division (Cayman Islands)

Injunctions — anti-suit injunctions — injunction against foreign proceedings — granted where proceedings commenced in New York against Cayman statutory auditor of Cayman fund in breach of parties’ clear contractual agreement to resolve disputes by arbitration in Cayman Islands

Held, granting the injunction:

(1) An injunction against Argyle should be granted in the terms sought by the applicant. The case concerned audits of a Cayman fund by Cayman statutory auditors pursuant to Cayman law under engagement letters governed by Cayman law with Cayman jurisdiction and arbitration clauses. Litigation in New York was not the regime agreed to in the contractual documents. The clear contractual scheme could not be conveniently avoided to obtain procedural or other strategic advantages in New York. There were no strong reasons why the parties should not be held to their contractual agreements (paras. 98–100).

(2) The argument that the applicant had adopted an improper procedure would be rejected. The applicant had not been required to apply to join Argyle formally as a party. The court had jurisdiction to grant the order in personam over Argyle. In any event, it was clear from a review of the correspondence between the attorneys that the manner in which the application proceeded to a hearing had effectively been agreed. It was asensible way to proceed in the circumstances and had caused no prejudice to Argyle. The procedure adopted had not resulted in any material non-compliance with the Grand Court Rules or unfairness. Were it necessary to do so, under GCR O.2, r.1, the court would have allowed the defect to be cured by applying the overriding objective to deal with the matter justly and would have given a liberal interpretation to the Rules to secure the most expeditious and least expensive determination (paras. 51–52).

(3) The court accepted the evidence given on behalf of the applicant by persons having direct and personal knowledge of the audits, that BDO USA and Schwartz had had no relevant involvement in the audits (paras. 61–62).

(4) Argyle was not a consumer for the purposes of s.8 of the Arbitration Law because it had contracted with the applicant as a business. It would be most unlikely that the draftsman would have intended businesses to be treated as consumers for the purposes of the section. To do so would be to remove any distinction between consumers and non-consumers, which was plainly not the intention behind the provision. The rationale and purpose behind the section was to give additional protection to natural persons who entered into contracts which contained an arbitration agreement where they were contracting as consumers not businesses. This was consistent with the definition in UK consumer rights legislation of “consumer” as an individual acting for purposes that were wholly or mainly outside trade, business, craft or profession, and it was also consistent with the ordinary and natural meaning of the term (para. 69).

(5) Section 7 of the Arbitration Law also did not assist Argyle. No special procedure or formality was required in relation to adoption for the purposes of s.7. If a liquidator sued on a contract that had within it an arbitration agreement, s.7 made it absolutely clear that he was bound by the arbitration agreement as well. In the present case, in which the JOLs had brought proceedings in New York relying on the engagement letters, the letters had been adopted for the purposes of s.7 so that the JOLs could not avoid the forum clauses which had not been disclaimed in any way (paras. 75–76).

(6) The court did not accept Argyle’s argument that, as a matter of construction, the arbitration provisions did not mandate a reference to arbitration unless and until a written mediation notice had been given and either the mediation had failed or the party receiving the notice had waived its option to mediate, and that since mediation had not taken place or been requested by either party, the arbitration provisions did not apply. The language of the arbitration provisions did not operate so as to set up a condition precedent for mediation before the arbitration clause could apply. Mediation was simply permissive, so that any dispute not resolved first by mediation was to be decided by binding arbitration in the Cayman Islands. In any event, even if the language of the arbitration provisions didmandate a reference to mediation before the arbitration provisions were engaged, such requirement was waived by Argyle commencing the New York proceedings (para. 77).

(7) The arbitration clause in the engagement letters was not unenforceable. The court accepted the submission that clauses depriving a party of the right to litigate should be expected to be clearly worded, even where arbitration remained a real preference for the commercial community. It was satisfied as to the validity and enforceability of the arbitration provisions, the commercial purposes of which were clear. Argyle was required to pursue any claims arising under or in relation to the engagement letters by arbitration against the applicant, and any dispute as to meaning or applicability, if not resolved by the arbitration tribunal itself, was to be resolved exclusively by the Cayman court pursuant to the exclusive jurisdiction clause and in accordance with Cayman law. The court did not accept Argyle’s submission that the arbitration provisions had no application to the other entities. On a proper interpretation of the relevant provisions, the agreement to arbitrate with the applicant alone remained where a third party was engaged to assist with the performance of the audit. The applicant remained solely liable for its own performance and that of its assignee, and Argyle agreed not to bring claims or proceedings of any nature whatsoever against any assignee. In accordance with the express terms of the assignment clauses, the applicant remained primarily responsible for the services provided. It followed that BDO Trinity (an affiliate of the applicant and a member firm of the international BDO network) performed work that was delegated to it by the applicant and was entitled to the protection of the sole recourse clause. The same would have applied in respect of any work delegated to BDO USA or Schwartz. As to the submission that the clauses had no application because there was a claim founded on an allegation of fraud or wilful misconduct or other liability which could not be excluded under applicable laws in New York, the court was not satisfied that this would be a reason to deprive the clauses of effect. The court was entitled to form a view in the round on the New York proceedings. In so far as they pleaded fraud or wilful misconduct, they were weak claims (paras. 78–90).

(8) The court would not exercise its discretion to refuse to make an anti-suit injunction. The New York proceedings were in contravention of the agreed dispute resolution mechanisms and the court should intervene to protect the prima facie right of the applicant to enforce the negative aspect of the agreements. The court had no diffidence in the circumstances of this case in restraining Argyle from continuing to do something which it had agreed not to do. There were no strong reasons why the court should not grant the orders sought (paras. 91–97).

Cases cited:

(1)AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC, [2013] UKSC 35; [2013] 1 W.L.R. 1889;[2014] 1 All E.R. 335; [2014] 1 All E.R. (Comm) 1; [2013] Bus. L.R. 1357; [2013] 1 C.L.C. 1069; [2013] 2 Lloyd’s Rep. 281, referred to.

(2)Aggeliki Charis Cia. Maritima S.A. v. Pagnan S.p.A. (The Angelic Grace), [1995] 1 Lloyd’s Rep. 87, considered.

(3)Anzen Ltd. v. Hermes One Ltd., [2016] UKPC 1; [2016] 2 All E.R. (Comm) 673; [2016] 1 W.L.R. 4098; [2016] 1 Lloyd’s Rep. 349, referred to.

(4)Donohue v. Armco Inc., [2001] UKHL 64; [2002] 1 All E.R. 749; [2002] 1 All E.R. (Comm) 97; [2002] 1 Lloyd’s Rep. 425, referred to.

(5)Elektrim S.A. v. Vivendi Hldgs., [2008] EWCA Civ 1178; [2008] 2 C.L.C. 564; [2009] 2 All E.R. (Comm) 213; [2009] 1 Lloyd’s Rep. 59, referred to.

(6)Midgulf Intl. Ltd. v. Groupe Chimiche Tunisien, [2009] EWHC 963 (Comm); [2009] 1 C.L.C. 984; [2009] 2 Lloyd’s Rep. 411, considered.

(7)Origami Partners III LP v. Pursuit Capital Partners (Cayman) Ltd., 2012 (2) CILR 191, considered.

(8)Powdrill v. Watson, [1995] 2 A.C. 394; [1995] 2 W.L.R. 312; [1995] 1 All E.R. 65, considered.

(9)Premium Nafta Products Ltd. v. Fili Shipping Company Ltd., [2007] UKHL 40; [2007] CILL 2528; [2007] 2 C.L.C. 553; [2007] Arb L.R. 24; [2007] Bus L.R. 1719; sub nom. Fiona Trust & Hldg. Corp. v. Privalov, [2007] 4 All E.R. 951; [2007] 2 All E.R. (Comm) 1053, considered.

(10)Turner v. Grovit, [2002] UKHL 65; [2002] 1 W.L.R. 107; [2002] C.L.C. 463; [2002] I.C.R. 94; [2002] IRLR 358; [2002] I.L.Pr. 28, referred to.

Legislation construed:

Arbitration Law 2012, s.7: The relevant terms of this section are set out at para. 71.

s.8(1): “Where a contract contains an arbitration agreement and a person enters into that contract as a consumer, the arbitration agreement is enforceable against the consumer only if after a dispute has arisen, the consumer by a separate written agreement certifies that he has read and understood the arbitration agreement and agrees to be bound by its terms.”

s.8(4): The relevant terms of this sub-section are set out at para. 67.

Grand Court Law (2015 Revision), s.11(1): The relevant terms of this sub-section are set out at para. 39.

The applicant sought an anti-suit injunction.

The applicant, BDO Cayman Ltd., sought an order restraining Argyle Funds SPC Inc. (“Argyle”) from continuing proceedings commenced in the State of New York against it and three other entities (BDO USA LLP, BDO Trinity...

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