Aramid Entertainment Fund Ltd Appellant/Respondent v Kbc Investments v Ltd Respondent/Petitioner
| Jurisdiction | Cayman Islands |
| Judge | Sir Anthony Campbell,Sir John Chadwick |
| Judgment Date | 05 May 2014 |
| Court | Court of Appeal (Cayman Islands) |
| Docket Number | FSD 95 of 2013 (AJEF) |
| Date | 05 May 2014 |
In The Matter of Aramid Entertainment Fund Limited
And In The Matter of The Companies Law (2012 Revision)
The Rt Hon Sir John Chadwick, President
The Rt Hon Sir Anthony Campbell, Justice of Appeal
The Hon John Martin, Justice of Appeal
This is an appeal from an order made by Justice Foster on 25 October 2013 in relation to the costs of a creditor's petition to wind up Aramid Entertainment Fund Limited(‘the Company’). The petition had been presented on 10 July 2013 by KBC Investments V Limited (‘the Petitioner’). It was withdrawn on 1 August 2013 by consent. The only question before the judge was whether he should make an order for the payment of the Company's costs of the petition; and, if so, what order. After a hearing on that question which extended over two days the judge decided to make no order as to costs. The Company seeks leave to appeal from that decision.
The application for leave to appeal, with an application for an extension of time for filing notice of appeal, came before this Court on 2 April 2014. In addressing those applications the Court heard full argument on the merits of the appeal itself. At the conclusion of the oral argument, the Court indicated that it would extend time, grant leave to appeal and allow the appeal. The Court stated that it would put its reasons in writing and deliver those reasons as soon as convenient.
The Company is an exempted company incorporated in the Cayman Islands. It carries on business as a mutual fund under the Mutual Funds Law (2009 Revision). Its investment business consists, primarily, in the provision of short and medium term finance to producers of film, television and other entertainment media secured over the assets of the borrower.
As at April 2011, Charles Frederic & Co Ltd (‘CFC’) was the registered owner of 88,730.4950 Class B redeemable shares in the Company (the ‘Shares’). It held those shares as custodian for the Stillwater Market Neutral Fund 111 SPC on behalf of Stillwater Matrix Segregated Portfolio (‘Stillwater’). Between May 2011 and April 2012 a proportion of the shares in the Company (including the Shares) were the subject of compulsory redemption. The redemption monies due in respect of the Shares were US$1,068,530.31. Those redemption monies were withheld from CFC by the Company pending determination of proceedings (the ‘Stillwater Proceedings’) which the Company had instituted against Stillwater, CFC and others in the Supreme Court of the State of New York.
The Petitioner, KBC Investments V Limited, had provided finance facilities to Stillwater secured on the Shares. During 2012 the Petitioner foreclosed on the Shares. Stillwater's rights and interests in the Shares were transferred to the Petitioner. On 13April 2013 the right to the redemption monies payable in respect of the Shares was assigned by CFC to the Petitioner. Notice of that assignment was given to the Company on 24 April 2013.
In the meantime, the trial judge in the New York Court had dismissed the claims made by the Company (and other plaintiffs) in the Stillwater proceedings. The Company appealed from that order. On 30 April 2013 the Appellate Division of the Supreme Court of New York refused the appeal and affirmed the judgment of the trial judge.
On 3 May 2013 the Petitioner served on the Company a statutory demand pursuant to section 93 of the Companies Law (2012 Revision) for payment of the redemption monies in respect of the Shares. The Company rejected that demand for reasons set out in a letter from its attorneys, Maples and Calder, dated 17 May 2013: the debt, it was said, was disputed on the grounds that, pending final determination of the Stillwater Proceedings, the Company maintained that it had the right to set off its claims in those proceedings against the redemption monies. On 28 May 2013 the attorneys for the Petitioner, Solomon Harris, responded with a letter which contained the assertion that the Stillwater Proceedings had been concluded with the decision and order of the Appellate Division of the New York Court. On 8 June 2013 Maples and Calder replied, denying that the Stillwater Proceedings had been concluded. It was said that, on 30 May 2013, the Company (and other plaintiffs in the Stillwater Proceedings) had filed a motion for re-argument, or in the alternative for permission to appeal to the Court of Appeals; that it was confident that that motion would be granted and that the motion would succeed. A copy of the appeal motion was enclosed with that letter.
The Company's motion in the New York State Court of Appeals was heard on 7 June 2013. On 10 July 2013 — before the Court of Appeals had ruled on that motion — the Petitioner presented its petition to wind up the Company. The petition was based on the non-payment of the monies demanded in the statutory demand.
On the same day (10 July 2013), but after service of the petition upon it, the Company commenced further proceedings (‘the KBC Proceedings’) in the State Court of New York against the Petitioner and related entities. In those proceedings theCompany asserts claims against the Petitioner (and the other defendants) which, if established, would exceed the amount of the redemption monies.
On 24 July 2013 the Company filed an affidavit of Roger Hanson, one of its directors, in opposition to the petition. That affidavit was reserved, after revision, on 30 July 2013. In paragraphs 13, 14, 15 and 16 of that affidavit Mr Hanson referred to what he described as ‘on-going proceedings against Stillwater, CFC and the Petitioner’: in particular (at paragraphs 15 and 16) he described the claims made in the KBC Proceedings which had been commenced on 10 July 2013. On receipt of that evidence the Petitioner decided to withdraw the Petition. The application to withdraw was made on 1 August 2013. Leave to withdraw was granted by Justice Foster on that day; reserving to argument at a later hearing the question whether an order should be made for payment of the costs thrown away.
The order made by the judge on 1 August 2013 had directed that the costs issue should be determined at a hearing on 15 August 2013. It had further directed that the Petitioner should serve any affidavit evidence in support of its application concerning costs by no later than noon on 6 August 2013; and that the Company might serve affidavit evidence in reply no later than noon on 12 August 2013.
Pursuant to that order, and following the withdrawal of the petition on 1 August 2013, further evidence was filed by both parties in support of their contentions on the costs issue. That evidence included an affidavit sworn by David L Molner, the chairman of Aramid Capital Partners LLP (the Technical Services Provider to the Company) in which he deposed (at paragraph 9) that, although the KBC Proceedings were not commenced until 10 July 2013, the Petitioner had been on notice of claims made in those proceedings (in respect of a transaction known as the Beverly Slate) since 8 February 2012. In paragraphs 10, 11 and 12 of his affidavit Mr Molner set out the basis for that assertion; explaining that 8 February 2012 was the date on which the Company had commenced proceedings in the Los Angeles Supreme Court (to which the Petitioner was not a party) against Fortress Investment Group LLC and certain of its subsidiaries. At paragraph 13 of his affidavit Mr Molner went on to say this:
‘Even if the Petitioner was not aware of the Fortress Complaint and the possibility of legal action against the Petitioner in February 2012, the verylatest it was aware was June 2012. I say this because of my communications with Mr Tom Melsens who was (as he later explained to me) the Managing Director of KBC Investments, an affiliate of the Petitioner.’
At paragraphs 15 and 16 of his affidavit, Mr Molner set out particulars of the discussion which he had had with Mr Melsens in a telephone call in or about the first week of June 2012. In the course of that telephone call Mr Molner informed Mr Melsens (as he deposed) that the Company held the Petitioner partly responsible for the damage caused to the Company in connection with the Beverly Slate.
On 14 August 2013 Solomon Harris sent to Maples and Calder, by email, a copy of an affidavit sworn by Tom Melsens on that day; in which Mr Melsens responded to the assertions made by Mr Molner in his affidavit of 12 August 2013. Maples and Calder objected to the proposed use of Mr Melsens' affidavit at the hearing that was to take place on the following day. Copies of their letter of objection and of Solomon Harris' letter in response (asserting that the affidavit could and would be relied upon) were sent to the judge. In an email sent to Maples and Calder and Solomon Harris on the afternoon of 14 August 2013 the judge's secretary wrote:
‘The Hon Judge has advised that the order dated 1st August 2013 is perfectly clear. The proposed affidavit of Mr Melsens may not be referred to at tomorrow's hearing.’
We have been provided with an attendance note of the hearing on 15 August 2013 prepared by Maples and Calder. The note has not been agreed by Solomon Harris, nor submitted to the judge for his approval. The note supports the view that, quite properly, Ms Laura Hatfield (who appeared as advocate for the Petitioner at that hearing, as she did before this Court) accepted that she was not able to put Mr Melsens' affidavit before the judge. It is recorded (at paragraph 4.16 of the note) that she said this:
‘… LH noted that Mr Melsens swore in an affidavit that he had never...
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