Aramid v KBC Invs v Ltd
| Jurisdiction | Cayman Islands |
| Judge | (Chadwick, P., Campbell and Martin, JJ. A.) |
| Judgment Date | 05 May 2014 |
| Date | 05 May 2014 |
| Court | Court of Appeal (Cayman Islands) |
(Chadwick, P., Campbell and Martin, JJ. A.)
S.J. Alexander for the appellant;
Ms. L. Hatfield for the respondent.
(1) Cannon Screen Entertainment Ltd., Re, [1989] BCLC 660; (1989), 5 BCC 207, considered.
(2) Company, Re (No. 0012209 of 1997), [1997] C.L.Y. 3087, referred to.
(3) Fernforest Ltd., Re, [1990] BCLC 693; [1991] BCC 680, applied.
(4) Gerova Fin. Group Ltd., Re, [2012] SC (Bda) 18 Com, distinguished.
(5) GlaxoSmithKline Export Ltd. v. UK (Aid) Ltd., [2003] 2 BCLC 351; [2003] BPIR 1206; [2003] EWHC 1090 (Ch); further proceedings, [2004] BPIR 528; [2003] EWHC 1383 (Ch), considered.
(6) Lanaghan Bros. Ltd., Re, [1977] 1 All E.R. 265, distinguished.
(7) M. McCarthy & Co. (Builders) Ltd. (No. 2), Re, [1976] 2 All E.R. 339, distinguished.
(8) Mailright Pty. Ltd., ReUNK(1985), 9 ACLR 863, referred to.
(9) Sykes & Sons Ltd., In re, [2013] Bus. L.R. 106; [2012] BPIR 1273; [2012] EWHC 1005 (Ch), distinguished.
Civil Procedure-judgments and orders-withdrawal-court to withdraw draft judgment if improperly considered affidavit excluded for late filing-should consider (with benefit of submissions if appropriate) whether can properly deliver new judgment-if can disregard improperly considered evidence, should say so and reissue judgment with explanation of how judgment reached without relying on excluded material
Companies-compulsory winding up-petition-withdrawal-withdrawal of petition based on disputed debt makes petitioner liable to pay company”s costs-to follow general rule that costs follow event-heavy pressure of winding-up petition adds force to general principle-wholly exceptional circumstances may justify departure from general rule, e.g. petition based on default judgment debt
The respondent presented a petition to wind up the appellant company based on the non-payment of money demanded in a statutory demand.
The respondent had made loans to a third party secured on shares in the appellant, and had since foreclosed on the loan. The appellant refused to pay over money resulting from the compulsory redemption of the shares as it had an ongoing legal dispute with the third party in New York. The appellant”s claims were dismissed, as was its appeal, so the respondent issued a statutory demand for the redemption money. The appellant refused the demand on the basis that it had filed a motion for re-argument or for a further appeal and was confident it would succeed. Before that motion was ruled on in New York, the respondent presented a petition to wind up the appellant. Later that day, the appellant commenced proceedings against the respondent, asserting claims which far exceeded the redemption moneys.
In opposition to the petition, the appellant filed an affidavit of one of its directors stating that the debt was disputed on the basis of ongoing proceedings against, inter alia, the respondent and the third party.
Having received that affidavit, the respondent withdrew the petition on August 1st, 2013. The matter of costs was left to a later date, and the parties were given deadlines by which to serve evidence they wished to present in the costs hearing.
For the appellant, that evidence included an affidavit sworn by Mr. Molner, the chairman of its technical services provider, stating that although the proceedings against the respondent had not been commenced until after it filed its petition on July 10th, 2013, the respondent had been on notice of the claims giving rise to those proceedings since February 8th, 2012 or, at the very latest, early June 2012, when Mr. Molner had discussed the claims with Mr. Melsens, Managing Director of an affiliate of the respondent.
The respondent produced an affidavit sworn by Mr. Melsens denying that such a discussion ever took place, but did so after the deadline for serving evidence for the costs hearing. It was informed by the judge that the Melsens affidavit was not to be referred to at the hearing and it was not referred to. However, it was included in the evidence bundle and, when a draft of the judgment was circulated, it became clear that the judge had relied on the Melsens affidavit when coming to his decision that the respondent had not been aware of the claims against it before issuing the petition, that presenting the petition was therefore reasonable in all the circumstances, and that it should not be ordered to pay the appellant”s costs. When the appellant objected to the draft judgment, the judge replied that he would have come to the same conclusion with or without reference to the Melsens affidavit and the appellant therefore did not insist that the judgment be revised, but rather appealed against the order once it was made.
Held, allowing the appeal:
(1) The respondent would be ordered to pay the appellant”s costs in respect of the petition. There was nothing in the facts of the case to justify a departure from the general rule that costs follow the event and, since the petition was based on a disputed debt, the petitioner pursued it at his own risk and must bear the costs of the petition being withdrawn. The heavy pressure that a winding-up petition could put on a company gave added force to the general principle that losing parties should pay costs of successful parties. Whether the presentation of the petition was reasonable or not was not relevant in cases of petitions presented on the basis of disputed debts; in such cases, debtors who chose to take the shortcut of a statutory demand followed by a petition for winding-up, rather than first issuing a writ to establish their claim, did so at their own risk that the petition would fail or be withdrawn. Consideration of the conduct of both parties throughout the entire history of the case was expensive and time-consuming, and in this case increased the costs of the case tenfold. It was not the duty of a defendant to formulate his defence to a claim in detail before proceedings against him were taken. Doing so would also be expensive, with the costs often irrecoverable. Wholly exceptional circumstances could justify departure from the general rule that costs follow the event, such as where the petition was presented on the basis of a default judgment debt, but there were no exceptional circumstances here-the
petition was based on a genuinely disputed debt and so was presented at the petitioner”s own risk (paras. 20–30).
(2) The ruling in its final form (materially the same as the draft judgment) was plainly flawed as the judge”s reasons for his exercise of his discretion as to costs were based in part on findings of fact made having taken into account material which was not in evidence (para. 18).
(3) The Melsens affidavit should not have been included in the respondent”s evidence bundle. The respondent had been directed that it could not be relied upon and if the bundle had already been lodged when that direction was given, steps should have been taken to remove the Melsens affidavit. The inclusion of the affidavit led the judge into error (para. 18).
(4) The judge”s response, having correctly recognized, when it was pointed out to him by the appellant, that he was wrong to have relied on the Melsens affidavit, was incorrect. He should have withdrawn the draft judgment without inviting comment from the parties and addressed the question (inviting the parties” submissions if he thought appropriate) of whether he could properly deliver a judgment at all, given that he had read and formed a view as to the weight to be placed on the Melsens affidavit. If he found he could put it out of his mind, he should have said so and reissued the judgment, including an explanation of how he reached his conclusion without relying on the Melsens affidavit. Simply stating that he would reach the same conclusion either way was unlikely to inspire confidence that the judicial process had worked fairly (para. 18).
1 CHADWICK, P.: This is an appeal from an order made by Foster, J. on October 25th, 2013 in relation to the costs of a creditor”s petition to
wind up Aramid Entertainment Fund Ltd. (‘the company’). The petition had been presented on July 10th, 2013 by KBC Investments V Ltd. (‘the petitioner’). It was withdrawn on August 1st, 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.
2 The application for leave to appeal, with an application for an extension of time for filing notice of appeal, came before this court on April 2nd, 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 underlying facts
3 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.
4 As at April 2011, Charles Frederic & Co. Ltd. (‘CFC’) was the registered owner of 88,730.495 Class B redeemable shares in the company (‘the Class B shares’). It held those shares as custodian for the Stillwater Market Neutral Fund III, on behalf of Stillwater Matrix Segregated Portfolio (‘Stillwater’). Between May 2011 and April 2012, a proportion of the shares in the company (including the Class B shares) were the subject of compulsory...
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