Camulos v Kathrein

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Forte and Mottley, JJ.A.)
• Judgment Date: 18 March 2010
• Court: Court of Appeal (Cayman Islands)
• Date: 18 March 2010

Court of Appeal

(Chadwick, P., Forte and Mottley, JJ.A.)

CAMULOS PARTNERS OFFSHORE LIMITED

and

KATHREIN AND COMPANY

F. Tregear, Q.C., Ms. C. Wilkins and M.R. Goucke for the appellant;

M. Crystal, Q.C., J.R. McDonough and J.G. Manning for the respondent.

Cases cited:

(1) Bryanston Fin. Ltd. v. de Vries (No. 2), [1976] Ch. 63; [1976] 2 W.L.R. 41; [1976] 1 All E.R. 25, referred to.

(2) CVC/Opportunity Equity Partners Ltd. v. Demarco Almeida, 2002 CILR 77; [2002] BCC 684; [2002] 2 BCLC 108; [2002] UKPC 16, applied.

(3) Cadiz Waterworks Co. v. BarnettELR(1874), L.R. 19 Eq. 182; 44 L.J. Ch. 529; 23 W.R. 208; 31 L.T. 640, referred to.

(4) Charles Forte Invs. Ltd. v. Amanda, [1964] Ch. 240; [1963] 3 W.L.R. 662; [1963] 2 All E.R. 940, applied.

(5) Company (No. 003096 of 1987), Re aUNK(1987), 4 BCC 80, referred to.

(6) Company (No. 006685 of 1996), In re a, [1997] BCC 830; [1997] 1 BCLC 639, dictum of Chadwick J. applied.

(7) Cuthbert Cooper & Sons Ltd., Re, [1937] Ch. 392; [1937] 2 All E.R. 466, referred to.

(8) Mann v. Goldstein, [1968] 1 W.L.R. 1091; [1968] 2 All E.R. 769, considered.

(9) Parmalat Capital Fin. Ltd. v. Food Holdings Ltd., 2008 CILR 202; [2009] 1 BCLC 274; [2008] BCC 371; [2008] BPIR 641; [2008] UKPC 23, considered.

(10) Strategic Turnaround Partnership Ltd., In re, Grand Ct., November 28th, 2008, unreported; on appeal, 2008 CILR 447, explained.

Legislation construed:

Companies Law (2009 Revision), s.95(3): The relevant terms of this sub-section are set out at para. 36.

Companies-compulsory winding up-petition-striking out-may strike out whenever petition used improperly to resolve inter partes dispute (e.g. if based on disputed debt or brought primarily to exert pressure)-striking out not confined to claims bound to fail-if alternative remedy available to petitioner and acting unreasonably in not pursuing it (e.g. using petition simply to exert pressure), petition likely to be abuse of process and restrained/struck out-same approach for petition by creditor or contributory

The appellant sought to restrain the respondent investor from presenting a petition to wind it up in the Grand Court.

The appellant was an investment fund in which investors, including the respondent, subscribed for shares and its assets were applied to acquire shares in a master fund. The respondent investor gave notice of its intention to redeem its shares in the fund. Before the redemption date, the fund”s investment manager sent a restructuring proposal to all shareholders, offering to exchange their existing shares for new classes of shares, which the investor declined to accept. The proposal provided that those investors who rejected the offer, including those who had submitted a redemption request, would receive in satisfaction of their shares a 15% payment of cash, with the balance distributed in unspecified assets. The fund failed to make any cash payment or transfer of assets to the investor and subsequently suspended payment of the redemption proceeds. The

investor commenced proceedings by way of originating summons seeking declarations that the fund settle its obligation to pay the redemption price with at least 15% of the sum owed being paid in cash. On discovering that the fund had proposed to make cash payments to the other investors but not itself, the investor notified the appellant”s attorneys of its intention to petition to wind up the fund. On the respondent”s refusal to provide an undertaking to give notice before petitioning, the appellant sought to restrain the presentation of the respondent”s winding-up petition.

The Grand Court (Anderson, Ag. J.) refused to restrain the petition on the basis that the court would only exercise its discretion to do so when it could be established that the petition was bound to fail and would therefore be an abuse of process-this not being such a case because a contributory was exercising its statutory right available in the circumstances alleged. The investor subsequently presented two petitions for the winding up of the fund on the ‘just and equitable’ ground or in the alternative seeking (a) the payment of the redemption price; (b) the restraining of any further payments to the other investors; or (c) the payment of such percentage of the redemption price as had been paid to other investors and the restraining of payments to other investors unless equivalent payments were also made to it.

On appeal, the fund sought to restrain the respondent from proceeding with or presenting any further winding-up petitions. It submitted that the petitions were bound to fail, since the petitioner (i) was acting unreasonably in failing to pursue the alternative and more suitable remedy of obtaining payment or restraining payment to other investors either by proceeding with the existing originating summons or by bringing a new writ action; (ii) was wrongly using a winding-up petition to resolve an issue involving disputed debt, which should be heard inter partes; and (iii) was attempting to pressure the fund into paying a disputed debt, which was not a legitimate purpose for a winding-up petition-and that the petitions therefore were an abuse of process and should be struck out.

The petitioner submitted in reply that the winding-up petitions were not an abuse of process and should not be restrained. It submitted that-since the fund”s suspension of redemptions and payments thereof was invalid under its articles of association and/or as an improper exercise of its power, and the fund”s treatment of the petitioner was a breach of its duty not to discriminate between investors-the fund had engaged in unfairly prejudicial conduct, and that in such circumstances a winding-up petition should be allowed to proceed, since it was the only way to obtain the relief sought.

Held, allowing the appeal:

(1) The petitions would be struck out as an abuse of process. The court would strike out a winding-up petition whenever it was being used improperly to resolve an inter partes dispute (for example, those involving disputed debts, and when the petition had been brought to exert pressure on the respondent): the jurisdiction to do so was not confined to claims

which were bound to fail. In determining whether to restrain the presentation of or strike out a winding-up petition, the court had to consider whether (i) there was an alternative remedy available to the petitioner; and (ii) the petitioner was acting unreasonably in not pursuing that alternative remedy. If it were satisfied that a petitioner was acting unreasonably, then it was likely that it would hold that the petition was an abuse of process. This approach would be adopted regardless of whether the petition had been brought by a creditor or a contributory. As the petitions had already been presented in the present case, it would be more appropriate for the court to strike them out rather than restrain the proceedings and leave the petitions on file (paras. 60–62; para. 77).

(2) The Grand Court had failed to consider whether the respondent investor had a suitable alternative remedy which it was unreasonably failing to pursue. In fact, there was an available remedy by which the petitioner could obtain payment of the redemption price or restrain payment to other investors, either by proceeding with the existing originating summons or by bringing a new writ action. Further, the petitioner was acting unreasonably in not pursuing this remedy, since it appeared from its actions that it was pursuing the petition simply to put maximum pressure on the fund to meet its request. The appeal would therefore be allowed and the petitions struck out as an abuse of process (paras. 81–82; paras. 85–86; paras. 95–99).

1 CHADWICK, P.: These are appeals from orders made on September 15th and 18th, 2009 by Anderson, Ag. J. in the Grand Court. The issue before the judge was whether to restrain the presentation of a petition to wind up a Cayman registered investment fund. The issue before this court is whether, in the events which have happened, the petitions which have been presented should now be struck out.

The underlying facts

2 The appellant, Camulos Partners Offshore Ltd. (‘the fund’), was incorporated in May 2005 as an exempted company under Part VII of the Companies Law. Its purpose was to provide an investment vehicle for those who subscribed for its shares. In carrying out that purpose, the fund acted as an offshore feeder in a fund structure of which the master fund was Camulos Master Fund LP (‘the master fund’), an exempted limited partnership formed under the laws of the Cayman Islands. Put shortly, investors subscribed for shares in the fund, and the fund, in turn, applied its assets (derived from investors” subscriptions) in subscribing for shares in the master fund. The investment objective-as described in a confidential private offering memorandum dated May 2008-was to generate, through investment in the master fund, ‘superior risk-adjusted returns from a combination of capital appreciation and current income by opportunistically investing and trading in a diversified portfolio of undervalued and distressed assets.’ The articles of the fund provided that its shares were redeemable at the option of the holder at the end of a calendar quarter upon 60 days” prior written notice.

3 The respondent, Kathrein & Co. (‘the investor’), is the holder of 27,276.3724 Class A Series 1 redeemable shares in the share capital of the fund. The investor subscribed for those shares pursuant to a subscription agreement, dated July 31st, 2006. On July 31st, 2008, the investor, acting through its agent Concord Management LLC (‘Concord’), gave notice (‘the redemption request’) of its wish to redeem all the shares which it held. The applicable redemption date under the redemption request was September 30th, 2008. The redemption request was accepted on behalf of the fund by its administrator, Op Hedge Fund...