DD Growth Premium 2X Fund (in Official Liquidation) Appellant v RMF Market Neutral Strategms (Master) Ltd (Plaintiff) Respondent
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Justice Mangatal |
| Judgment Date | 29 May 2015 |
| Court | Court of Appeal (Cayman Islands) |
| Docket Number | Cause No. FSD 33 of 2011 |
| Date | 29 May 2015 |
In The Matter of The Companies Law (2010 Revision)
The Hon. Justice Mangatal (Sitting as a single Judge of the Court of Appeal)
This is an application by RMF Market Neutral Strategies (Master) Limited, the Respondent (“RMF”) seeking against DD Growth Premium 2X Fund (In Official Liquidation) (‘the Appellant’), security for costs of the appeal in respect of which Notice of Appeal was filed December 23, 2014.
The application was made pursuant to Rule 19(2) of theCourt of Appeal Law (2011 Revision) (‘Lire Law’) which provides as follows:
‘Appeals in civil proceedings.
19….
(2) The appellant shall, at the time of lodging the notice of appeal required by subsection (1), deposit in the Grand Court the sum of fifty dollars as security for the due prosecution of the appeal together with such further sum as security for costs of the appeal as a Judge of the Grand Court may direct, and such security for costs may be given by the appellant entering into a bond by himself and such sureties and in such sum as the Judge of the Grand Court may direct, conditioned for the payment of any costs which may be awarded against the appellant and for the due performance of the judgment of the Court.’
By virtue of section 33 of theLaw all powers conferred on a single Judge of the Court of Appeal may be exercised by a Judge of the Grand Court.
This application was sought by way of summons filed January 21, 2015. Originally, RMF had also sought security for costs incurred at first instance. However, on the eve of the hearing before me, learned Queen's Counsel Mr. Meeson indicated a withdrawal of that aspect of the application. Having had an opportunity to consider the authority ofCay Realty v Hadsphatic International Limited [1952–79 CILR 185], which was an authority referred to in the Appellant's skeleton argument, RMF decided that it would not pursue that part of its application regarding the costs at first instance, and would instead limit its application to costs of the appeal alone. This, as well as revised costs estimates for the appeal provided by RMF, resulted in a substantial reduction in the security for costs initially sought, from a total of US $1,020,728 to US$249,500.
Before turning to the evidence and arguments, I will set out the background to this application very briefly.
The Appellant was a feeder fund, incorporated in the Cayman Islands on 2 February 2007 as an exempted company with limited liability to operate as a private investment fund. The Appellant was placed in official liquidation on 29 May 2009.
RMF is a fund of hedge funds incorporated in the Cayman Islands on 12 March 2001. RMF held, and now to a lesser extent, continues to hold redeemable shares in the Appellant.
In response to tire Appellant writing to RMF to suggest that certain redemption proceeds should be repaid, RMF commenced proceedings by way of originating summons dated February 21 2011 seeking a declaration that it was not required to repay monies to the Appellant.
It was agreed that the parties would put forward their respective cases in Statements of Grounds, It was further agreed between the parties and Consent Orders were entered before Smellie CJ, with directions being given, on the 18 December 2013 and 15 August 2014, by which certain issues would be tried first, namely a claim referred to as the Section 37 Claim (in relation to certain provisions of section 37 of theCompanies Law (2007 Revision), and Claims referred to as Mistake and Preference Claims. By consent certain other claims and/or issues were ordered stayed until further order of the Court.
The trial in relation to the agreed issues took place before the Honourable Chief Justice between the 24–26 September, 2014, and a written judgment was handed down on the 17 November 2014. The Order dated 17 November 2014 reflects the judgment of Smellie CJ and by Notice of Appeal dated 23 December 2014, tire Appellant has appealed against this Order. Grounds of Appeal havenot yet been filed as the time provided for in the Rules for the drawing up of the Grounds had not up to the time of this application commenced running.
The affidavit of Mr. Michael Beurer, was filed on March 10 2015 in support of the application. Mr. Beurer is the Head of Secondaries, Workout and Transitions at FRM, a division of Man Group pic, which manages RMF. Part of his duties, he indicated, include overseeing this litigation on behalf of RMF. At paragraphs 15 of his Affidavit, Mr. Beurer states as follows:
‘DD Growth is Insolvent and has Insufficient Assets to Pay Costs
………
15. RMF was concerned that DD Growth has what was in essence a “free shot” against it in FSD 33 of 2011. DD Growth has nothing to lose given that it would be unable to meet any costs award made against it (as was proved to be the case) and was not responsible for its lawyers who were funding the litigation and sharing in the proceeds of the litigation on a contingency fee arrangement. RMF continues to be concerned that this remains the position, and in essence means that DD Growth has nothing to lose by pursuing its appeal. The parties to this litigation are therefore not on an even playing field. Put simply, RMF considers this situation to be unfair and unjust.’
Mr. Beurer at paragraphs 16 and 17 indicates that there have been limited attempts to agree security as the Appellant had made its position clear from the outset, including in its letter to theRegistrar of the Court of Appeal, Mrs. Audrey Bodden, dated 23 December 2014. In that letter it was opined by the Appellant's Attorneys Appleby that it would not be appropriate to provide security at all.
The application for security for costs has been opposed. The second Affidavit of Tammy Karina Fu, dated 26 March 2015 was filed on behalf of the Appellant. Ms. Fu is a partner of Zolfo Copper, who together with her fellow partner Gordon Ian Mac Rae, are tire Joint Official Liquidators, the ‘JOLs’, of the Appellant. In paragraph 21 of tins Affidavit Ms. Fu refers to the fact that the parties have agreed to provisionally list the appeal for the November session of the Court of Appeal. Whereas the Appellant's Attorneys have estimated that the appeal will take a day, RMF's Attorneys estimate a day and a half. Miss Fu refers to and exhibits the letter to the Registrar of the Court of Appeal, Mrs. Audrey Bodden, as well as an email from the Registrar, listing the appeal for the 10–11 November 2015.
In the letter to the Registrar, the Appellant's Attorneys stated, amongst other matters, that security in excess of Cl $50 would not be appropriate because the Appellant quite simply does not have any assets available from which substantial security could be paid and that therefore such an order would stifle a meritorious appeal.
In a number of paragraphs of her Affidavit, Miss Fu makes the point that the it has never been denied that the Appellant is wholly insolvent and devoid of cash. She refers to the initial funding arrangements and subsequent conditional fee arrangement with Appleby and other evidence to show the Appellant's financial status. See in particular paragraphs 25–28.
At paragraphs 29 and 30 Miss Fu claims that it is the Appellant's very lack of cash that caused it to claim that the payments should be recovered and that RMF is liable to repay them to the Appellant.
At paragraphs 30 and 31 Miss Fu speaks to the nature of the appeal and the advice that has been received from Appleby. The advice is, and it has been so argued before me, that the appeal turns in part on a disputed issue of construction of a Statute and the question whether, if the Appellant's construction is correct, there is a remedy in restitution to recover money paid in contravention of the Statute. Further, that the appeal is an appeal with genuine merit and that it would therefore be wrong to make an order that would stifle the appeal by imposing a condition of payment that could not be met.
At paragraphs 33–38 Miss Fu then discusses the topic ‘The ability of the 2X Fund to obtain further funding’. Mr. Meeson QC has described this as ‘the crux of the matter.’ Miss Fu states as follows:
‘33. As indicated above, the 2X Fund has $15,027.60 funding remaining, which is insignificant in proportion to the award sought. This was advanced for the specific purpose of funding claims against early redeemers and accordingly has not been used for the Non RMF Debts.
34. The funding arrangement, as approved by the CFA Judgment, has a strict repayment waterfall indicating how any recoveries must be paid (the Waterfall):….
35. The above waterfall was sanctioned by the Court, …. And has the effect of subordinating all of (a) the Provisional Liquidators' fees and expenses; (b) the Liquidators' fees and expenses; and (c) any adverse costs award, to the above.
36. The Liquidators cannot unilaterally amend the Waterfall. For the 2X Fund to obtain further funding to pay RMF's requested costs would require the stakeholders in the above waterfall to agree to subordinate their interests to any new funder
37. As the Court will be aware, the 2 X Fund recently settled an unrelated claim against another redeeming investor for $350,000. This sum fell to be paid in accordance with the Waterfall. This money cannot be used to provide security for costs of the appeal without the consent of the Lender and Petitioner A. Although the Liquidators have raised this issue with them, their consent to use this money for security has not been forthcoming....
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