HSH Cayman v ABN AMRO

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Forte and Mottley, JJ.A.)
• Judgment Date: 09 December 2009
• Court: Court of Appeal (Cayman Islands)
• Date: 09 December 2009

Court of Appeal

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

HSH CAYMAN I GP LIMITED, HSH CAYMAN II GP LIMITED, HSH CAYMAN V GP LIMITED and HSH COINVEST (CAYMAN) GP LIMITED

and

ABN AMRO BANK N.V. LONDON BRANCH

P. Brook Smith, Q.C., Ms. C. Wilkins and V. Chittleborough for the appellants;

T. Mowschenson, Q.C. and J.N. Wood for the respondent;

G. Halkerston for the liquidators.

Cases cited:

(1) Atwood v. ChichesterELR(1878), 3 Q.B.D. 722; 47 L.J.Q.B. 300; 38 L.T. 48, referred to.

(2) Brown v. Innovatorone Plc, [2010] C.P. Rep. 2; [2010] 2 All E.R. (Comm) 80; [2009] EWHC 1376 (Comm), referred to.

(3) Communities & Local Government Secy. v. Bovale Ltd., [2009] 1 W.L.R. 2274; [2009] 3 All E.R. 340; [2009] C.P. Rep. 27; [2009] 2 P. & C.R. 7; [2009] EWCA Civ 171, referred to.

(4) Craig v. Kanssen, [1943] K.B. 256; [1943] 1 All E.R. 108; (1942), 112 L.J.K.B. 228; 168 L.T. 38, referred to.

(5) Isaacs v. Robertson, [1985] A.C. 97; [1984] 3 W.L.R. 705; [1984] 3 All E.R. 140, referred to.

(6) Kuenyehia v. Intl. Hospitals Group Ltd., [2006] C.P. Rep. 34; [2006] EWCA Civ 21, dicta of Neuberger, L.J. applied.

(7) MacFoy v. United Africa Co., [1962] A.C. 152; [1961] 3 W.L.R. 1405; [1961] 3 All E.R. 1169, referred to.

(8) Pritchard, Re, [1963] Ch. 502; [1963] 2 W.L.R. 685; [1963] 1 All E.R. 873, dicta of Upjohn, L.J. applied.

(9) Raja v. Van Hoogstraten (No. 9), sub nom. Tombstone Ltd. v. Raja, [2009] 1 W.L.R. 1143; [2009] C.P. Rep. 18; [2008] N.P.C. 142, [2008] EWCA Civ 1444, applied.

(10) Ratnam v. Cumarasamy, [1965] 1 W.L.R. 8; [1964] 3 All E.R. 933, applied.

(11) St. George”s Healthcare NHS Trust v. S, [1999] Fam. 26; [1998]

3 W.L.R. 936; [1998] 3 All E.R. 673; [1998] 2 FLR 728; [1998] 2 F.C.R. 685, referred to.

(12) Texan Management Ltd. v. Pacific Elec. Wire & Cable Co. Ltd., [2010] 4 LRC 1; [2009] UKPC 46, considered.

Legislation construed:

Companies Law (2007 Revision), s.174: The relevant terms of this section are set out at para. 10.

Companies Winding Up Rules 2008, O.3, r.2: The relevant terms of this rule are set out at para. 29.

r.3: The relevant terms of this rule are set out at para. 29.

r.4: The relevant terms of this rule are set out at para. 29.

r.5: The relevant terms of this rule are set out at para. 29.

Grand Court Law (2008 Revision), s.18: The relevant terms of this section are set out at para. 15.

Grand Court Rules 1995, O.1, r.2(4) as amended by the Grand Court (Amendment) Rules 2009, s.4(1): The relevant terms of this sub-rule are set out at para. 11.

Insolvency Rules 1986 (S.I. 1986/1925), r.7.51: The relevant terms of this rule are set out at para. 16.

r.7.55: The relevant terms of this rule are set out at para. 16.

Companies-compulsory winding up-inherent jurisdiction-in absence of statutory power, inherent jurisdiction to deal with failure to comply with Companies Winding Up Rules but to be exercised consistently with overall scheme-discretion to deal with omissions to ensure justice done-non-compliance not necessarily to render proceedings nullity

Companies-compulsory winding up-petition-form and contents-court not automatically to waive strict compliance with requirements of Companies Winding Up Rules-to consider why petition defective and if defects prejudicial-petitioner to provide adequate explanation for omissions as Rules serve important purposes in enabling respondent to determine appropriate response-winding-up order made on defective petition may be set aside and petition may be stayed pending application for amendment/strike out

The respondent bank sought the winding up of the four appellants in the Grand Court.

The appellants were the general partners of limited partnerships, which had been established to finance and acquire shares in a German bank. The limited partnerships, acting through the general partners, had entered into loan agreements with the respondent to fund the acquisition. The appellants were liable to repay the debts, but defaulted on their obligations, and consequently the respondent petitioned to wind them up on the ground of their inability to pay their debts

The petitions failed to comply with the Companies Winding Up Rules 2008 because one of the liquidators appointed in the subsequent winding-up orders had not been named in the petitions-since he had been substituted for another practitioner from the same firm who had instead himself been nominated in the petitions-and they did not therefore comply with the requirement in O.3, r.2(2)(e) to give accurate details of the identity of the proposed liquidators. There had been further non-compliance with the Rules because (i) the petitions had not been separately verified on behalf of each lender which was required (under

O.3, r.3(2)) because the petitions were in respect of debts due to more than one creditor; (ii) the verifying affidavits had not been sworn by someone with ‘personal knowledge’ of the matters giving rise to the petitions (required under O.3, r.3(3)(b)) but instead by an agent acting on behalf of the petitioner who had verified it based on information supplied by others; (iii) the liquidators had not provided affidavits on their qualification and willingness to act in respect of these petitions (only others) (O.3, r.4(1)); and (iv) the affidavits were not served ‘together with’ the petitions and not ‘immediately after the petition[s] ha[d] been presented’ (O.3, r.5(2)).

The Grand Court, Financial Services Division (Foster, Ag. J.) ordered the winding up of the appellants notwithstanding that there had not been strict fulfilment of the requirements of the Companies Winding Up Rules, as it maintained it had an inherent power to dispense with compliance, which would be exercised here since the failures were deemed not to be prejudicial to the appellants.

On appeal, the appellants submitted that the Grand Court erred (a) in failing to dismiss the petitions on the ground of the respondent”s failure to comply with the Companies Winding Up Rules because it did not have the inherent power to dispense with compliance, and nevertheless, should not have done so; and (b) in refusing to grant an adjournment of proceedings while awaiting the outcome of a related claim in London.

Held, allowing the appeals and setting aside the winding-up orders:

(1) The winding-up orders would be set aside. The Grand Court had erred in exercising its discretion under its inherent jurisdiction to waive strict compliance with the Companies Winding Up Rules, especially since it had failed to consider why there had been non-compliance and whether the failures had caused prejudice to any interested parties. It would be insufficient for the non-compliant petitioner to claim that its omissions had not been prejudicial to the appellants and it would instead have to provide an adequate reason for dispensation to be accorded. The Rules served important purposes, for example with the requirement of service of the verifying affidavit ‘immediately after the petition has been presented’ (O.3, r.5) allowing the respondent company an opportunity to satisfy itself that the petitions had proper foundation and to decide an appropriate response. Further, the need to state the true identity of the nominated liquidator (O.3, r.2), even if he were from the same firm of accountants, would also not be an ‘irrelevant formality’ because it would otherwise deprive creditors of the chance to oppose his appointment. Since the petitioner had not adequately explained its disregard for its obligations under the Winding Up Rules and as the underlying defect-that the petitions did not properly reflect its intentions with respect to the appointment of the liquidators-could not be remedied by retrospective extension of time, but only through directions for amendment which had not been sought, the appeals would be allowed and the winding-up orders set aside. The petitions would be stayed pending any application to the Grand Court to amend or strike them out (para. 41; para. 43; paras. 45–51; para. 53).

(2) The Companies Winding Up Rules 2008 did not themselves provide any power to relieve from the consequences of a failure to comply with their provisions and, further, recourse could not be made to the Grand Court Rules, which was prohibited by O.1, r.2(4); nor would r.7.55 of the English Insolvency Rules apply under s.18(2) of the Grand Court Law (2008 Revision), since s.174 of the Companies Law (2007 Revision) had superseded this by providing for the making of rules to govern the practice and procedure in Cayman winding-up proceedings. The Grand Court was therefore only entitled to invoke the inherent jurisdiction of the court to fill the lacuna of the absence of the power to deal with defects and irregularities in Cayman winding-up proceedings. However, the inherent power would have to be used consistently with the scheme for the winding up of companies as laid down in the Winding Up Rules (para. 18; paras. 27–28).

(3) Non-compliance with the Companies Winding Up Rules would not necessarily be treated as fundamental so as to render the proceedings a nullity. Although there would be situations where the court would be required to determine proceedings were a nullity (for instance, where proceedings were not served; if there was some fundamental defect in issuing them; or if the proceedings had failed to comply with a statutory requirement), when, as in the instant case, the omissions in the petition were not so fundamental as to be incurable, the court had a discretion to deal with the matter to ensure that justice was done (paras. 39–40).

1 CHADWICK, P., delivering the judgment of the court: These are appeals from winding-up orders made on November 13th, 2009 by Foster, Ag. J., sitting in the Financial Services Division of the Grand Court. The orders were made on the petitions of the respondent, ABN AMRO Bank N.V. London Branch (‘the petitioner’). In the context of these appeals...