Raiffeisen International Bank Ag v Scully Royalty Ltd, Ltc Pharma (Int) Ltd, Merkanti Holding Plc (Formerly Mfc Holding Ltd) and 1178936 B.C. Ltd

JurisdictionCayman Islands
Judge(Parker, J.)
Judgment Date07 July 2020
CourtGrand Court (Cayman Islands)

(Parker, J.)

Grand Court, Financial Services Division (Cayman Islands)

Injunctions — freezing order — fraudulent dispositions — bank established good arguable case that transfers of guarantor company’s assets at undervalue to other companies in group were fraudulent dispositions pursuant to Fraudulent Dispositions Law (1996 Revision) — also good arguable case on unlawful means conspiracy

Held, ruling as follows:

(1) The test for a good arguable case in the context of freezing injunctions had recently been held in the English courts to be a not particularly onerous one. It was said that the central concept at the heart of the test was a plausible evidential basis. The court should look at who had the better argument. It was not always necessary for the court to resolve every point in issue between the parties at an interim stage where it needed to move with due speed and without hearing oral evidence and without the benefit of discovery. A plausible case was not one where the claimant had to show it had much the better argument, as long as it could show it had the better case. There needed to be a good arguable case that there was a real risk that judgment would go unsatisfied by reason of the disposal of assets unless there was a restraint imposed by the court from disposing of them, and that it would be just and convenient in all the circumstances to grant the freezing order (para. 33).

(2) In respect of the Fraudulent Dispositions Law claim on the mine transfer, it was submitted by the represented defendants that the court should not look beyond the transfer by D2 to M Financial Corp. pursuant to which C$41m. was paid as consideration. However, no good reason had been advanced as to why the court should so limit its enquiry. The court should look at all the transfers as a whole. Even if one looked at the transfer in a more limited way, no consideration was paid to D2, nor had any proper explanation been given as to why no benefit was derived from the transfer of the asset and interests which it once held. It followed that there was a plausible evidential basis for the Fraudulent Dispositions Law claim in respect of the transaction being at an undervalue and the motivation for the claim which it was to be inferred was to defeat a claim against D2, and the value related to it. There was a strong connection to the Cayman Islands. D5 was a Cayman Islands company and the agreement which underpinned the transfer had a Cayman Islands law and jurisdiction clause. In respect of the submission that any order following trial would be futile as it would not be followed by overseas courts, RBI was seeking an order in personam against D1–D7 and there was no evidence that such an order would not be followed in any particular relevant jurisdiction (paras. 82–86).

(3) In respect of the conspiracy claim on the mine transfer, RBI had the burden of satisfying the court that the claim against D1 raised a serious issue to be tried/good arguable case on the merits; the amended claim against D4 raised a serious issue to be tried/good arguable case on the merits; D4 was a necessary or proper party to the claims against D1; joinder of D4 would confer a real advantage on RBI; and the Cayman Islands were clearly or distinctly the appropriate forum for trial of the dispute. There was a plausible evidential basis for the conspiracy claim on the mine transfer. There were connections to Canada but they were not determinative. It was submitted that D4 did not exist at the time of the first transfer and so could not have been party to the conspiracy or the damage caused when the shares were transferred from D2. However, a party could join a conspiracy at alater stage, even if the conduct had started earlier, once it had been incorporated. D6, D4, D1 and D2 were all involved in the arrangement to transfer the mine’s assets from D6 to D4. There was a good arguable case that D4 was a party to the conspiracy to cause loss and assisted by putting assets beyond the reach of RBI. The submission that the rule against reflective loss barred the tort claim in its entirety was not sound. The principle did not apply to the grant of relief other than damages, and where, as in this case, the damages sought were payable to D2 rather than RBI, it was also inapplicable. Damages in any event would not be an adequate remedy for RBI’s loss if they could not be recovered by reason of the application of the rule against reflective loss. It could not be said that D4 was not a necessary or proper party and that the joinder of D4 did not confer a real advantage. If there was a trial concerning transfers to D4, then D4 should be a party to it so that it could participate. There was a serious issue to be tried against D4 as the transferee of the successor in title of the mining interests. There was a clear juridical advantage in having all alleged conspirators at the same trial (paras. 89–94).

(4) There was a good arguable case for the Fraudulent Dispositions Law and conspiracy claim regarding the dividend. There was a plausible evidential basis that the purpose of the dividend was to defraud creditors of D2. The nature of the transfer was unnecessarily complex and convoluted. It was not revealed and the surrounding documentation was not made clear to third parties, regulators or the courts. In all the circumstances, it was to be inferred that the dividend was part of the unlawful scheme to assist D2 to avoid its contractual obligations to RBI (para. 100).

(5) As to whether there was a good arguable case on the transfer concerning the merchant bank under the Fraudulent Dispositions Law or conspiracy, RBI had the better of the argument on this and that the transfer was at an undervalue. It was telling that no evidence was adduced by the represented defendants of the terms of any intercompany debt which was relied upon. The court accepted that at the time there was a good arguable case that D2 was insolvent (paras. 104–105).

(6) The court accepted RBI’s submissions that (a) there was at least a good arguable case that the transfers were made with the express purpose of D2 avoiding its obligations to its creditors. They were carried out without notice to RBI or other creditors, and were made for no value or at an undervalue. (b) The effect of this was that D2 had been left without any substantial assets save for shares worth less than US$1m. (c) As a matter of Austrian law, there had been arguable breaches of the terms of the guarantee in a number of respects. (d) There was a plausible evidential basis for the case set out in the statement of claim and that representations were made by D2 to RBI that all of the shares and interest in the mine would remain held by D2 notwithstanding the plan of arrangement. (e) The represented defendants’ evidence in relation to these representations was contradictory and weak, consisting of denials that there were any rep-resentations and assertions that RBI had misunderstood or misconstrued any representations. (f) The plan of arrangement made no mention of the proposed transfers. (g) The evidence showed evasive conduct and a lack of candour on the part of the MFC Group following the plan of arrangement leading up to mid-2018 when relations broke down. (h) The represented defendants had not explained how and on what terms, including as to any consideration, shares were transferred from D6 to D4, nor what debt, if any, was set off as the consideration for the transfer concerning the merchant bank. (i) The MFC group’s accounts were opaque and there were breaches of accounting standards. This amounted to more than a plausible evidential basis for RBI’s case (paras. 106–107).

(7) In respect of the claim under the Fraudulent Dispositions Law, it was not in dispute that each of the transfers of D2’s assets to D1 or wholly owned subsidiaries of D1 were relevant dispositions under the Law. A dividend could also be set aside under this provision. It was not in dispute that the dispositions were made by a transferor which either directly or indirectly held the assets of D2 or which were held by a direct subsidiary of D2. It was not in dispute that there were a number of transferees immediately or by way of successor in title. The contention that there was a good arguable case that each disposition was at an undervalue was contested (save for the dividend, which was disputed for other reasons). The contention that there was a good arguable case that each disposition was made with an intent to defraud on the part of the transferor was also contested. Under English law, to establish a claim under s.423 of the Insolvency Act 1986 to set aside a transaction made at an undervalue (as a fraud on creditors) a creditor needed to show that it was a purpose of the transferor to defeat its creditors, it need not show that it was the dominant or sole purpose. The court might be presented with a number of purposes which motivated transfers which in itself would not preclude the conclusion that a transfer was made wilfully to achieve the purpose of defeating creditors. The court should look closely at each of the transfers to see if the test was satisfied in each case, assuming there was evidence to show that the transfer would have been made in any event or was made for a different and legitimate purpose. RBI had to show that there was a good arguable case that a creditor was thereby prejudiced. A creditor was a person to whom obligations were owed which included both present and contingent liabilities. The court construed s.6 of the Law as giving it a discretion to satisfy the obligation to a creditor which took account of the commercial reality that D2 was placed into. It followed that RBI had a good arguable case that the dispositions up to the maximum value of D2’s creditors’ claims...

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