Re AJW Master Fund II

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Forte and Mottley, JJ.A.)
• Judgment Date: 15 August 2011
• Date: 15 August 2011
• Court: Court of Appeal (Cayman Islands)

Court of Appeal

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

IN THE MATTER OF AJW MASTER FUND II LIMITED

AJW OFFSHORE II LIMITED

and

AJW MASTER FUND II LIMITED

G. Halkerston and Ms. J. Collett for the applicants.

Cases cited:

(1) SCT Fin. Ltd. v. Bolton, [2003] 3 All E.R. 434; [2002] EWCA Civ 56, applied.

(2) Straker v. Tudor Rose, [2007] C.P. Rep. 32; [2008] 2 Costs L.R. 205; [2007] EWCA Civ 368, applied.

Companies-liquidators-remuneration-punitive cap on costs only justified if (a) liquidators could have proceeded in alternative way; (b) unreasonable not to pursue alternative; and (c) alternative would have resulted in costs not exceeding cap-not appropriate to determine what ‘reasonable’ with benefit of hindsight or speculation about what might have happened

A master fund and its offshore feeder fund were in official liquidation in the Grand Court.

The master fund and the offshore feeder fund were component companies of a typical and solvent master/feeder structure. An investor in the offshore feeder fund presented a winding-up petition in respect of the offshore feeder fund on the just and equitable ground. Subsequently, the funds” managers put the master fund into voluntary liquidation, and appointed KPMG as liquidator. KPMG presented a supervision petition in respect of the master fund. The Grand Court (Quin, J.) made an ex parte supervision order appointing KPMG as liquidator. At the hearing of the winding-up petition, the Grand Court (Henderson, J.) ordered the winding up of the offshore feeder fund, and appointed PwC as official liquidator.

PwC subsequently applied to remove KPMG as liquidator of the master fund. The Grand Court (Jones, J.) granted the removal application (in proceedings reported at 2011 (1) CILR 363) and appointed the applicants as liquidators of the master fund. The applicants were awarded their costs out of the assets of the master fund on an indemnity basis as an expense of the liquidation, subject to a cap of US$25,000. The judgment indicated that it would have been preferable for the application to have been presented as a hearing of a restored supervision petition.

The applicants appealed against the US$25,000 cap on their costs, submitting that (a) the cap had the effect of shifting the burden of the costs which they incurred as successful applicants (to the extent that they exceeded US$25,000) from the master fund to the offshore fund, and was therefore punitive in nature; (b) the judge needed to have good reason to justify such an approach; (c) the judge had not identified any good reason

to impose such a cap; (d) in particular, their opting to proceed as they did could not be said to have been unreasonable; and (e) it would not have been possible or desirable for them to have pursued a restored supervision petition.

Held, allowing the appeal:

The court would remove the US$25,000 cap on the applicants” costs. The cap had the effect of shifting the burden of the costs which they incurred as successful applicants (to the extent that they exceeded US$25,000) from the master fund to the offshore fund, and was therefore punitive in nature. In order to have justified this approach, the judge would have needed to conclude that (a) there was an alternative way for the applicants to seek the removal and replacement of their predecessors; (b) it was unreasonable for them not to have pursued that alternative; and (c) had the alternative been pursued, the costs would not have exceeded the amount of the cap. The judge stated that restoration of the supervision petition was an alternative way to proceed, but it was not clear why it was unreasonable of the applicants not to pursue that option. The finding that it would have been easier to do so was only reached ‘with the benefit of hindsight.’ The judgment contained no analysis of the factors that the applicants should have had in mind when deciding how to proceed, and no finding that they had acted contrary to advice. Further, it was not certain what would have happened had the restored petition been heard by a different judge-and it was dangerous and undesirable for a judge to speculate as to what might have happened had a different course been taken. It had therefore not been established that the liquidators had acted unreasonably, or that pursuing a restored supervision petition would have been cheaper. The court would therefore remove the cap, without the need to consider whether it was even open to the liquidators to pursue a restored supervision petition (paras. 15–24).

1 CHADWICK, P.: By his order made on May 30th, 2011, on an application brought in the liquidation of AJW Master Fund II Ltd. (‘the master fund’) by the liquidators of AJW Offshore II Ltd. (‘the offshore fund’), Jones, J. directed that the costs of the applicants be paid out of the assets of the master fund, but should be assessed in an amount...