Re Basis Yield Alpha Master Fund

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 17 March 2008
• Court: Grand Court (Cayman Islands)
• Date: 17 March 2008

Grand Court

(Smellie, C.J.)

IN THE MATTER OF BASIS YIELD ALPHA FUND (MASTER)

Ms. S.M. Corbett and M.C. Holligon for the applicants;

J.R. McDonough and J.G. Manning for the respondents.

Cases cited:

(1) Bank of Credit & Commerce Intl. (Overseas), In re, Grand Ct., Cause 284 of 1991, December 7th, 2002, unreported, applied.

(2) Bank of Credit & Commerce Intl. S.A., Re, [1994] 3 All E.R. 764; [1993] BCC 787; (1993), 90 (42) L.S. Gaz. 42, considered.

(3) Bonotto v. Boccaletti, 2001 CILR 292, considered.

(4) Castle New Homes Ltd., In re, [1979] 1 W.L.R. 1075; [1979] 2 All E.R. 775; (1979), 123 Sol. Jo. 568, referred to.

(5) Cloverbay Ltd. v. Bank of Credit & Commerce Intl. S.A., [1991] Ch. 90; [1990] 3 W.L.R. 574; [1991] 1 All E.R. 894; [1991] BCLC 135, followed.

(6) D, In re, 1984–85 CILR 296, considered.

(7) Galileo Group Ltd., In re, [1999] Ch. 100; [1998] 2 W.L.R. 364; [1998] 1 All E.R. 545; [1998] 1 BCLC 318; [1998] BCC 228, referred to.

(8) Hurlstone Constr. Ltd., In re, 1999 CILR 5, referred to.

(9) International Power Indies N.V., Re, [1985] BCLC 128, applied.

(10) Kilderkin Invs. v. Player, 1984–85 CILR 63, followed.

(11) McCallister v. Tortuga Club (No. 2), 1984–85 CILR 441, referred to.

(12) Ontario Superior Court”s Request, In re, 2006 CILR 460, applied.

(13) Stutts v. Premier Benefit Capital Trust, 1992–93 CILR 605, referred to.

(14) Wheeler v. Wheeler, 1997 CILR 362, referred to.

Legislation construed:

Companies Law (2007 Revision), s.127(1):

‘The Court may, after it has made an order for winding up the company, summon before it any officer of the company or person known or suspected to have in his possession any of the estate or effects of the company, or supposed to be indebted to the company, or any person whom the Court may think capable of giving information concerning the trade, dealings, estate or effects of the company; and the Court may require any such officer or person to produce any books, papers, deeds, writings or other documents in his custody or power relating to the company.’

s.128: ‘The Court may examine upon oath, either orally or upon written interrogations, any person appearing or brought before it in manner aforesaid concerning the affairs, dealings, estate or effects of the

company, and may reduce into writing the answers of every such person, and require him to subscribe the same.’

Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order 1978 (S.I. 1978/1890), Schedule 1, s.1:

‘Where an application is made to the Grand Court for an order for evidence to be obtained in the Cayman Islands, and the court is satisfied-

(a) that the application is made in pursuance of a request issued by or on behalf of a court or tribunal (“the requesting court”) exercising jurisdiction in a country or territory outside the Cayman Islands; and

(b) that the evidence to which the application relates is to be obtained for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated,

the Grand Court shall have the powers conferred on it by the following provisions of this Act.’

Companies-liquidators-powers and duties-right to examine witnesses under Companies Law (2007 Revision), ss. 127–128 not intended to give liquidators right to pre-emptive interrogation of person against whom action contemplated-court to balance effective performance of liquidators” duties against potential oppression of third parties-may refuse to include request for compulsive orders under ss. 127–128 in letters of request

Evidence-assistance from foreign court-inherent jurisdiction of Grand Court-inherent jurisdiction to assist performance of liquidators” duties by issuing letters of request seeking assistance from foreign court in examining witnesses under Companies Law (2007 Revision), ss. 127–128-reciprocity between jurisdictions not required

The applicants sought the issue of letters of request asking certain foreign courts to make compulsive orders in their favour.

In earlier proceedings, the applicants, in their capacity as provisional liquidators of the company Basis Yield Alpha Fund (‘Basis Yield’), applied for the issue of letters of request to the courts of Australia and England and Wales, seeking orders from those courts granting them recognition as provisional liquidators and giving them the statutory authority afforded to such liquidators within those countries. The Australian letters of request also sought an order compelling the production of certain information and witnesses by other companies, namely Morgan Stanley International plc. (‘MSI’) and Morgan Stanley Australia Ltd. (‘MSAL’), in relation to notices of default issued by MSAL, contrary to a previous agreement between it and Basis Yield, while the letters of request sent to England and Wales sought orders which would ensure the recovery and protection of certain assets of Basis Yield by the applicants.

All the orders requested were in the process of being issued. The Australian order was then stayed, however, on the application of MSAL, which applied to the Australian court to issue letters requesting that the Grand Court set aside its original letters of request, and inviting it to set aside any orders which it had been requested to grant by those original letters. Before any action in respect to that application could take place, however, Basis Yield was placed into official liquidation and an order was

made for its winding up, which established the applicants as joint official liquidators. Their status as liquidators having changed, the applicants re-applied to the court, seeking new letters of request to be sent to Australia and England and Wales, asking for the re-issue of the orders made by those courts pursuant to the original letters.

The applicants submitted that (a) fresh letters had to be issued in the light of their new status as joint official liquidators; and (b) the court had the power to do this under the Companies Law (2007 Revision), ss. 127–128, and under its inherent jurisdiction.

The respondents, MSAL, submitted in reply that (a) the Cayman court did not have the power to issue letters of request to foreign courts in aid of recognition or enforcement of the powers of liquidators appointed by it as no statutory or other prescribed power to this effect existed; (b) the foreign orders sought by the applicants were oppressive and unfair to them and would give the applicants a pre-emptive advantage in regard to the dispute surrounding the notices of default; and (c) reciprocity had to exist before a letter of request was sent to a foreign court; i.e. the court from which the request originated had to be able to perform a similar request made to it and that was not possible here.

Held, allowing the application in part:

(1) New letters of request would be sent to the courts of Australia and England and Wales seeking the recognition of the applicants as official liquidators and the granting to them of certain powers. The Evidence (Proceedings in other Jurisdictions) (Cayman Islands) Order 1978 was inapplicable as it related solely to requests made by foreign courts and the ability of the court to obtain evidence from within the Cayman Islands in aid of current or contemplated proceedings before those courts, and no such requests or proceedings existed here. The court was not empowered to issue letters of request by any other specific statutory provision or prescribed power but could do so under its inherent jurisdiction, as a superior court of record. It had a ‘reserve’ of powers that could be called upon when necessary and ensuring that official liquidators could perform their duties fell within the ambit of those powers (para. 30; paras. 51–52; para. 79).

(2) Sections 127–128 of the Companies Law (2007 Revision) were never intended to provide liquidators with a strategic advantage over persons against whom they might seek to litigate or arbitrate about disputed claims, by requesting the making of compulsive orders which would be tantamount to ordering compulsory early discovery of information. However, in appropriate cases letters might be issued which invoked powers to allow the liquidators the advantage of pre-emptive interrogation of a person against whom the liquidator might be contemplating litigation; a fair balance had to be struck, however, between the objectives and requirements of the liquidators, and any possible oppression a pre-emptive interrogation order might cause. In this particular case, to seek orders compelling MSAL to disclose information and to provide witnesses here

would be oppressive and unfair and so the court would issue letters of request which only sought the making of non-compulsive orders (paras. 73–74; paras. 78–79).

(3) It was not necessary for reciprocity to exist between the Grand Court and the court to which a letter of request was to be sent, and the court therefore did not have to decide whether or not it could itself assist a foreign request of this nature (para. 63).

1 SMELLIE, C.J.: In this application the joint official liquidators of the company (‘the JOLs’) ask this court to issue letters of request to the Supreme Court of New South Wales and to the High Court of England and Wales.

2 Earlier letters of request were issued by Levers, J. of this court to those courts and granted by them. Each request sought orders of the Australian and English courts respectively granting recognition to the appointment of the JOLs in their earlier capacities as provisional liquidators and thus providing them with the statutory authority afforded to provisional liquidators in those countries arising from recognition by their courts.

3 In the case of the order of recognition of the Australian court, that letter of request also made clear that the purpose of seeking recognition included obtaining the powers of a provisional...