Re Cairnwood Global Technology Fund Ltd

• Jurisdiction: Cayman Islands
• Judge: (Foster, Ag. J.)
• Judgment Date: 17 May 2007
• Court: Grand Court (Cayman Islands)
• Date: 17 May 2007

Grand Court

(Foster, Ag. J.)

IN THE MATTER OF CAIRNWOOD GLOBAL TECHNOLOGY FUND LIMITED (in voluntary liquidation)

M.W. Imrie and B.D. Mays for the plaintiff;

Ms. C. Wilkins for the first defendant;

C.G. Russell for the second to sixth, eighth and ninth defendants;

A. Akiwumi for the seventh defendant.

Cases cited:

(1) Abidin Daver, The, [1984] A.C. 398; [1984] 1 All E.R. 470; [1984] 1 Lloyd”s Rep. 339; (1984), 128 Sol. Jo. 99, referred to.

(2) Brasil Telecom S.A. v. Opportunity Fund, Grand Ct., December 13th, 2006, unreported, referred to.

(3) Connelly v. South Pointe Capital Corp., 1998 CILR 243, referred to.

(4) Harrods (Buenos Aires) Ltd., In re, [1992] Ch. 72; [1991] 4 All E.R. 334, referred to.

(5) Hutchinson Ltd. v. Cititrust (Cayman) Ltd., 1998 CILR 43, referred to.

(6) I.G. Servs. Ltd. v. Deloitte & Touche (C.I.) Ltd., 2003 CILR N[2], referred to.

(7) Insurco Intl. Ltd. v. Gowan Co., 1992–93 CILR 445; on appeal, 1994–95 CILR 210, referred to.

(8) KTH Capital Management Ltd. v. China One Fin. Ltd., 2004–05 CILR 213, followed.

(9) Konkola Copper Mines Plc v. Coromin Ltd., [2006] 1 All E.R. (Comm.) 437; [2006] 1 CLC 1; [2006] 1 Lloyd”s Rep. 410; [2007] Lloyd”s Rep. I.R. 247; [2006] I.L. Pr. 46; (2006), 103 (6) L.S. Gaz. 34; [2006] EWCA Civ. 5, referred to.

(10) Lubbe v. Cape Plc, [2000] 4 All E.R. 268; [2000] 2 Lloyd”s Rep. 383, referred to.

(11) Reichhold Norway ASA v. Goldman Sachs Intl., [2000] 1 W.L.R. 173; [2000] All E.R. (Comm.) 40, referred to.

(12) Seales & Co. v. Freytag, 1990–91 CILR N–6, followed.

(13) Spiliada Maritime Corp. v. Cansulex Ltd., The Spiliada, [1987] A.C. 460; [1986] 3 All E.R. 843; [1987] 1 Lloyd”s Rep. 1, applied.

(14) Telesystem Intl. Wireless Inc. v. CVC/Opportunity Equity Partners L.P., 2002 CILR N[21], followed.

Legislation construed:

Grand Court Rules 1995, O.11, r.1: The relevant terms of this rule are set out at para. 27.

O.11, r.4(2): The relevant terms of this sub-rule are set out at para. 30.

Conflict of Laws-jurisdiction-forum conveniens-Cayman Islands appropriate forum, prima facie, for action to determine duties of directors of Cayman company, especially if brought by liquidators to recover company”s assets-not sufficient to shift balance that directors non-resident and business conducted outside jurisdiction-foreign jurisdiction not more appropriate if cause of action unrelated

The plaintiff brought an action against the defendants for breach of trust and breaches of various contractual and fiduciary duties.

The plaintiff was a Cayman company whose apparent purpose was to invest in technology-related businesses on behalf of investors. The first seven defendants were directors or officers of the plaintiff and the eighth and ninth defendants were American companies (controlled by five of the other defendants) that were, respectively, the promoter/sponsor and manager of the plaintiff.

Amana I S.A., a Luxembourg company and the plaintiff”s largest investor, became concerned about the lack of financial information provided to it and procured the removal of six of the defendants as directors and/or officers of the plaintiff. Amana began proceedings in the United States (‘the Georgia proceedings’) against six of the defendants for the return of its investment, alleging that they had fraudulently induced it, by their misrepresentations, to invest in the plaintiff in order to use the funds for their own purposes. Shortly thereafter, the plaintiff was put into voluntary liquidation.

The plaintiff”s liquidators brought the present proceedings seeking compensation, inter alia, for payments of US$13.8m. in total (‘the transactions’) they alleged the defendants had made to themselves or to companies in which they had an interest, in breach of their duties to the plaintiff. The plaintiff was granted leave ex parte to serve proceedings out of the jurisdiction on the nine defendants at their various locations in Singapore, France and the United States. The defendants applied to have the order set aside on the ground that Georgia was the more appropriate forum for the trial of the action or, alternatively, for a stay of the action.

The plaintiff submitted that (a) the courts here were best placed to determine the duties of directors of Cayman companies, as reflected in public policy and in the Grand Court Rules, O.11, r.1(1)(ff), and

furthermore, its claims included the breach by its manager (the ninth defendant) of an agreement expressly governed by Cayman law; (b) although some of the facts in the proceedings were the same, the causes of action and objectives were quite different and the Georgia court had already ruled that the plaintiff”s claim here was unrelated to Amana”s action in Georgia; (c) a proposed undertaking by the defendants to be bound by the decision of the Georgia court was not sufficient to protect the plaintiff, as three of them were not party to the proceedings, of whom two were resident in France and not subject to the court”s jurisdiction; (d) the court should disregard the defendants” recent application to join the plaintiff as a party in Georgia (in a claim for indemnity), since it ought only to consider the circumstances at the time of the hearing, and the question of indemnity was also one of Cayman law; (e) there was no real risk of double recovery, but if there were, both courts could easily deal with the issue; (f) that Amana”s initial action in Georgia included breaches of fiduciary duty was not an acknowledgment that it was a more appropriate forum for such claims; and (g) the plaintiff”s claim here had been brought in good faith by its liquidators, who had an obligation under Cayman law to recover its assets in the interests of its shareholders and creditors.

The defendants submitted in reply that (a) none of them was resident in the Cayman Islands and although the plaintiff was incorporated here, its principal place of business was Georgia; (b) there was a substantial overlap of the allegations and of the relevant facts, since most of the transactions had already been the subject of extensive discovery in Georgia, and therefore continuing proceedings here would result in duplication of time, cost and court resources and a risk of inconsistent decisions; (c) six of the nine defendants here were now party to the Georgia proceedings and all of them would undertake to submit to the Georgia court”s jurisdiction; (d) the plaintiff would, in any event, become a party to the Georgia proceedings as a result of the defendants” claims for indemnity; (e) there was a significant risk of double recovery since the plaintiff would pass on any damages to its investors, of which Amana was the principal one; (f) that Amana”s original claim in Georgia included breaches of fiduciary duty indicated that it recognized Georgia as the appropriate forum for such claims; and (g) alternatively, the proceedings should be stayed permanently, or until the conclusion of the Georgia proceedings or for a specific period.

Held, dismissing the application:

(1) The defendants” application to set aside the order granting leave to serve proceedings out of the jurisdiction would be refused. The court had to distinguish between those cases in which the defendant had been served as of right within the jurisdiction, when the burden of proof was on him, and cases such as the present, in which the court exercised its discretion to allow proceedings to be served out of the jurisdiction and it was for the plaintiff to satisfy the court that this was clearly the

appropriate forum for the trial of the action, in the interests of justice and of all the parties. The plaintiff had satisfied the court that the Cayman Islands were, in all the circumstances, the appropriate forum for the determination of its claims, notwithstanding the arguments put forward by the defendants that Georgia was more appropriate (paras. 24–25; para. 37; para. 58).

(2) Moreover, it was particularly desirable that the duties of directors of Cayman companies be determined by the courts here, given the status of the Cayman Islands as an international financial centre. This was well established as a matter of public policy and law and therefore this court was prima facie the appropriate forum for the trial of the plaintiff”s action. That the defendants were neither resident nor conducted business in the Islands was not sufficient to shift the balance in their favour. In addition, the plaintiff”s agreement with its manager was expressly governed by Cayman law and its claim for breach of trust might not, in this context, be familiar to the Georgia court (paras. 34–36).

(3) The court had also considered the following significant factors. The causes of action and objectives in the Georgia proceedings were quite different and furthermore, the Georgia court had already held that the two actions were unrelated. While there might be similarities in the factual background, it would not be unduly onerous for the defendants to provide evidence here of the disputed transactions. The court could not assume that the defendants” recent application to join the plaintiff in the Georgia proceedings would be successful and, in any event, the question of their entitlement to indemnity under the plaintiff”s memorandum of association was a matter of Cayman law. Any risk of double recovery could easily be taken into account and there was no significant risk of inconsistent judgments, given the differences in the causes of action and relief sought. The proposed undertaking by the defendants was not, however, adequate to prevent them from taking advantage of any technical defences available in the Georgia proceedings. A further significant factor was that the plaintiff”s liquidators had brought the claim in good faith to fulfil their obligation, under Cayman law, to recover the plaintiff”s assets for the benefit of its creditors (para. 44; paras. 46–51; para. 55; para. 57)...