Re Parmalat Capital Fin Ltd
| Jurisdiction | Cayman Islands |
| Judge | (Sanderson, Ag. J.) |
| Judgment Date | 26 April 2006 |
| Court | Grand Court (Cayman Islands) |
| Date | 26 April 2006 |
(Sanderson, Ag. J.)
C. Carr, Q.C. and C.G. Quin, Q.C. for the applicants;
M. Crystal, Q.C. and Ms. S.M. Corbett for the respondents.
(1) BPTC Ltd., In re(1992), 7 ACSR 291; 10 ACLC 271, considered.
(2) DPR Futures, In re, [1989] 1 W.L.R. 778; [1989] 5 BCC 603; [1989] BCLC 634, considered.
(3) Deloitte & Touche A.G. v. Johnson, 1999 CILR 297; [1999] 1 W.L.R. 1605, applied.
(4) IACS Pty. Ltd. v. Australian Flower Export Pty. Ltd.(1993), 10 ACSR 769; 11 ACLC 618, followed.
(5) MMC Pty. Ltd., Re(1992), 6 ACSR 741; 10 ACLC 365, considered.
(6) North Brazilian Sugar Factories, In re, (1887), 37 Ch. D. 83; [1886–90] All E.R. Rep. 686, applied.
Companies Law (2004 Revision), s.108: The relevant terms of this section are set out at para. 14.
s.159: The relevant terms of this section are set out at para. 8.
Companies-compulsory winding up-examination of documents-creditors have standing under Companies Law (2004 Revision), s.159 or inherent jurisdiction to request production by liquidators of documents agreeing funding for related foreign proceedings-whether ‘just’ to allow inspection in discretion of court-unlikely if inspection not in interests of creditors generally or no economic benefit to liquidation, e.g. if merely for purpose of disrupting foreign proceedings
Companies-liquidators-funding of litigation-liquidators free to make agreements abroad to fund litigation for recovery of assets there which would be champertous under Cayman law, so long as not made or carried out here-agreement governed by laws of country in which made or carried out
The applicants applied for an order requiring the respondent liquidators to disclose an agreement made by them with a third party in the United States for the purpose of funding litigation there.
Dairy Holdings Ltd. and Food Holdings Ltd. (‘Food and Dairy’) were in liquidation, with the respondents appointed by the court as joint official liquidators (‘JOLs’). The first three applicants were creditors of Food and Dairy in an amount exceeding US$100m. The JOLs caused Food and Dairy to commence proceedings in New York against the applicants inter alia, for fraud, breach of fiduciary duty, unjust enrichment and negligent misrepresentation, seeking damages exceeding US$400m. This was the only significant asset remaining in the liquidation. In order to fund the claim, the JOLs obtained funding from a third party in the United States, but did not seek the approval of the Cayman courts to enter into the agreement. The respondents were to produce the agreement in the US proceedings and the applicants also sought its disclosure in the Cayman court.
They submitted that (a) as creditors in the liquidation of Food and Dairy they had a right, under s.159 of the Companies Law (2004 Revision), to
ask the court to order disclosure of documents relating to the company and its liquidation, including the funding agreement which they believed might not have been the most economic way of financing the litigation; furthermore, as the funding agreement also paid the JOLs” fees as part of the litigation costs, they had a conflict of interest in making the agreement and it should therefore be subject to the scrutiny of the court; (b) if the court did not believe they were interested in the funding purely as creditors, it should nevertheless order disclosure, as the law did not require that an application be for the general benefit of the liquidation, only that the court thought it was just; in this case it would be just because disclosure of the documents only in the US proceedings would not enable the applicants to use the document in proceedings related to the liquidation in the Cayman Islands; (c) it was in the interests of the court to see the documents to ensure that the agreement made by its officers was not champertous; and (d) it was possible that the funding agreement breached the terms of prior contracts between the applicants and Food and Dairy and disclosure should be ordered so that they could ensure that this was not the case.
The respondents submitted in reply that (a) applicants 4–7 were not creditors of Food and Dairy, and applicants 1–3 did not come to the court as creditors but as defendants in the US case, as their primary interest was seeking to put an end to the US proceedings rather than securing their interests as creditors; (b) even if the applicants had standing as creditors, the court should refuse to exercise its powers as the applicants were not the proper persons to invoke the jurisdiction of the court; (c) the agreement was not champertous under US law and whether it would have been champertous if made under Cayman law was irrelevant, and the US courts would be better placed to decide upon the validity of the agreement; and (d) the agreement was not contrary to prior contracts between Food and Dairy and the applicants and even if it were, the appropriate remedy would be to file a counterclaim in the US court rather than having the Cayman courts prevent them from continuing with the proceedings.
Held, denying the application:
(1) The court had jurisdiction under s.159 of the Companies Law (2004 Revision) to order disclosure of the funding agreement as the first three applicants were de facto creditors of the company within the meaning of that section, even though the purpose of their application was not to protect their interests as creditors. It also had jurisdiction to order the disclosure as part of its inherent jurisdiction, which was not removed because statutory provisions also provided for such orders to be made to specific applicants (i.e. creditors) in specific circumstances. The statutory and inherent jurisdictions of the court could co-exist, as the statutory regime did not eliminate or reduce the inherent jurisdiction of the court in this area (para. 9; paras. 15–16).
(2) However, whilst the court had jurisdiction to order the disclosure of
the funding agreement to these applicants, it did not believe that they were the proper persons to invoke that jurisdiction. The applicants” primary aim was to use the funding agreement to seek an order preventing the JOLs from pursuing the US proceedings, rather than to protect the interests of the creditors. As it was in the interests of the majority of the creditors that the US proceedings went ahead with the existing funding agreement, the applicants lacked sufficient interest to make a successful application because the court”s powers were to be exercised prima facie for the purposes of the winding up (paras. 13–14; para. 24; paras. 30–31).
(3) The issue of champerty was to be fully raised and argued in the New York proceedings and, as the funding agreement was made there and the money advanced there, that was the proper forum in which those proceedings should be heard. Whilst the court should be concerned about the conduct of the liquidators in their capacity as officers of the court, it was not as well placed to decide issues of New York law as the New York courts and, as the agreement was made and performed in New York, it was irrelevant that it might have been illegal if it had been made in the Cayman Islands (paras. 34–36).
(4) Similarly, the question of whether the funding agreement breached the provisions of the prior contracts between the parties was a matter for the US courts to decide, and therefore production of the documents in the Cayman courts was not necessary. This was especially so given that the appropriate remedy would be a counterclaim in the US proceedings rather than asking the Cayman courts to enjoin the liquidators from continuing with the claim (paras. 37–38).
1 SANDERSON, J.: These applications are brought for a judicial determination of whether the court should order the joint official liquidators (‘JOLs’) to disclose to the applicants (the Bank of America and certain of its affiliates) a funding agreement that the JOLs have made with a third party. That agreement provides, inter alia, for funding by the third party of the litigation expenses incurred by the JOLs in a claim against the Bank of America, its affiliates and others in the United States.
2 Dairy Holdings Ltd. and Food Holdings Ltd. (collectively called ‘Food and Dairy’) are in liquidation. This court has appointed James Cleaver and Gordon McRae as Food and Dairy”s joint official liquidators. They are also court-appointed joint provisional liquidators of Parmalat Capital Finance Ltd. The first three applicants all claim to be creditors of Food and Dairy in an amount exceeding US$100m. In addition, the Bank of America claims to be a creditor of Parmalat Capital Finance Ltd. in an amount exceeding US$116m. but the applicants do not seek any relief against the provisional liquidators because s.159 of the Companies Law (2004 Revision) does not refer to provisional liquidators. None of those claims have yet been admitted by the JOLs or provisional liquidators.
3 The JOLs have caused Food and Dairy to commence proceedings in New York State against all seven of the above-named applicants. I am told that claim alleges in part fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, unjust enrichment, conspiracy and negligent misrepresentation. Those claims exceed US$400m. Those proceedings are under case management by Judge Kaplan, a District Judge for the Southern District of New York. The time to file a defence and produce documents had not occurred as of the date of this hearing.
4 The JOLs say that the main, if not the only, significant asset remaining in the liquidation is the claim in the lawsuit against the applicants. The JOLs did not have sufficient funds to retain lawyers to conduct those proceedings. They entered into an agreement with an unknown third party...
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