Re Waterford Ins Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Collett and Rowe, JJ.A.)
• Judgment Date: 01 August 2003
• Court: Court of Appeal (Cayman Islands)
• Date: 01 August 2003

Court of Appeal

(Zacca, P., Collett and Rowe, JJ.A.)

IN THE MATTERS OF WATERFORD INSURANCE LIMITED, LIBERTY CAPITAL LIMITED, INTEGRITY LIMITED and SUN HOLDINGS LIMITED

A.J. Jones, Q.C., G. Moss, Q.C., G.A. Locke and Ms. S.E. Dobbyn for the liquidators.

Cases cited:

(1) Cleaver v. Delta American Reinsurance Co., 2001 CILR 34, referred to.

(2) English, Scottish & Australian Chartered Bank, In re, [1893] 3 Ch. 385, dicta of Lindley, L.J. applied.

(3) Independent Ins. Co. Ltd. (No. 2), Re, [2003] 1 BCLC 640, dicta of Ferris J. considered.

(4) Johnson, In re, 1996 CILR N–3, applied.

(5) Mirror Group Newspapers PLC v. Maxwell (No. 2), [1998] 1 BCLC 638; [1998] BCC 324, dicta of Ferris J. applied.

(6) Potters Oils Ltd. (No. 2), Re, [1986] 1 W.L.R. 201; [1986] 1 All E.R. 890; (1985), 130 Sol. Jo. 166, dicta of Hoffmann J. applied.

(7) Tait Intl. Ltd., In re, 2002 CILR N[4], dicta of Kellock J. considered.

Legislation construed:

Companies Law (2002 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 2002), s.107(2): The relevant terms of this sub-section are set out at para. 8.

Grand Court Rules, 1995 (Revised), O.102, r.17: The relevant terms of this rule are set out at para. 5.

Insolvency Rules 1986 (S.I. 1986/1925), r.4.127–4.131: The relevant terms of these paragraphs are set out at para. 9.

r.4.30: The relevant terms of this paragraph are set out at para. 10.

Companies-liquidators-remuneration-approval of fees governed by Insolvency Rules 1986-fees to be approved initially by creditors” committee but dispute between creditors and liquidators may be referred to court for resolution-court not to set fees for liquidators at first instance because has appellate function

Companies-liquidators-remuneration-to determine reasonableness of fees in dispute, court to consider Insolvency Rules, r.4.127(4) and expert evidence of market rates for liquidation prevailing in Cayman Islands-court to assume free market in liquidation work if no evidence to contrary

Companies-liquidators-remuneration-if fees approved by creditors” committee, liquidators need not apply to court for approval-if do so pursuant to Companies Law, s.107(2), must file affidavit from committee confirming its approval

The liquidators of the appellant companies sought the approval of the Grand Court for their fee scales.

The liquidators of the first appellant requested the court”s advance approval of their hourly rates for work in three of the liquidations,

ranging from US$95 for an administrative assistant to US$450 for a partner. The liquidators of the other two appellants sought approval of ‘their customary rates, such fees and expenses to be approved by the court.’ In relation to the fourth liquidation, their customary rates were slightly higher than those in respect of the first appellant.

The Grand Court had previously expressed concern over the level of fees charged by liquidators and the lack of evidence submitted to justify those fees. It took the opportunity in hearing the present applications to lay down guidelines for the approval of liquidators” fees, holding that, given the conditions in the Cayman Islands, creditors” committees were not in a position to approve the fees charged by liquidators without such guidance. The court also considered that it was inappropriate to rely on market forces in the Cayman Islands to ensure that fees charged were reasonable. Liquidators were obliged to obtain the court”s approval of fees charged in every case and, moreover, would have to fund the cost of such applications themselves unless unsuccessfully opposed by the creditors. The Grand Court also ruled, inter alia, that administrative tasks performed by non-professionals should not be charged for separately, as they should be included in the liquidators” fees. The proceedings in the Grand Court are reported at 2002 CILR 606.

On appeal, the liquidators submitted that (a) the fixing of their remuneration was governed by the Insolvency Rules 1986, under which it was inappropriate for the court to set fees in the first instance; (b) the guideline fee rates which the court had established were not in accordance with the Insolvency Rules, nor based on sufficient evidence, and should not be followed; (c) when deciding on what basis to approve fees, creditors should in fact consider the factors listed in the Insolvency Rules, r.4.127(4), rather than follow the Grand Court”s guidelines; (d) furthermore, when determining whether fees were reasonable in the event of a dispute between creditors and liquidators, the court must consider market rates and base its decision on the available evidence; (e) it was unnecessary for liquidators to apply to the court for approval if the fees had already been approved by the creditors” committee; (f) moreover, when applying to the court for approval, liquidators should be able to recover their costs from the estate assets; and (g) work done by non-professional staff assisting in the liquidation could be charged separately.

Held, allowing the appeals:

(1) The procedure for fixing the remuneration of liquidators was governed by the Insolvency Rules 1986, which were applicable in the Cayman Islands by virtue of the Grand Court Rules, O.102, r.17. The Insolvency Rules provided that fees charged should initially be approved by creditors” committees. In the event of a dispute between the creditors and the liquidators, either party might apply to the court for a determination of the reasonableness of the fees. It was inappropriate therefore for the Grand Court to set fees in the first instance, as this conflicted with its appellate function under the Rules (para. 11; para. 23).

(2) The Grand Court erred in ruling that the practice under the Insolvency Rules, by which creditors” committees were able to approve fees independently, was inappropriate in the Cayman Islands. There was no evidence to support its conclusion that creditors in the Cayman Islands were not in a position to approve fees without guidance from the court, and, on the contrary, the Islands had experienced and world-renowned accountants. The procedure provided in the Insolvency Rules therefore applied and creditors” committees were entitled to approve fees. When considering whether to do so, the committees were to apply the criteria listed in the Insolvency Rules, r.4.127(4), rather than the Grand Court”s guidelines, which were not to be followed (para. 24; para. 29).

(3) On an application to the Grand Court to determine the reasonableness of the fees charged, in the event of a dispute between the liquidators and creditors, the court was to consider the criteria in r.4.127(4), as well as the market rates for such work prevailing in the Cayman Islands. The Grand Court had erred in holding that the conditions in the Islands made it inappropriate to assume that the liquidators were operating in a free market-since there was no proof that a free market in liquidation work did not exist-and it was obliged to consider expert evidence of market rates and base its decision on the available evidence rather than on personal knowledge (para. 15; para. 17; para. 26).

(4) When the fees charged were approved by a creditors” committee, the liquidators were not obliged to seek additional approval from the court. Nevertheless, if they wished to do so, they were entitled to apply to the court under the Companies Law, s.107(2) and should then file an affidavit from the creditors” committee confirming its approval of the fees (para. 28; para. 30).

(5) The Grand Court had wrongly decided that in future, when applying to the court for approval of their fees, liquidators should be denied recovery of their costs from the assets of the liquidation estate. There was no reason why, if the court considered it to be an appropriate case, liquidators should not be awarded their costs. Moreover, the Insolvency Rules, r.4.130(1) and (4) provided that in an application resulting from a dispute over remuneration, the liquidators” costs were to be paid out of the assets (para. 26).

(6) The Grand Court also erred in ruling that separate fees were not to be charged for administrative work carried out by non-professionals involved in the liquidation. The Insolvency Rules, r.4.127(2)(b) provided for the remuneration of both liquidators and their staff and separate charges were therefore acceptable (para. 25).

1 ZACCA, P., delivering the judgment of the court: These are appeals against a ruling of the Grand Court sitting en banc. The ruling was a result of petitions for winding-up orders and for orders approving the liquidators” fees. In Causes No. 579, 580 and 581/2002 which are now Appeals...