Ritchie Capital Management LLC et Al v Lancelot Investors Fund Ltd and General Electric Company

• Jurisdiction: Cayman Islands
• Judge: Parker, J.
• Judgment Date: 15 December 2020
• Court: Grand Court (Cayman Islands)

Ritchie Capital Management LLC et al.

and

Lancelot Investors Fund Limited and General Electric Company

(Parker, J.)

GRAND CT.

Civil Procedure — service of process — service out of jurisdiction — order granting permission to serve out of jurisdiction set aside as plaintiff had no realistic prospect of success as claims time-barred — plaintiff also estopped from bringing claims in Cayman Islands as judgment on same issues already given by foreign court

Held, setting aside the order granting leave to serve GE out of the jurisdiction:

(1) The court would make an order pursuant to GCR, O.12, r.8 that the order granting the plaintiffs leave to serve the writ on GE out of the jurisdiction be discharged (para. 298).

(2) Ritchie had obtained leave to serve GE as a foreign defendant out of the jurisdiction as a necessary and proper party to its claim against Lancelot which had been served in the jurisdiction. The test for service out of the jurisdiction on the basis that a party was a necessary and proper party to a claim was as follows. (a) Ritchie was required to show that the claims against Lancelot in the Cayman Islands involved a real issue to be tried; that it was reasonable for the Cayman court to try that issue; that GE was a necessary and proper party to the claims against Lancelot; that the claims against GE had a real prospect of success; and that the Cayman Islands was the appropriate forum in which to bring the combined claims against Lancelot and GE. (b) Ritchie had to show against Lancelot and GE that it had a realistic as opposed to a fanciful prospect of success. Whether there was a real issue to be tried was in substance equivalent to the test for summary judgment. A realistic claim was one that carried some degree of conviction, which meant that it was more than merely arguable. When determining such applications, the court formed only preliminary views on most of the relevant issues and could not be certain about which issues and what evidence would eventuate should the matter proceed to a trial. The judge hearing such applications should not conduct a mini trial and should avoid being drawn into an attempt to resolve conflicts of fact which were normally resolved by the trial process. However, where a short point of law or construction arose and the court was satisfied that it had before it all the evidence necessary for the proper determination of the question and the parties had an adequate opportunity to address it in argument, the court should decide the point. In the present case the court was in a position to decide the relevant issues (paras. 38–44).

(3) Ritchie's argument that the limitation period in relation to its claims against Lancelot had ceased to run on presentation of the winding-up petition in relation to Lancelot and the making of the winding-up order was rejected by the court for the following reasons. First, s.2(1) of the Limitation Law (1996 Revision) governed the position in relation to the bringing of an “action,” which was defined to include “any proceedings in a court of law.” Ritchie's claims were clearly “actions” founded in the torts of deceit and unlawful means conspiracy. They were therefore governed by the ordinary rules under s.3 of the Limitation Law, subject to potential extension under s.37. Neither the Limitation Law nor the Companies Law, or any other Cayman statute to which the court had been referred, provided for the suspension of the running of time for such actions on entry of a defendant company into liquidation. Secondly, the authorities did not support the proposition that the provisions of the Limitation Law should be disregarded in this situation. To accept Ritchie's submission would lead to the strange result that the collective enforcement procedure, which took effect pursuant to a winding-up order, changed the characteristics of the creditor's rights and the nature of the debts which could be enforced by way of action and would be contrary to principle. Lancelot's winding up did not affect the Limitation Law relating to the claims, whether they were commenced before, during or after the winding up procedure. Thirdly, it made no sense for the Limitation Law not to apply to actions brought by way of court proceedings simply because a defendant company had been wound up. To disapply it would be contrary to the policy behind the Limitation Law to commence actions within a reasonable time period for there to be certainty and finality. There was no basis for making an exception to the Limitation Law for the bringing of court actions against companies in liquidation (paras. 51–56; paras. 67–70).

(4) By s.4 of the Limitation Law (1996 Revision), Ritchie's claims against Lancelot (and GE) in conspiracy and deceit expired six years from the date when the cause of action accrued. The alleged fraud from which Ritchie lost money as a matter of fact dated back at least to 2003, but Ritchie did not enter into finance agreements with Lancelot until 2008, which was the year in which the cause of action in these proceedings would have arisen. The incidence of loss and damage was when the loans were made to the fraudulent companies. The primary limitation period therefore expired in 2014, five years before these proceedings were issued. The question therefore arose whether and to what extent Ritchie was able to rely on the extended limitation period prescribed by s.37 of the Limitation Law (paras. 72–73).

(5) In cases of fraud and deliberate concealment, s.37 extended the limitation period so that it did not start in circumstances where the plaintiff could show that knowledge of the facts necessary in order to plead the claim was not known or could not with reasonable diligence have been discovered. What was important was the discovery of facts which would complete the plaintiff's ability to plead the case. Another way of looking at this was to ask whether there were any facts without which the claim could not be pleaded (this was sometimes called “the statement of claim test”). Knowledge or discovery of facts that there was some unspecified deception or fraud in a general sense was not enough; what must have been discovered or discoverable by the plaintiff before the limitation period began to run was knowledge of the essential facts constituting the alleged fraud. Facts which improved the plaintiff's prospects of success or which went generally to the plaintiff's case were not sufficient. The critical facts necessary to plead a claim carried a narrow interpretation. Since the court was looking at the gist of the cause of action to see if and when the facts were known or with reasonable diligence could have been discovered to plead the cause of action, it was not necessary that the claimant did not know or could not have discovered each and every piece of evidence which it later chose to plead. In the present case, assuming on the evidence that the earliest date Ritchie could have considered a claim in fraud against Lancelot was 2009, Ritchie needed to show that there were further missing facts at least up until May 2013 which it did not know or could not with reasonable diligence have discovered, or which were concealed, which, if pleaded, would have been sufficient to constitute a valid claim and not be liable to be struck out for a want of some essential allegation. Once a plaintiff discovered sufficient facts to enable him properly to plead a claim in fraud which would survive a strike out application, he would have discovered the fraud. It would not matter if the claim at that stage was weak or could only be made good following disclosure. The test did not involve a consideration of the prospects of success (paras. 75–83).

(6) The court accepted Ritchie's submission that the pleading of fraud or deceit was a serious step and should not be based on speculation or guesswork. A fraud case, which classically relied on inferences, could not be properly pleaded without some solid foundation in evidence. In addition to the well-known pleadings principles, it must be sufficiently particularized for the defendant to understand the case it had to meet and to justify any necessary inferences as to the deceit and conspiracy alleged. The test under s.37 should be applied in a broad and common sense way. The court should ask itself, looking at the way the case was pleaded and the matters complained of in broad terms: when did the plaintiff have knowledge of the facts or could with reasonable diligence have discovered the facts on which the complaints were based? In relation to reasonable diligence, Ritchie was to be judged by the standard of how a person carrying on business of the relevant kind would have acted if he had adequate but not unlimited staff and resources and was motivated by a reasonable but not excessive sense of urgency. Ritchie would have to show that it could not with reasonable diligence have discovered the fraud without taking exceptional measures which it could not reasonably have been expected to take. Reasonable diligence was not an absolute standard and depended on all the circumstances. The particular position of the plaintiff at the relevant time could be taken into account. There was, however, an assumption that the plaintiff desired to discover whether or not there had been a fraud and desired to know more and to investigate (paras. 84–91).

(7) From 2009, Ritchie had enough information to be on notice to investigate but also had enough information to have discovered the fraud in relation to the critical security arrangements for their loans. It could be objectively seen from the proceedings commenced by Ritchie against Mr. Petters and his companies in Illinois in September 2008 that by then Ritchie not only knew that something had gone seriously wrong and that it had suffered substantial losses (US$223m.) but was sufficiently on notice to be investigating and bringing actions on the basis that the loss was caused by a particular fraud...