Scully Royalty Ltd and Mfc 2017 Ii Ltd v Raiffeisen Bank International Ltd

• Jurisdiction: Cayman Islands
• Judge: (Morrison, Moses and Birt, JJ.A.)
• Judgment Date: 30 December 2021
• Court: Court of Appeal (Cayman Islands)

SCULLY ROYALTY LIMITED and MFC 2017 II LIMITED

and

RAIFFEISEN BANK INTERNATIONAL LIMITED

(Morrison, Moses and Birt, JJ.A.)

Court of Appeal (Cayman Islands)

Injunctions — freezing order — dissipation of assets — bank established good arguable case that transfers of guarantor company’s assets at undervalue to other companies in group were fraudulent dispositions — real risk of future dissipation of assets without freezing order

Injunctions — freezing order — maximum sum — freezing orders should be capped unless exceptional reasons for not doing so

Held, allowing the appeal in part:

(1) The court had discretion pursuant to r.17(2) of the Court of Appeal Rules to receive additional evidence on appeal. The previous approach of the court that, where evidence was relevant and there would be no prejudice to the other party, leave was likely to be granted for further evidence on an interlocutory matter, was no longer appropriate. The court should seek to give effect to the overriding objective in the Grand Court Rules. A party must put its best foot forward before the Grand Court and produce all the relevant evidence upon which it sought to rely in support of its case. A hearing before the Grand Court was not a dry run for an appeal, with a party seeking on appeal to cure any deficiencies in the material produced before the Grand Court. When considering how to exercise the discretion conferred by r.17(2), the court would consider: whether the evidence could with reasonable diligence have been obtained for use at the trial; whether the evidence was such that, if given, it would probably have had an important influence on the result of the case (although it need not be decisive); and whether the evidence was apparently credible, though it need not be incontrovertible. In the present case, the appellants had given no reason why the material in the two affidavits could not have been adduced before the judge. It was clearly available for use at that time because it related to events which occurred and were known to the deponent prior to the hearing. It was simply a case of the appellants wishing to put forward their case in a rather better form than it was presented before the judge and seeking to remedy deficiencies in that evidence which were identified by the judge. That was not an acceptable reason for wishing to adduce further evidence and, had the matter rested there, the application would have been rejected. However, the court had concluded that the judge had erred in certain respects and that the court must exercise its own discretion on the merits of the appeal. Given that (i) the court would be exercising its own discretion rather than simply reviewing that of the judge; (ii) the fact that, because of the way in which the appellants had presented the appeal, it would be difficult if not impossible to extract from their submissions those parts that were referable to the original evidence and those parts that were referable to the further evidence; and (iii) that no real prejudice would be suffered by RBI as it had been aware of the further evidence and responded by means of its own further affidavit, the best course in these unusual circumstances was to allow the further evidence so that the court could exercise its discretion having regard to all the material currently before it (paras. 32–46).

(2) It was well established that in order to grant a freezing order the court must be satisfied that (i) the applicant for the order had a good arguable case on the merits of his claim; (ii) there was a real risk that any judgment would go unsatisfied by reason of the dissipation of his assets by the defendant unless he was restrained by the court from disposing of them; and (iii) it would be just and convenient in all the circumstances to grant the freezing order. “A good arguable case” was a case which was more than barely capable of serious argument yet need not be one which the judge believed to have a better than 50 per cent chance of success. The court must take into account any evidence and submissions put forward by a defendant in an attempt to show that there was not a good arguable case. However, the court was not to conduct a form of mini-trial and try to resolve conflicts of evidence or make findings of fact (paras. 47–52).

(3) As to the court’s approach on appeal, it was well established that a decision whether to grant an interlocutory order such as a freezing order was a discretionary decision for the first instance judge and an appellate court could only interfere on limited grounds. It was not sufficient that the members of the appellate court would have exercised their discretion differently. A court would only interfere with a finding as to whether a good arguable case existed where it was plain that the judge was wrong. A demonstrable failure by the judge to consider relevant evidence that was before him was one of the matters which might entitle an appellate court to set aside the judge’s exercise of discretion and re-exercise the discretion itself. A key piece of evidence much relied upon by the appellants before the judge was the evidence of their forensic accounting expert. This was particularly relevant to the question of whether there was a good arguable case. Despite numerous references to the evidence of RBI’s expert, there was no reference in the judgment to the evidence from the appellants’ expert. That raised a real possibility that the judge failed to consider the evidence of the appellants’ expert. The court would therefore reconsider the matter and exercise its own judgment rather than simply reviewing the reasonableness of the judge’s conclusion (paras. 53–57).

(4) RBI had a good arguable case that, when undertaking the transactions, the appellants and D2 had the necessary intention to defeat D2’s obligations under the guarantee. (i) When the guarantee was given in January 2017, D2 as guarantor was the top company in the group and indirectly owned all the group’s assets. Its unconsolidated accounts as at December 31st, 2016 showed net assets of some $380.8m. Yet, following the transactions, D2 was sold for $2. As the appellants stated that this was an arm’s length transaction, the purchase price must be taken to reflect D2’s value at that time. Thus, all its value had been stripped out and transferred to the new MFC Group under D1. (ii) Most significantly, this was all done without MFC informing RBI of what was occurring despite the fact that, throughout the relevant period, there were ongoing discussions in relation to the possible restructuring of the indebtedness of the Austrian Sub-Group. On the face of it, it would have been the naturalcourse for MFC to tell RBI what it was doing and enquire of RBI whether it wished to have a guarantee from the new holding company (D1) in place of D2. At no stage was such a replacement offered. (iii) Furthermore, it was very arguable that some of MFC’s statements went beyond mere silence and constituted misrepresentations as to whether matters had changed from what they were in the first part of 2017. It was also arguable that D2’s failure to inform RBI of what was occurring put it in breach of certain disclosure obligations in the guarantee. (iv) The fact that all the significant assets were stripped out of D2 without RBI being informed that its guarantor was being denuded of its assets raised a reasonable inference that it was done to defeat RBI’s potential claim under the guarantee. (v) The appellants had now provided an explanation for the redomiciliation of D2 but not why RBI was not told of the redomiciliation. (vi) More significantly, despite the new affidavits, there was still no very satisfactory explanation as to why the assets were stripped out of D2 after the redomiciliation. There was no satisfactory explanation as to why RBI was not told of the disposals and of the sale of D2 out of MFC. (vii) The court accepted that there was evidence to show a good working relationship between MFC and RBI prior to these events, that MFC was regarded as having been open and transparent by RBI and that it had made substantial reductions in the Austrian Sub-Group’s indebtedness in 2016 and the first part of 2017. There was also evidence to show that both RBI and MFC had a strong incentive to reach an agreement on the restructuring of the Austrian Sub-Group debt and that they were negotiating to achieve this. (viii) The appellants’ key point was that, against this background, the appellants did not consider that there was any realistic possibility of the guarantee being called upon at the time the transactions were undertaken. Given their strong belief that there was no realistic possibility of the guarantee being called upon, it could not be the case that the appellants’ and D2’s intention in undertaking the transactions was to defeat D2’s obligations under the guarantee. It did not make sense for the appellants and D2 to go to the time, trouble and expense of stripping D2 of its assets in order to defeat any claim under the guarantee when they did not think there was any likelihood of the guarantee being called. (ix) These were all matters which could be explored in depth at trial and it was certainly not inconceivable that the appellants would be successful at trial. However, the court had to deal with the matter on the material presently available. The points put forward by the appellants were not sufficient to rebut the case put forward by RBI. (x) The court accepted that MFC offered security over industrial land in Germany as part of the in principle agreement of October 2017 at a time when such land was no longer in the ultimate ownership of D2, as it was owned by a company which had been distributed out as part of the dividend. The appellants submitted that such action was wholly inconsistent with an intention to defeat RBI’s claim under the guarantee. This would be a matter for exploration at trial. The point made was insufficient to...