Tempo v Fortuna Dev

• Jurisdiction: Cayman Islands
• Judge: (Henderson, J.)
• Judgment Date: 24 February 2012
• Court: Grand Court (Cayman Islands)
• Date: 24 February 2012

Grand Court, Financial Services Division

(Henderson, J.)

TEMPO GROUP LIMITED

and

FORTUNA DEVELOPMENT CORPORATION

S. Phillips, Q.C., M. Imrie and J. Golaszewski for the plaintiff;

R. Hacker, Q.C., G. Halkerston and Ms. K. Brown for the defendant.

Cases cited:

(1) Bermuda Trust (Hong Kong) Ltd. v. Shum Yee Hing Tong Co. Ltd., [2000] HKCFI 556, considered.

(2) Doherty v. Jaymarke Devs. (Prospecthill) Ltd., 2001 S.L.T. (Sh. Ct.) 75, not followed.

(3) HSBC v. Administrator of Macau Catholic Mission, [1978] HKLR 300, considered.

(4) Leclerc Ltd. v. Pouliot, [1924] 1 D.L.R. 361, referred to.

(5) Potel v. Inland Rev. Commrs., [1971] 2 All E.R. 504; (1970), 46 T.C. 658; 31 T.R. 325, referred to.

Legislation construed:

Judicature Law (2007 Revision), s.34: The relevant terms of this section are set out at para. 10.

Companies-shares-dividend-interest-may be ordered on judgment debt in respect of unpaid dividends, notwithstanding article of association that ‘no dividend shall bear interest against the company’-by Judicature Law (2007 Revision), s.34(1), court may award interest on any debt for which gives judgment-properly construed, article only surrenders right to interest up to date action for payment of dividend commenced

Companies-shares-dividend-if clear intention of directors that part of dividend should extinguish liability for earlier dividend, court may give effect to that intention notwithstanding imprecise language-preferable to address separate payments in two resolutions

The plaintiff, Tempo, brought various contractual claims against the defendant, Fortuna, in respect of unpaid dividends.

Tempo was a 30% shareholder in Fortuna (‘the company’). It commenced an action for payment of US$9m., plus pre-judgment interest, in respect of several dividends declared by the company”s shareholders in 2002–2003, including a dividend of US$10m., declared in 2003 (‘the disputed dividend’). The disputed dividend was to be paid at an appropriate date, to be set by the Chairman, Mr. Ting; however, Mr. Ting died without setting a date and in 2004, his successor, Mr. Tsien, advised the shareholders that the 2003 dividend would not be paid. Tempo petitioned for the company to be wound up and its dividend claim lay dormant pending the determination of the petition.

In 2008, the directors passed a resolution declaring that, whilst it had not incurred any liability as a result of the shareholders” 2003 resolution-the company”s articles providing that the power to declare and pay dividends was reserved to the directors-it was now appropriate to pay a dividend of US$30m., which would, in part, give effect to its terms. The 2008 resolution stated that the US$30m. dividend was to satisfy any liability to pay the disputed dividend which might, contrary to the directors” understanding, exist. The 2008 dividend was paid to Tempo.

In 2011, the winding-up petition was dismissed and the company applied to strike out Tempo”s dividend claim on the ground of, inter alia, delay. The Grand Court (Henderson, J.) dismissed that application (in proceedings reported at 2011 (2) CILR 252) and, in respect of the dividends which were no longer in dispute, Fortuna consented to a judgment against it for US$6m. Tempo applied for an award of pre-judgment interest on the judgment sum and Fortuna applied for summary judgment dismissing Tempo”s remaining claim to a share of the disputed dividend.

Tempo submitted that (i) the court should award interest on the US$6m. judgment sum pursuant to s.34(1) of the Judicature Law (2007 Revision); and (ii) whilst the directors” intention in respect of the 2008 US$30m. dividend may have been to pay the disputed US$10m. dividend and simultaneously declare and pay a new US$20m. dividend, the language chosen for their resolution did not achieve that-properly construed, the 2008 resolution amounted to a declaration of a new US$30m. dividend which became due and owing in addition to the disputed dividend. Fortuna submitted in reply that (i) whilst the court had a discretion under s.34(1) to award interest, it should exercise it so as to give effect to the shareholders” agreement, evidenced by the company”s articles, art. 34.7 of which contained the usual provision that no dividend should bear interest against the company; and (ii) if there were a debt created by the 2003 resolution (which it did not concede), that debt had been satisfied by the 2008 payment.

Held, allowing the applications:

(1) The court would order simple interest, at the prescribed rates, on the judgment sum of US$6m. from the date the action was commenced to the date of judgment. The court had a discretionary jurisdiction pursuant to s.34(1) to award interest on any debt for which it gave judgment and, in determining whether or not to exercise that discretion, the shareholders” agreement was an important consideration. Although there was often a significant lapse of time between the declaration of a dividend and its payment, the declaration usually created an immediate debt. Against this background, art. 34.7 should be construed as an agreement to surrender the right to interest on dividend debts up to...