The Companies Act (2023 Revision) and TYR Capital Partners SPC Ltd

• Jurisdiction: Cayman Islands
• Judge: Justice David Doyle
• Judgment Date: 21 June 2024
• Docket Number: CAUSE NO: FSD 370 OF 2023 (DDJ)
• Court: Grand Court (Cayman Islands)

In the Matter of the Companies Act (2023 Revision)

And in the Matter of TYR Capital Partners SPC Ltd

Before:

The Hon. Justice David Doyle

CAUSE NO: FSD 370 OF 2023 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Company law — Section 95(2) of the Companies Act (2023 Revision) — whether the Petitioner is contractually bound not to present a winding up petition against the Fund and if so whether the petition shoidd be dismissed-principles of the construction of contracts — necessity for clear and express language where rights and remedies are being abandoned — objective consideration of the natural and ordinary meaning of the words and the agreement as a whole in the relevant factual, corporate and documentary context

Appearances:

Quentin Cregan and Luke Armitage for Maples and Calder (Cayman) LLP on behalf of TYR Capital Partners SPC Ltd

Tom Smith KC, Chris Keefe and Chris Beck of Walkers (Cayman) LLP on behalf of TGT GP in its capacity as general partner of TGT LP

Introduction

1 Tyr Capital Partners SPC Ltd (the “Fund”) applies by way of summons dated 23 February 2024 (the “Summons”) for an order that the winding up petition (the “Petition”) presented by TGT GP in its capacity as general partner of TGT LP (the “Petitioner”) against the Fund:

“be struck out pursuant to section 95(2) of the Companies Act (2023 Revision) on the ground that the Petitioner is contractually bound not to present a winding up petition against the Fund.”

2 In this case, so far as is material, the Petitioner agreed that “it shall not, under any circumstances … institute against the Fund … any liquidation proceedings under any Cayman Islands law …”

Section 95(2)

3 Section 95(2) of the Companies Act (2023 Revision) provides:

“The Court shall dismiss a winding up petition or adjourn the hearing of a winding up petition on the ground that the petitioner is contractually bound not to present a petition against the company.” (“Section 95(2)”)

Rhone Holdings LP

4 At first instance in ( Rhone Holdings LP unreported judgment delivered with errata 29 September 2015) Mangatal J gave her reasons for making an order that a winding up petition be “struck out as an abuse of the process of the Court” (paragraph 13 and 14), on the basis that the petitioners were precluded from pursuing “winding up relief” by way of a “contractual agreement” (paragraph 16). Mangatal J felt that there was “no public policy principle” that clause 5.12 of the relevant agreement offended (paragraph 54):

“… I agree with Mr. Lowe, Q.C. that public policy could not override the clear statutory provision of s.s95(2).”

5 At paragraph 55 Mangatal J added:

“Further, I agree that s.s.95(2) is in mandatory terms, and that in the instant case and present circumstances there would be no proper basis upon which to adjourn the Petition. I am persuaded by Mr Lowe's submissions that the Court would only adjourn a petition presented by a party who is contractually bound not to present one, if there is some useful purpose to be served. For example, if there was a creditor with an interest in having the company wound up and who has not so contractually bound himself to present a petition, who could be substituted as the petitioner.”

6 Mangatal J at paragraph 56 stated:

“I disagree with Mr. Asif Q.C.'s submission that the Court has a discretion, because the Petition is presented on the just and equitable ground, to go on and hear the Petition and to make the orders set out at s.s.95(3). The section states quite clearly that the Court can only make those orders as an alternative to making a winding up order. This suggests to me that the Court would have to have the power to make a winding up order in the first place. In my judgment, the word “shall” in s.s.95(2) provides for a mandatory meaning. Once the Court finds that the Petitioner is contractually bound not to present a petition, then save for the type of circumstance such as the existence of an interested creditor who wishes to be substituted, then the Petition must be dismissed. It would otherwise be an exercise in futility to simply adjourn the Petition rather than striking it out.”

7 The Court of Appeal, in the context of any application for an extension of time to apply for leave to appeal, considered Section 95(2) in Rhone Holdings LP2016 (1) CILR 46 and 273. Rix JA dismissed an argument that Section 95(2) should “simply be ignored on the grounds that an agreement not to present a petition … is contrary to public policy.” Rix JA gave that argument short shrift:

“But that submission is an impossible submission where s.95(2) which applies generally, of course, to companies … makes it plain that such a contract or agreement not to present a petition against a company or an exempted limited partnership is not contrary to public policy but, on the contrary, represents the policy of law by express enactment because the express terms of s.95(2) give statutory strength to what would otherwise merely be a contractual agreement not to present a petition by stating that the court shall dismiss a petition or adjourn it when the parties have bound themselves contractually not to present such a petition. Such an agreement not to present a petition cannot possibly be contrary to public policy.” (paragraph 22 of judgment starting on page 46 and paragraph 25 of the judgment starting on page 273).

8 At paragraph 28 of the judgment starting on page 273 Rix LJ referred to the “underlying message” of Section 95(2) namely that “where parties have agreed not to present a petition, then you are not to be permitted to act in breach of that agreement and the court will uphold that agreement.”

9 In FamilyMart China Holding Company v Ting Chuan (Cayman Islands) Holding Corporation2020 (2) CILR 201 the Court of Appeal referred to Section 95(2) at paragraph 123 and to Rhone Holdings2016 (1) CILR 46 at paragraph 124 and Moses JA quoted paragraphs 22 and 23 of Rix JA's judgment and stated:

“It is established, and was not disputed, that an express agreement not to present a winding up petition is lawful and will trigger the mandatory stay or an adjournment under this section.”

10 As Don Henley sang in The End of Innocence “lawyers dwell on small details” and in passing, at the risk of being perceived by some as unduly pedantic, I note that Section 95(2) requires the court to “dismiss” a winding up petition or “adjourn” the hearing. It does not refer to a “mandatory stay”, or indeed a “strike out”. The “mandatory stay” does not arise from Section 95(2). In FamilyMart, as is clear from Lord Hodge's judgment, the “mandatory stay” arose from section 4 of the Foreign Arbitral Awards Enforcement Act (1997 Revision). The Fund in its Summons requested that the Petition be “struck out pursuant to” Section 95(2), although its skeleton argument at paragraph 1.1 requested an order that the Petition “be struck out or dismissed.”

11 In the subsequent appeal to the Judicial Committee of the Privy Council [2023] UKPC 33 Lord Hodge delivering the judgment stated:

“104. It will be recalled that section 95(2) states that the court shall dismiss or adjourn a hearing of a winding up petition if the petitioner is contractually bound not to present a petition against the company. In this case there is no contract binding FMCH not to present a winding up petition. The arbitration agreement in the SHA requires certain matters to be determined by arbitration but is silent as to the presentation of a winding up petition against the Company. The Board is satisfied that the contractual obligation on the parties to determine those matters by arbitration entails an obligation not to have those matters determined by a court. That obligation is enforced by the court's grant of a stay of the winding up petition pro tanto. It does not amount to a contractual prohibition against the initiation of winding up proceedings. Section 95(2) is therefore not relevant to the dispute between the parties and the Board will say no more about it.”

12 Having considered the law on Section 95(2) I now turn to the law on the construction of contracts.

The construction of contracts

13 Although I was not addressed upon it in any great detail, there was no dispute in respect of the general legal principles to be applied when construing a contract.

Main principles

14 The construction of a contractual provision involves identifying what the parties had meant through the eyes of a reasonable reader and, save in a very unusual case, that meaning was most obviously to be gleaned from the language of the provision. Although the less clear the relevant words were, the more the court could properly depart from their natural meaning, it was not to embark on an exercise of searching for drafting infelicities in order to facilitate a departure from the natural meaning. Commercial common sense was relevant only to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date on which the contract had been made. Moreover, since the purpose of contractual construction was to identify what the parties had agreed, not what the court thought that they should have agreed, it was not the function of a court to relieve a party from the consequences of imprudence or poor advice.

15 The court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”. It does so by focusing on the meaning of the relevant words, in their documentary, factual and commercial context. That meaning is to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the...