The Companies Law (2012 Revision) (as Amended) Aramid Entertainment Fund Ltd
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Mr. Justice Angus Foster |
| Judgment Date | 28 August 2013 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 95 OF 2013 (AJEF) |
| Date | 28 August 2013 |
The Hon. Mr. Justice Angus Foster
In Chambers
This ruling concerns the liability, if any, in the particular circumstances, for costs on the withdrawal of a creditor's winding up petition. The company concerned contended that the petitioner should pay the company's costs of and incidental to the petition. The petitioner contended that there should be no order for costs so that the petitioner and the company would each bear their own costs or, alternatively, that a decision on liability for costs in respect of the withdrawn petition should await the outcome of certain litigation between the petitioner and the company in New York.
On 10th July 2013 KBC Investments V Limited (‘KBC’) presented a petition for the winding up of Aramid Entertainment Fund Limited (‘the Company’). The Company is an exempted company and carries on business as a mutual fund registered with the Cayman Islands Monetary Authority under the Mutual Funds Law (2009 Revision), The Company invests by providing principally short and medium term financing to producers and distributors of film, television and other entertainment media secured by various means over assets of the borrower. The Company is involved in several types of such financing one of which is known as ‘slate’ financing. This involves investment in the production by a selected film studio of a specified number of films over several years.
As at April 2011 Charles Frederic & Co LLC (‘CFC’), in its capacity as custodian for The Stillwater Market Neutral Fund 111 SPC on Behalf of Stillwater Matrix Segregated Portfolio (‘Stillwater’), was the registered owner of 88,730.4950 Class B redeemable shares in the Company (‘the Shares’).
On certain dates from 23rd May 2011 until 16th April 2012 a proportion of the shareholdings in the Company, including the Shares, were compulsorily redeemed by the Company. However, on 11th July 2011 the Company informed CFC by email that it would hold back all amounts due in respect of the compulsory redemption of the Shares until the ‘Wimbledon’ proceedings which the Company had initiated in New York were finally determined. For convenience I shall refer to those proceedings as ‘the Stillwater Proceedings’, which is how they were referred to during the hearings before me. The Stillwater Proceedings were initiated by the Company and two other related entities against Stillwater, CFC and others, but not KBC, on 25th July 2011 in the Supreme Court of the State of New York. I shall consider the Stillwater Proceedings later in this ruling.
The amount due by the Company in respect of the redemptions of the Shares is US$1,068,530.31 (‘the Distribution Proceeds’). Although the redemption proceeds due to all other shareholders involved in the redemption process were paid by the Company, payment of the Distribution Proceeds was and remains withheld by the Company.
In 2007 KBC had provided certain financing to Stillwater in security for which the Shares were pledged as collateral. As a result KBC was entitled to exercise certain rights over the Shares. During 2012 KBC foreclosed on the Shares and all of Stillwater's rights and interest in the Shares were transferred to KBC and the Shares became beneficially owned by KBC. CFC remained the registered owner of the Shares but thereafter as custodian for KBC.
On 8th February 2012 the trial judge of the Supreme Court of the State of New York dismissed all the claims made by the Company and the other plaintiff's in the Stillwater Proceedings. The Company and the other plaintiff's subsequently appealed to the Appellate Division of the New York Supreme Court against the order for dismissal of their claims
On 18th April 2013 the right to the Distribution Proceeds was expressly assigned by CFC to KBC. It was not disputed on behalf of the Company at the hearings before me that this was a valid assignment.
On 24th April 2013 KBC wrote to the Company giving notice of the assignment of 18th April 2013 and demanding payment of the Distribution Proceeds by 1st May 2013.
On 30th April 2013 the Appellate Division of the New York Supreme Court refused the appeal by the Company and the other plaintiff's in the Stillwater Proceedings and affirmed the dismissal of all the claims by the court at first instance.
On 3rd May 2013 a statutory demand dated 2nd May 213, pursuant to Section 93 of the Companies Law (2012 Revision) (‘the Law’), for payment of the Distribution Proceeds was served on the Company on behalf of KBC. Under the statutory demand payment of the Distribution Proceeds was due on or before 24th May 2013. KBC subsequently voluntarily extended the time for payment to 30th May 2013. No payment of the Distribution Proceeds was or has since been made.
On 30th May 2013 the Company and the other plaintiff's in the Stillwater Proceedings applied to the New York State Court of Appeals, which is the court of last resort in New York State, for reconsideration of the decision of the Appellate Division affirming the dismissal of the claims and in the alternative for leave to appeal against that decision. Those applications were heard by the New York State Court of Appeals on 7th June 2013 but as yet no decision has been issued.
On 10th July 2013 KBC's petition for the winding up of the Company based on the non-payment of the Distribution Proceeds pursuant to the statutory demand was filed and then served on the Company the same day. Later the same day, 10th July 2013, but after service of the petition, the Company filed electronically proceedings against KBC and certain related entities in the Supreme Court of the State of New York, (‘the KBC Proceedings’). In those proceedings the Company alleges claims against KBC and the other defendants which, if established, would exceed the amount of the Distribution Proceeds. I shall consider the KBC Proceedings as well later in this ruling.
It is not disputed that the KBC Proceedings have not yet been served on KBC itself, although there is a dispute in the affidavit evidence as to whether the proceedings have been validly served on the associated entities of KBC in New York which are also named as defendants.
The evidence on behalf of KBC is that it first became aware that the KBC Proceedings had been filed when a press release about the commencement of the proceedings was issued on 12th July 2013. The primary evidence of the Company in opposition to the petition (the affidavit of one of its directors, Mr. Roger Hanson) was served on KBC on 24th July 2013 and re-served in revised form on 30th July 2013. KBC says that Mr. Hanson's revised affidavit was the first time it became aware that the Company was seeking to rely on the KBC Proceedings to found a cross-claim and set-off against the Distribution Proceeds.
On 1st August 2013 KBC applied for leave to withdraw its petition in light of the Company's evidence served in response. KBC say that it accepted that it would be inappropriate to seek to have the Company's claim to set-off determined in winding up proceedings.
On 1st August 2013 I duly gave KBC leave to withdraw its petition pursuant to O. 3, r.7 of the Companies Winding Up Rules (2008) (as amended). The application was not opposed by the Company except costs which were clearly in dispute. That determination of costs was adjourned for hearing on a future date. The hearing ultimately took two full days, over a week apart.
Section 11 (1) of the Grand Court Law (2008 Revision) (‘the Grand Court Law’) provides inter alia:
‘The [Grand] Court…………………………………………shall possess and exercise ………… the like jurisdiction …… which is vested in or capable of being exercised in England by—
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(a) Her Majesty's High Court of Justice ………………………………………………… as constituted by the Supreme Court of Judicature (Consolidation) Act 1925, [‘the 1925 Act’] and any Act of the Parliament of the United Kingdom amending or replacing that Act’.
The 1925 Act was replaced by the Supreme Court Act 1981 [‘the 1981 Act’]. Section 51(1) of the 1981 Act provides:
‘Subject to the provisions of this or any other enactment and to rides of court, the costs of and incidental to all proceedings in–
(b) the High Court, and ………
Accordingly, by virtue of Section 11 (10) of the Grand Court Law, subject to any other Law and to rules of court, the costs of and incidental to all proceedings in the Grand Court are in the discretion of the Court.
Section 24 (1) of the Judicature Law (2007 Revision) is in virtually identical terms to Section 51(1) of the 1981 Act and provides:
‘Subject to the provisions of this or any other Law and to rules of court, the costs of and incidental to all civil proceedings in—
…………………………………………………………………………………………………
(b) The Grand Court,
…………………………………………
shall be in the discretion of the relevant court.’
It is therefore clear from the relevant legislation (and it is well-established), that, subject to the provisions of any relevant Law or rules of court, the costs of and incidental to any civil proceedings in this court are a matter for the court's discretion. In the English caseAiden Shipping Ltd v. Interbulk Ltd [1986] AC 965 the House of Lords held that the discretionary power to award costs contained in section 51 (1) of the 1981 Act (which is applicable to the Grand Court pursuant to the Grand Court Law and effectively replicated in the Judicature Law, as I have explained above) was expressed in wide terms and that therefore there was no justification for implying a limitation to the effect that costs could only be...
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