The Companies Law (2012 Revision) and DD Growth Premium 2X Fund (in Official Liquidation) (‘the Company’)
| Jurisdiction | Cayman Islands |
| Judge | THE HON. ANTHONY SMELLIE, CHIEF JUSTICE |
| Judgment Date | 23 October 2013 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 0050 OF 2009 (ASCJ) |
| Date | 23 October 2013 |
THE HON. ANTHONY SMELLIE, CHIEF JUSTICE
IN OPEN COURT
The JOLs applied for the court's sanction of two arrangements into which they proposed to enter:
-
(i) A funding amendment agreement (‘the F.A.A.’) which amends a Funding Agreement between the Company and UBI Banca S.C.P.A., the Lender;
-
(ii) a conditional fee agreement for the continued retention of Appleby in respect of the conduct of litigation of ‘a claw back’ claim brought against a redeemed shareholder of the Funds, continuing under cause number FSD 33 of 2011 (ASCJ) (‘the Appleby CFA’).
On 27th June 2013 I sanctioned the entering into both arrangements pursuant to section 110 of the Companies Law (2012 Revision) (‘the Law’). These are the reasons for so doing.
I need say no more as to the reasons for sanctioning the F.A.A. other than that it is clearly in the interests of the Company and its investors that the F.A.A. be entered into. This is the determination of the JOLs themselves in the exercise of their commercial judgment, a judgment that the Court will usually support unless there are good reasons for not doing so.
The real question for the Court in respect of sanction of the F.A.A. and in respect of sanction of the Appleby CFA, is whether the interests of the creditors of the Company in liquidation are likely to be best served by permitting the Company to enter into the proposed compromise or not:seeRe Greenhaven Motors Ltd. (In Liquidation) [1999] 1 BCLC 3651.
There are however, the further public policy concerns that arise in respect of sanctioning the Appleby CFA because of its nature as a conditional fee arrangement. I therefore examined the reasons for the Appleby CFA and considered its compliance with the public policy concerns.
The circumstances which gave rise to the need both for the F.A.A. and the Appleby CFA appear from the following summary provided by Mr. Walton.
Following the initial appointment of Goronwy James Cleaver and Richard Fogerty as provisional liquidators of the Company on 20 March 2009, they were appointed official liquidators and the Order was made for the winding up of the Company on 29 May 2009. The terms of the Order included the ability of the Liquidators to appoint attorneys, solicitors, counsel and other professional advisers both in the Cayman Islands and elsewhere. The firm of Orrick and David Marks QC were appointed in England and the firm of Appleby in Cayman.
It soon became apparent to the Liquidators that there was no cash on hand but that the Company had potential claims against its former Investment Manager and against redeemed shareholders of the Company who were substantially overpaid by reason of the massively over-inflated NAV calculations. The Liquidators brought the need for funding to the attention of the creditors and shareholders and indicated that without funding there would be little likelihood of any recoveries for creditors or shareholders. Proposals were considered resulting in the Original Funding Agreement which set up a regime for the investigation and funding of claims considered to be meritorious and which provided that the Lender shall receive from any litigation recoveries in accordance with an agreed ‘payment waterfall’:
-
(i) repayment of the Funding together with accrued interest and all other amounts paid to it from the litigation recoveries as a liquidation expense.;
-
(ii) the accrued interest at Margin (3%) plus LIBOR; and
-
(iii) an amount equal to 28% of the litigation recoveries after repayment of the Petition costs (the ‘Lender's Profit Element’).
The Original Funding Agreement was accordingly agreed and was sanctioned by this Court on 18 December 2009.
Following a period of investigation, the Lender elected to provide further funding pursuant to the terms of the Original Funding Agreement by way of a Further Funding Notice dated 8 June 2010. In the Further Funding Notice, the Lender indicated that it wished to fund claims against a number of parties, including in relation to redemptions paid to RMF Market Neutral Strategies (Master) Limited (‘RMF’). The Lender also entered in a conditional fee arrangement with Orrick andDavid Marks QC with a fee conditional on success and a success fee to be paid out of the Lender's Profit Element (the ‘Orrick CFA’).
In a sequence of summonses RMF applied to the Court in both Causes FSD 50 of 2009 (ASCJ) and FSD 33 OF 2011 (ASCJ) to restrain the Liquidators from bringing an action against it. The Liquidators concurrently applied for sanction to issue proceedings in England and Wales.
The result was that, on 26 April 2011, this Court sanctioned the issue of proceedings in the Grand Court of the Cayman Islands. At the same time, a Consent Order was Filed staying Cause FSD 33 of 2011 (ASCJ).
In January 2012 the principal legal advisors to the Liquidators left Orrick to join Dewey & LeBoeuf LLP (‘Dewey’), It was agreed that the Original Funding Agreement and the Orrick CFA should remain in force but apply to Dewey instead of Orrick. In April 2012, RMF sought to recommence the action in Cause FSD 33 of 2011 (ASCJ) and it was ordered by consent that the action be continued with certain amendments. This action is on-going and is currently the main focus of the Liquidators” recovery strategy.
Unfortunately, Dewey went bankrupt in the United States and into administration in the United Kingdom and is no longer a viable legal adviser. Under the circumstances, the Liquidators decided to continue without English solicitors, but with Appleby and David Marks QC alone. David Marks QC has now retired from practice. Appleby is not operating under any conditional fee agreement. The Lender is unwilling to provide further cash funding and accordingly the Liquidators have negotiated the Appleby CFA.
A condition of the Appleby CFA is the payment of US$293,000 of Appleby's outstanding fees out of the remaining funding from the Lender. In order to permit this, the Lender and the Fund need to enter into the F.A.A.
The terms of the Appleby CFA and the F.A.A. are agreed between all the parties to the agreements and by three out of four members of the Liquidation Committee (the fourth having asked for more time to consider the documents). The Liquidators therefore propose to sign the documents in substantially the forms exhibited, subject to the Court sanction.
InQuayum and others v Hexagon Trust Company (Cayman Islands) Limited2, I undertook an analysis of the appropriateness of conditional fees, including a conditional uplift fee arrangement, in this jurisdiction. I concluded that it would not fall foul of the law against maintenance and champerty or run contrary to the modern public policy behind the application of that law to the lawyer/client relationship.
Practice Direction No. 1/2001 issued pursuant to Grand Court Rules Order 62 (‘GCR Order 62’) (‘the Guidelines’) came into force in January 2002 and contained guidelines relating to the taxation of costs. The Guidelines apply to the taxation of the costs of Liquidators” Lawyers since CWR Order 25 rule 3 provides that these shall be governed by and conducted in accordance with GCR Order 62.
Following the introduction of the Guidelines, there was uncertainty as to whether the Guidelines or the guidance issued inQuayum applied. In Bennett v Attorney General3, Justice Henderson sought to reconcile the two and interpreted the Practice Direction to mean that the Section 7.2 makes the hourly rate basis the only permissible manner of taxation but ‘it does not prohibit uplifts which are themselves calculated on the hourly-rate basis’.
The Cayman Islands Court of Appeal criticised this decision inLatova Barrett v Attorney General of the Cayman Islands4 but the President, Sir John Chadwick recognised that:
(at paragraph 55) ‘…the issue in [Quayum] was whether the fees payable under a conditional uplift fee agreement could be recovered in the context of a salvage claim against trust assets. The relevant question was whether the client was liable to pay his lawyer; not whether the client could recover from an unsuccessful opponent. ‘
And at paragraph 66:
‘Given the conclusion which we have reached as to the effect of paragraph 7.2 of the Guidelines, the question which was the subject of decision in Quayum does not arise in the present appeal. Whether or not conditional fee agreements are enforceable as between the lawyer and his client, the amounts (if any) to be paid by the conditional fee client to his lawyer under such an agreement are not recoverable from the client's opponent in the litigation. In those circumstances, as it seems to me, anything we may say as to the decision of the Chief Justice on that question must be considered obiter dicta…. ‘
Accordingly, notwithstanding the decision inLatoya Barrett v The AG, it is submitted that I should accept that Quayum is still applicable law in a situation as between a lawyer and his client. In the prevailing absence of legislation to address the public policy implications of conditional fee arrangements (and in the absence even of a public proposal for legislative reform) I consider that I am obliged to apply the case law as it presently stands. Paragraph 5.2 of the Appleby CFA explicitly states that ‘the Client confirms having been advised by Appleby that, under current Cayman Islands law, the success fee is not recoverable from RMF’. That explicit recognition of the decision in Barrett v The Attorney General as it applied paragraph 7.2 of the Guidelines, determines that the question now before me then becomes only whether it is...
To continue reading
Request your trial