The Companies Law (2013 Revision) and the Sphinx Group of Companies (in Official Liquidation) as Consolidated by Order of the Grand Court Dated 6 June 2007

• Jurisdiction: Cayman Islands
• Judge: Hon. Anthony Smellie
• Judgment Date: 20 January 2017
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO. FSD: 16 of 2009 (ASCJ)
• Date: 20 January 2017

In the Matter of the Companies Law (2013 Revision)

And in the Matter of the Sphinx Group of Companies (in Official Liquidation) as Consolidated by Order of the Grand Court Dated 6 June 2007.

Before

THE HON. CHIEF JUSTICE

CAUSE NO. FSD: 16 of 2009 (ASCJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Principle of “open justice” — applicability to sanction applications in the context of liquidation proceedings — circumstances under which confidential information filed in support of sanction applications will be sealed by the court.

APPEARANCES:

Caroline Moran of Maples and Calder for the Scheme Supervisors.

Cherry Bridges of Ritch and Conolly for the Liquidator (by agreement not appearing).

REASONS FOR JUDGMENT

1 This is the adjourned application (“the Sanction Application”) of the Scheme Supervisors of the SPhinX Group of Companies (in official liquidation) (“SPhinX”) by their Summons dated 2 June 2016 seeking the following orders:

• 1.1 an order pursuant to clause 15.2.1(iii) of the Scheme 1 authorising the Scheme Supervisors to complete a confidential settlement agreement (“Settlement Agreement”) with a local law firm (“the Firm”); and

• 1.2 an order that the Fifth Affidavit of Kris Beighton (one of the Scheme Supervisors) sworn in support of the Summons (“Fifth Affidavit”) 2 be sealed and kept confidential on the Court file (“Sealing Application”).

2 The Settlement Agreement is (pursuant to clauses 2 and 5) conditional upon a sealing order being made and contains provisions requiring the parties to keep the terms of the Settlement Agreement confidential.

3 At the first hearing of the Summons on 6 July 2016, I indicated that while I was satisfied with the commercial terms of the Settlement Agreement, I was not prepared to make a sealing order at that time. I did not consider that counsel for the Scheme Supervisors had sufficiently addressed the legal principles relating to sealing orders in light of the fundamental principle that justice should be done in public.

4 The Summons was therefore adjourned to allow the Scheme Supervisors an opportunity to ask the Firm to waive the requirement for a sealing order and/or to prepare more detailed submissions concerning the principles applicable to the Sealing Application.

5 The Firm confirmed as explained to me by letter from Ms. Moran of 19 ^th July 2016, that it will not waive the requirement for a sealing order. Accordingly, she also explained that if I am not minded to grant a sealing order, the Settlement Agreement could not proceed.

6 On behalf of the Scheme Supervisors, Ms. Moran also conveyed by her letter of 19 ^th July 2016 her full written submissions on behalf of the Scheme Supervisors as to the applicable legal principles, requesting that I sanction the Settlement Agreement and make the sealing order. Having had the benefit of her detailed and full submissions, I am satisfied that the sanction of the Court should be granted and that the sealing order should be made.

Open justice and limitations to the principle

7 Open justice is a fundamental principle of the common law and is enshrined in section 7 of the Constitution 3 as follows:

(1) Everyone has the right to a fair and public hearing in the determination of his or her legal rights and obligations by an independent and impartial court within a reasonable time.

(9) All proceedings instituted in any court for the determination of the existence or extent of any civil right or obligation, including announcements of the decision of the court, shall be held in public”.

8 Sanction applications differ from typical partisan litigation (in respect of which section 7 of the Constitution will be engaged) in an important respect to be noted in this context. This is that sanction applications do not engage section 7 of the Constitution because they do not require the Court to determine rights and obligations of the parties in adversarial legal proceedings. Rather, they require the Court to consider what is in the best interests of the estate and whether the decision of the liquidators for which sanction is sought, is one which the liquidators have taken reasonably in the circumstances. 4

9 Given that the principle of open justice is however one of common law, it does not depend exclusively on section 7 of the Constitution being engaged. 5 Rather, the principle requires that in general, the public should have access to court proceedings and access to information about what occurs in such proceedings. 6

10 This is the right to freedom of information about all aspects of the democratic process that enables members of the public to exercise the right to freedom of expression and participation in good governance. Furthermore, section 11 of the Constitution 7 enshrines the principle of open justice more generally in that all persons should be free to “receive…information without interference”. The right to receive information would therefore apply to all Court proceedings, even those where the rights and obligations of adverse parties are not being determined. The principle of open justice would ordinarily therefore apply to all Court proceedings, including such as the present for sanction of liquidators' decisions and whether partisan or otherwise.

11 It is recognized however, that the principle of open justice is not unlimited. Rather, open justice forms part of the overriding principle that justice must be done. As such, at common law, the general rule as to publicity must yield to this overriding principle and limitations can be placed upon the access to information by the public.

12 But these limitations are not left to the individual discretion of the judge based simply on what is convenient or desirable in the circumstances. Limitations can only be placed on the principle where the interests of justice so require. The Court is therefore required to balance the general rule as to publicity, against any requirements

for confidentiality or privacy in the interests of justice that may arise in a particular case. In Scott v Scott 8 Viscount Haldane LC stated as follows:

“If there is any exception to the broad principle which requires the administration of justice to take place in open court, that exception must be based on the application of some other and overriding principle which defines the field of exception and does not leave its limits to the individual discretion of the judge…

….the exceptions [to the principle of open justice] are themselves the outcome of a yet more fundamental principle that the chief object of Courts of Justice must be to secure that justice is done…As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity be superseded by this paramount consideration.”

13 That there can be exceptions or limitations to the principle of open justice, to ensure that justice is done, both in the context of conducting hearings in camera or in private (i.e. in Chambers) and in the context of keeping documents or information relating to those Court hearings confidential, is also expressly recognised by legislation and Court procedure in the Cayman Islands. 9 This is the case both in civil proceedings generally and in liquidation proceedings more specifically. In particular, section

11 (2) (b) of the Constitution provides, among other things, that the principle of open justice can be limited “for the purpose of protecting the rights, reputations and freedoms of other persons or the private lives of persons concerned in legal proceedings, preventing the disclosure of information received in confidence, maintaining the authority and independence of the courts..”. Further, both the GCR and the CWR expressly permit for documents to be sealed on the Court file (see F.N. 8 above and further below)

14 In respect of hearings in Chambers, it is relevant to note that such hearings are not automatically to be regarded as in camera. Members of the public can be permitted to attend hearings in Chambers with the permission of the judge. As was stated earlier by this Court, the fact that the public does not have an automatic right to attend hearings in Chambers does not however “automatically cloak them in secrecy 10.” Nor is there any automatic restriction on the disclosure of what occurred in Chambers. 11

15 Hearings in Chambers however often deal with sensitive or commercial matters and it is equally established that it may be appropriate for the Court to make orders sealing the Court file or limiting publication. This is expressly recognised in Practice Direction No. 3/1997 which provides:

“In view of the sensitivity of many proceedings now routinely being brought in the commercial or civil jurisdiction of the Grand Court, the parties involved in any matters taken in chambers about which information might be published but for an express prohibition, are to be at liberty to apply for an order against or delimiting publication.”

The Court file in liquidation proceedings

16 CWR 0. 24, r. 4(1) requires that a Court file shall be established in respect of each winding up proceeding in accordance with GCR O. 63, r. 2 12.

17 CWR O. 26, r. 4(1) reads as follows:

“The following persons shall have the right to inspect the Court file in respect of a liquidation proceeding and take copies of filed documents

• (a) the liquidator;

• (b) any former liquidator or controller of the company;

• (c) any person who was a director or professional service provider of the company immediately before the commencement of the liquidation;

• (d) the [Cayman Islands Monetary] Authority, in the case of a company which carried on a regulated business; and

• (e) any person stating...