Traded Life Policies Fund (in Official Liquidation) v Jeremy Leach
| Jurisdiction | Cayman Islands |
| Judge | Cheryll Richards |
| Judgment Date | 19 January 2021 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 140 of 2019 (CRJ) |
The Hon. Justice Cheryll Richards Q.C.
CAUSE NO: FSD 140 of 2019 (CRJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Companies Act — S. 74—Security for costs, test to be applied, causation of insolvency, quantum, application of a buffer, indemnity costs.
Mr. James Eldridge and Mr. Justin Naidu of Maples and Calder for the Plaintiffs
Mr. Christopher R. Parker Q.C. instructed by Mr. Richard Annette of Stuarts Walker Hersant Humphries for the First and Third to Ninth Defendants
There are two matters before the Court for consideration. By Summons filed on the 14 th January 2020, the First and Third to Ninth Defendants apply for security for costs in such sum and on such terms as the Court may deem just and appropriate. As at the date of hearing, the amount of security for costs claimed by way of updated cost schedules is US$4.85 million. The application is made pursuant to s.74 of the Companies Act (2018 Revision) and is said to be made on the basis that there is a real risk that the First Plaintiff, a company in liquidation, will not be able to meet the Defendants' costs in responding to the litigation, should an adverse costs order be made.
The application is opposed by the Plaintiffs on a number of grounds, primarily that the First Plaintiff will be able to pay the costs if the sum claimed is discounted to what is said to be a reasonable and proportionate sum. Secondly, that in any event, the Court ought not to exercise its discretion to grant security for costs in circumstances where it is said that the First Defendant, Mr. Jeremy Leach, through his controlling mind as director of the First Plaintiff and or his ownership interests or controlling roles in the corporate Defendants, is responsible for the insolvency of the First Plaintiff.
By way of Summons dated 24 th July 2020 the Plaintiffs sought an order that the Defendants be required to serve on or before the 1 st October 2020, a list of all documents which are or have been in their possession, custody or power relating to any matter in question in this cause. As at the date of the hearing there was agreement with respect to this second matter save for the issue of costs.
The First Plaintiff, Traded Life Policies Fund (in Official Liquidation), (“TLPF”), is a Cayman Islands Company. It was incorporated on the 11 th November 2010 under an earlier name. Its most recent name change was on the 24 th November 2013. Its stated purpose was to operate as an investment company whose business was to invest in traded life policies or in companies which invested in traded life policies.
It is common ground that TLPF was largely inactive until about September 2013 when there was a restructuring of another company, the Ninth Defendant, Traded Policies Fund, (“TPF”). By this restructuring TLPF received all of the assets of TPF which were 187 life policies and cash of US$ 119,082.00. In exchange for their shares, investors in TPF were issued bonds in TLPF which were to mature in five years (Series 1 Bonds) or in one year (extendable (Series 2 Bonds).
TLPF was placed into voluntary liquidation on the 28 th June 2017 by resolution of its sole voting shareholder, the Third Defendant, Managing Partners Limited, (“MPL”). The Joint Voluntary Liquidators, Michael Penner and Stuart Sybersma were appointed by the Court as Joint Official Liquidators, (“JOLs”) on the 21 st July 2017. No declaration of solvency was signed on their appointment. The JOLs filed a certificate of insolvency on the 28 th July 2017 and, in a recent report of April 2019, record potential liabilities in respect of Bond holders as being in the region of some US$80.7 million 1.
By Writ of Summons and the Statement of Claim filed 25 th July 2019, TLPF and Mr. Penner, the Second Plaintiff, claim against nine Defendants. The action has now been discontinued against the Second Defendant, William McClintock, a former nonexecutive director of TLPF.
The seven corporate Defendants either provided administrative or management services to TLPF or received from or transferred assets to it. Each corporate Defendant is connected in some way to the First Defendant, Jeremy Leach. The Claim alleges multiple breaches of fiduciary duties owed to TLPF and that one or more of the Defendants caused or permitted TLPF to overstate and to dissipate its assets by various means which are said to have been illegitimate.
The means alleged by the Claim include that the Defendants caused TLPF to overpay management, directors, adviser and administrative fees, to pay management expenses, and policy movement fees which were unmerited, to repay a loan to MPL at a time when TLPF did not have the means to pay, to make payments for the benefit of the Sixth and
Ninth Defendants, Praesidium Investment Fund, (“PIF”) and TPF, when it had no obligation to do so, and to make improper shareholder redemptions and creditor payments and transfersThe Claim further alleges fraudulent trading, that the First Defendant failed to act with reasonable skill, care and diligence in performing his duty as a director and that the breaches of duty were wilful and dishonest. The damages and or equitable compensation claimed is in the region of US$17.8 million plus an aspect of the Plaintiffs' claim that is presently unliquidated.
The Defendants deny any wrong doing.
The Application for security for costs is supported by three Affidavits of Richard Annette 2 and the First Affidavit of Mr. Leach. 3 Mr. Penner has provided three Affidavits 4, the third of which is relied on by Mr. Annette as showing the asset position of TLPF. As at 21 st August 2020 TLPF had cash of US$3,791,649.00 net of unpaid liquidation expenses, receivables of $402,205.00 and an investment in Liquidus Investment Fund (LIF) in the sum of $611,797.00 for a total of $4,805,651.00. This figure does not include any potential assets in another entity, Diversified Settlements Fund (“DSF”), of which TLPF claims to be the sole economic stakeholder. Neither does it include, then, un-invoiced fees and expenses. Mr. Annette exhibits to his Second Affidavit, correspondence dated 27 th August 2020 which gives these figures as totaling US$71,070.90. Thus the amount would be reduced to US$4,734,580.10.
There is disagreement between the parties as to whether the LIF investment should be deducted. The position of the Defendants is that this amount should be deducted as this receivable is not presently redeemable due to a suspension of redemptions thereby
By his Third Affidavit Mr. Annette provides updated cost schedules and indicates that the Defendants are undertaking a discovery exercise involving some 470,000 documents which is a key factor which has resulted in increased costs. The estimate provided in January 2020 at the time of the filing of the application, was US$3,422,080.75 to 3,618,580.75 5. Actual costs to 31 st July 2020 amount to US$1,073,241.00. Estimated further costs to trial, US$2,310,606.00 and costs of Queens Counsel — US$1,467,200.00.
Incurred and Projected Costs as at January 2020:
US$
Costs to 31 st December 2019
679,855.75.00
Estimated future Attorney costs
1,301,225.00
Disbursements
-
Future disbursements and Expert Fees
None provided
Queens Counsel costs
1,441,000 to 1,637,500.00
Disbursements
None provided
Total
3,442,080.75 to 3, 618,580.75
Incurred and Projected Costs as at September 2020:
US$
Costs to 31 st July 2020
999,716.00
Disbursements (Document management system)
73,525.00
Estimated future Attorney costs
1, 827,950.00
Future disbursements and Expert Fees
482,656 to 552,656.00
Queens Counsel costs
1,467,000.00 to 1,663,700.00
Total
4, 851,047.00 to 5, 117,547.00
It is submitted that the amount held by TLPF is already insufficient to satisfy costs. This taken together with the fact that the Plaintiffs will face additional costs of the JOLs and
legal costs of their own is said to make the position even worse. The invoiced fees of the JOLs are $1,678,189.50 as at August 2020 an increase of close to US$600,000.00 over less than a year and halfMr. Annette points to the fact that the Plaintiffs' position is essentially a static one. There are no more policies to be sold and thus no future proceeds are anticipated.
The parties are agreed that any adverse costs order would rank in priority ahead of the fees of liquidators. This priority ranking means, according to Mr. Annette, that should it be necessary, the JOLs would be required to repay remuneration received in order to contribute towards the payment of any order of costs in favour of the Defendants.
Section 74 of the Companies Act states:
“Where a company is plaintiff in any action, suit or other legal proceeding, any Judge having jurisdiction in the matter, if he is satisfied that there is reason to believe that if the defendant is successful in his defence the assets of the company will be insufficient to pay his costs, may require sufficient...
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