RESOLUTION

PRACTICE UPDATE

OFFSHOREAUTUMN 2013

CONTENTS2 Litigation Remedies and Rights: Some Key Differences Between Bermuda and the UK4 Accounting for Bribes: A Jersey Update 6 Recognition of Foreign Office Holders in the BVI: The Sequel 8 Malicious Prosecution Divides the Privy Council10 Still Prest to Disclose: Petrodel Wound Up

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The appointment of provisional liquidators to a company is an extreme remedy which can be deployed before any final adjudication as to the validity of a creditor’s claim or the merits of placing the company into liquidation. Its effect is to replace directors with insolvency practitioners tasked with preserving records and assets, and otherwise conducting the company’s affairs. Whilst the legal principles underpinning an appointment may be recognisable to English lawyers, the practical use of them in Bermuda may not. Bermuda does not have the UK’s administration or voluntary arrangement regimes which provide for restructuring and independent intervention into a company’s affairs before they are wound up.

Freezing ReliefIn addition, freezing relief may not be as effective as it would be in the UK. The assets of the Bermuda Company may consist primarily of shares in its foreign operating subsidiaries and its management may not be resident in Bermuda. In respect of non-proprietary claims, such relief normally provides for an exception for usual business transactions. The creditor has little visibility over what the foreign management may be doing to the company’s assets or affairs purportedly under that exception. As the English Court of Appeal observed in Commissioners for Her Majesty’s Revenue and Customs v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116, the

appointment of a provisional liquidator, unlike a freezing order, will bring such transactions to an end. In addition, the provisional liquidator can exert his rights of management in foreign jurisdictions and exercise the company’s powers to direct or replace the management of the operating group. As a consequence, the use of provisional liquidation in Bermuda has developed into a key remedy for the purposes of both the enforcement of claims and the restructuring of companies. Restructuring of CompaniesUnlike the UK, Bermuda adopted the UNCITRAL Model Law by virtue of the Bermuda International Commercial Arbitration Act 1993. In the context of international commercial arbitration, under both that Act and the English Arbitration Act 1996, a party seeking to stay judicial proceedings in favour of arbitration must establish the existence of a concluded arbitration agreement which covers the dispute. However, under the English Act any objection to the existence and scope of the arbitration clause is likely to be decided by the English Court as a matter of jurisdiction, rather than the arbitral tribunal. In the absence of clarity, there will normally not be a stay. By contrast, the Bermuda Supreme Court has held that the proper approach under the Bermuda Act is to grant a stay even where there is only a prima facie case that there is a valid arbitration agreement covering the dispute. This is consistent with the

LITIGATION REMEDIES AND RIGHTS: SOME KEY DIFFERENCES BETWEEN BERMUDA AND THE UK Martin Ouwehand

Whilst Bermuda’s legal landscape is similar to the UK in many respects there are a number of key areas in which it differs. The purpose of this article is to underline the differences from the law or practice of the UK in three areas which have an important impact on the enforcement of claims by creditors and shareholders of Bermuda companies: namely, the use of provisional liquidators, the stay of judicial proceedings to enforce arbitration agreements and the indemnities afforded to directors in a company’s constitution.

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approach in other Model Law jurisdictions and the strong policy in favour of arbitration which underlies the Model Law: Buchanan v Lawrence [2012] Bda LR 47. Once a foreign international commercial award is rendered, the provisions of the Bermuda Act provide for it to be readily recognised and enforceable as a judgment of the Bermuda Court, rather than having to commence an action to enforce it at common law. In contrast to the position under English law, these provisions apply regardless of whether the foreign jurisdiction is part of the Commonwealth, a party to a convention with Bermuda or has reciprocal arrangements as to enforcement of awards. Claims Against DirectorsThe availability of claims against directors is central to evaluating the merits of a liquidation or an action to enforce a shareholder’s rights. Under the English Companies Act 2006, any provision which purports to exempt a director from liability in connection with any negligence, default, breach of duty or breach of trust by him, or provide him with an indemnity, is void. By contrast, section 98 of the Bermuda Companies Act 1981 permits such provisions so long as they do not attempt to apply to fraud or dishonesty. Very often, the bye-laws of Bermuda companies (equivalent to articles of association in England) will also exempt

a director for claims other than those arising from “wilful negligence” or “wilful default”. The Bermuda authorities support the formulation laid down in the English case of Re City Equitable Fire Insurance Co. Ltd. [1925] 1 Ch. p.407, at p.434 that “wilful default” is where “the officer in question is consciously acting or failing to act, in a reprehensible manner” and “wilful negligence” is where the officer concerned “knows that he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of duty”. The onus of proving that the conduct is fraudulent, dishonest or wilful lies on the claimant. Unless those allegations can be proven, bye-law indemnities limit the scope of misfeasance proceedings against directors in liquidation and derivative actions against directors by shareholders. In addition, they remove the ability to rely on breaches of fiduciary duty alone as a ground of oppression in proceedings by minority shareholders. Minority ShareholdersThose surveying Bermuda’s legal landscape through the lense of litigation practice in other Commonwealth jurisdictions may not expect to see these features. These are only a few examples. It is important that their significance is appreciated when it comes to cross-border litigation, and indeed well before that point when evaluating and negotiating the rights and liabilities arising from commercial relationships with Bermuda companies.

“Those surveying Bermuda’s legal landscape through the lense of litigation practice in other Commonwealth jurisdictions may not expect to see these features.”

CONTACT Bermuda Martin Ouwehand, CounselLitigation & Insolvency+1 441 298 3591mouwehand@applebyglobal.com

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The Rex Trust itself had been established in 1999 by a Mozambican national, Mr Fragoso. He told the professional trust company which would act as trustee that he was a civil engineer who had earnt the funds to be settled into trust from various engineering consultancy contracts he had undertaken in different parts of the globe.

In 2010, the trustee became aware that an English construction company had been convicted in England of paying bribes in Ghana and Jamaica in order to obtain construction contracts. Whilst there were no charges which related specifically to Mozambique, the company accepted in the course of the prosecution that it had in various countries, including Mozambique, made corrupt payments to public officials so as to procure contracts.

Corrupt PaymentsFurther investigations revealed that in fact Mr Fragoso had been employed as a director at the National Directorate of Roads and Bridges in Mozambique and that subsequently he was the chairman of the National Roads Administration. It appears that representatives of the company had met with Mr Fragoso and that between October 1997 and March 2000 various payments were made by the company to Mr Fragoso via Swiss bank accounts which he held.

The trustee took steps to obtain more information from Mr Fragoso as to the source of funds which had been settled into trust and specifically as to whether or not they were the proceeds of crime. No satisfactory response was received (although Mr Fragoso denied receiving any bribes) and the trustee accordingly applied to the Court for directions.

The beneficiaries were convened – Mr Fragoso’s wife and children, as was the Government of the Republic of Mozambique as a potential claimant to

the funds. The latter was able to produce to the Court evidence as to Mr Fragoso’s employment with the National Directorate of Roads and Bridges as well as to his salary during that time. It was also able to produce an “export agent’s commission card” from the company which showed six payments to Mr Fragoso described as commission. Neither Mr Fragoso nor his family participated in the hearing.

Although it was not possible to trace all of the funds in the Rex Trust back to the company, the Court nevertheless found that on the balance of probabilities all of those funds represented bribes. In so doing it adopted the approach used in the Federal Republic of Brazil et al v Durant International et al [2012] JRC 211 of relying on “inferences of fact drawn from positive evidence of other facts”. The Court set out the reasons why it could not accept Mr Fragoso’s denial and concluded that it was reasonable to infer that the monies paid into the Trust were derived from his abuse of position as a public officer of Mozambique whether through contracts with the company or otherwise.

Abuse of PositionThe Government of Mozambique sought a declaration that those monies were held on trust for it. In so doing, it relied on the Privy Council case of AG for Hong Kong v Reid [1993] UK PC2 on appeal from the Court of Appeal in New Zealand. As stated in the judgment of Lord Templeman: “When a bribe is accepted by a fiduciary in breach of his duty then he holds that bribe in trust for the person to whom that duty was owed”.

The Royal Court noted that the English Court of Appeal in Sinclair Investments UK Limited v Versailles Trade Finance Limited & OIJ [2011] EWCA Civ 347 had not followed Reid. In Sinclair, Lord Neuberger made a distinction between three broad categories of

ACCOUNTING FOR BRIBES: A JERSEY UPDATE

Gillian Robinson

The law in Jersey relating to the consequences of receiving a bribe has been recently clarified in the case of Lloyds Trust Company (Channel Islands) Limited v Fragoso and Others [2013] JRC 211 concerning a Jersey trust known as the Rex Trust.

situations in which a fiduciary obtained a benefit in breach of fiduciary duty. In only two out of three of those situations did a constructive trust arise. Sinclair followed the much earlier Court of appeal decision of Lister v Stubbs [1890] 45 CL.1.

In Lister, the Court of Appeal held that the relationship between the recipient of a bribe and the person whose trust had been betrayed was that of debtor and creditor and not that of trustee and cestui qui trust. The question of which line of authorities to follow was considered in passing in the Brazil case in which it was stated that had it been necessary to choose, Reid would have been followed: “There are powerful policy reasons for ensuring that a fiduciary does not retain gains acquired in violation of fiduciary duty …”.

Violation of Fiduciary DutyThe Royal Court also noted the more recent English Court of Appeal case of FHR European Ventures LLP & Ors v Ramsey Neil Mankarious & Ors [2013] EWCA Civ 17 which referred to Sinclair as a “highly controversial” decision made on facts which were “highly unusual”. However, the question of whether Sinclair and Lister were correctly decided would have to be left to the Supreme Court. It was however further noted by the Court that the full Federal Court of Australia in Grimaldi v Chameleon Mining NL (No.2) [2012] FCA FC6 had not followed Sinclair or Lister but Reid citing policy reasons in support.

In deciding Reid, the Privy Council had examined previous precedents including Lister about which it said: “[it] is not consistent with the principles that a fiduciary must not be allowed to benefit from his own breach of duty, that the fiduciary should account for the bribe as soon as he receives it and that equity regards as done that which ought to be done”.

The Royal Court noted that it was only formally bound by decisions of the Privy Council on appeal from Jersey. Decisions on appeals from other jurisdictions were persuasive, but the degree of persuasiveness would depend on the similarity of the point at issue as well as social and policy considerations peculiar to Jersey. In this case the Royal Court considered that Reid (even though from New Zealand) should be accorded the “highest degree of persuasiveness” and certainly more weight than decisions from the English Court of Appeal.

Deter Fraud and CorruptionThe Royal Court also noted the important policy decisions to follow Reid “namely the need to deter fraud and corruption and to have the ability to strip fiduciaries that have channelled their illicit funds through this jurisdiction of all benefits”. The Court therefore declared that the trustee was holding the trust funds on constructive trust for the Government of Mozambique.

Gillian Robinson appeared for the Government of the Republic of Mozambique.

“There are powerful policy reasons for ensuring that a fiduciary does not retain gains acquired in violation of fiduciary duty.”

CONTACT

JerseyGillian Robinson, PartnerLitigation & Insolvency+44 (0)1534 818 039grobinson@applebyglobal.com

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In this sequel, we explain the evolution of the jurisdiction to recognise foreign office holders in the BVI, and suggest that, were Mr Picard to apply again, he would most likely receive the order he sought.

The Insolvency Act 2003 contains two sets of material provisions. Part XVIII is entitled “cross border insolvency”. It is, in short, an enactment of the UNCITRAL Code – but it is these provisions which have not been brought into force. As Bannister J explained:

“Once recognition is granted [under Part XVIII], certain consequences (principally, stay and freezing relief) follow automatically and the foreign representative may apply to the local court for a wide range of relief designed, if granted, to enable the foreign representative to act in the British Virgin Islands as if, or substantially as if, he were a locally appointed liquidator or bankruptcy trustee.”

Part XIX is, however, in force. Section 467 provides

that a “foreign representative” may apply for an order under subsection (3). A “foreign representative” is defined as meaning a person appointed in a “foreign proceeding”, which is defined as meaning a judicial or administrative proceeding in a “relevant foreign country.” A “relevant foreign country” is one designated for these purposes.

These provisions were first tested by Irvin Picard, in Picard v Bernard L Madoff Investment Securities LLC (BVIHCV 140 of 2010). Picard sought an order for his own recognition either at common law, or under the Insolvency Act 2003. The bewildered reader may wonder how relief could have been sought under the Insolvency Act under provisions not then, and not now, in force. The answer was to be found in section 467(3), which confers the power to “make such order or grant or other such relief as [the Court] considers appropriate.” The argument was that this was sufficiently widely crafted to encompass a power to grant recognition.

Bannister J disagreed. He went further and held that the enactment of a statutory regime had the implicit effect of repealing the common law power of recognition, so that there was no longer any common law power to recognise. Picard was instead granted limited relief under section 467(3) – albeit relief which was no doubt perfectly adequate on the facts of that application.

Bannister J had the opportunity to reconsider his approach in Picard in C (a bankrupt) (BVIHCV 80 of 2013). That was a case in which a Hong Kong appointed trustee sought to recover property of the bankrupt in the BVI.

Wrong AnalysisBannister J, holding that part of his analysis in Picard had been wrong, accepted that the common law concept of recognition and assistance survived (by virtue of s.470 of the IA) in respect of “foreign representatives” (as defined in s.466) – in other words, those within a designated jurisdiction - but

RECOGNITION OF FOREIGN OFFICE HOLDERS IN THE BVI: THE SEQUEL

Andrew Willins

not otherwise. Bannister J concluded that it would be anomalous if officeholders within designated jurisdictions were unable to obtain recognition at common law, whilst those in non-designated jurisdictions could. To that extent, the reasoning that the common law was implicitly repealed by the statute survived. The position therefore seems now to be that recognition is available in respect of appointments in Australia, Canada, Finland, Hong Kong, Japan, Jersey, New Zealand, the United Kingdom and the United States of America, but not elsewhere.

Foreign Office HolderIn giving his judgment Bannister J reviewed a number of authorities on recognition at common law. He commented that “as the cases referred to by Lord Collins show, what the Court does when recognising foreign proceedings at common law, is to deploy its own powers in aid of the foreign proceedings. It does not invest the foreign office holder with powers of his own.” He went on to conclude:

“Movable property formerly belonging to the Bankrupt vested in the Trustees upon their appointment and that fact is recognized within this jurisdiction. I will therefore make an order entitling the Trustees to take all steps necessary in order to reduce the Bankrupt’s movable property within the jurisdiction into their possession and requiring any person holding such property within the jurisdiction to deliver it or transfer it to the trustees forthwith upon being required to do so.”

Picard was appointed within a designated jurisdiction.

Bannister J concluded that he had therefore been wrong to have refused him the relief sought.

A subsidiary, but related, issue which has arisen on a number of occasions recently is whether or not a foreign liquidator or receiver of a foreign parent company requires recognition in the BVI before being entitled to assume control of a BVI subsidiary, with a view to taking control of assets further down the structure.

Receiver’s IntentionIn one such case Appleby represented a receiver appointed by the Delaware Court of Chancery over a company incorporated in that jurisdiction, in order to enforce orders of the court. The appointment was therefore not on insolvency grounds. The receiver’s intention was to exercise the voting rights of the company in its BVI subsidiary, replace the director, and take control of the asset-holding company in China. The replacement of the director in the BVI subsidiary by shareholder resolution was challenged by the former director by proceedings in the BVI court. He sought declarations that the receiver’s actions were unlawful since he had not obtained recognition. Bannister J summarily dismissed the former director’s claim.

We would suggest that in the non-insolvency background to that case, it is legitimate to compare the receiver to the holder of a power of attorney over the parent company, valid under the law of the place of incorporation, exercising the parent’s right to replace the director. Recognition was therefore not required: what the Receiver was doing, he was entitled as a matter of pure title to do because, as a matter of Delaware law, he was validly in control of the parent and was therefore able to exercise its voting rights. That the Insolvency Act (by s.467) entitles a foreign representative to apply to court to compel delivery up of assets is irrelevant; this is, we suggest, likely to be regarded as a facilitative provision, to be used in the face of non-cooperation, rather than being the basis of the representative’s right of possession or delivery.

CONTACT

British Virgin IslandsAndrew Willins, PartnerGroup Head, BVILitigation & Insolvency+1 284 852 5323awillins@applebyglobal.com

“… the Insolvency Act … is likely to be regarded as a facilitative provision, to be used in the face of non-co-operation, rather than being the basis of the representative’s right of possession or delivery.”

Unlike any of the other jurisdictions in which Appleby operates, the BVI is unique in having implemented, but not brought into force, the UNCITRAL Model Law. In the last edition of Resolution, Eliot Simpson contrasted the treatment which Irvin Picard, the Trustee in bankruptcy of the estate of Bernard L Madoff Investment Securities LLC, received in the Courts of the Cayman Islands and in the British Virgin Islands. He obtained recognition in the former, but not in the latter.

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The appeal was decided by the narrowest of margins - 3:2 - and led to a sharp and, in judicial terms, at times acrimonious, difference of views between the judges. In short, the majority, led by Lord Wilson, with Lady Hale and Lord Kerr, held that the tort of malicious prosecution is not, as had been the law of England (and Cayman) for centuries, confined to the prosecution of criminal offences (and a small disparate collection of civil claims) but is available as a tort generally, and extends to all civil claims.

All three principles arose starkly in the Sagicor case, of which the facts were as follows: hurricane damage was insured against by the proprietors of a Cayman residential complex with the Respondent to the appeal (Sagicor). Hurricane Ivan, in 2004, caused extensive damage to the complex, and the proprietors claimed on the insurance. Sagicor appointed a local loss adjustor (Mr Paterson); on his advice, CI$2.9m advance payments were made by Sagicor to Hurlstone, the construction company engaged to carry out the repair work. A newly appointed Senior Vice President of Sagicor (Mr Delessio) became concerned

about the amount of the payments to Hurlstone, and what he saw as the lack of supporting documentation. Sagicor retained a different loss adjustor, from England, who valued the work done by Hurlstone at CI$0.8m of which CI$0.7m was the responsibility of Sagicor.

Destroy ProfessionallyMr Delessio dismissed Hurlstone, and expressed the intention to drive Mr Paterson out of business and to destroy him professionally. Sagicor launched proceedings in the Cayman Islands Grand Court against Mr Paterson and Hurlstone, claiming not only repayment of the alleged overpayment to Hurlstone, but also damages for conspiracy and deceit against Hurlstone and Mr Paterson. Sagicor also obtained an asset-freezing injunction against Hurlstone. Mr Paterson counterclaimed against Sagicor for his unpaid fees. Three months before the trial was due to start, Hurlstone produced paperwork proving extensive payments to its sub-contractors and suppliers; in consequence, Sagicor, shortly before the trial was due to start, abandoned its proceedings.

The Court ordered Sagicor to pay Hurlstone’s and Mr Paterson’s costs of the proceedings on the indemnity basis and allowed Mr Paterson to amend his existing counterclaim for fees, to include a claim for damages for the tort of abuse of process. The Judge regarded this as including a claim for the tort of malicious prosecution, even though the torts are materially different.

At the trial of Mr Paterson’s counterclaim, the judge found there had been no abuse of process, as the proceedings had been brought for the purpose for which they were designed. However, he found that Mr Paterson had proved all but one of the elements required for malicious prosecution: (1) malice; (2) lack of reasonable or probable cause for the Sagicor claim; (3) the Sagicor claim had been concluded in Mr Paterson’s favour, as it had been abandoned: (4) financial loss. The judge quantified Mr Paterson’s recoverable loss at CI$1.335m (CI$1.3m for economic loss, and $0.35m for general damages for distress, hurt and humiliation). The judge found, however, that he was unable to hold Sagicor liable for the tort

MALICIOUS PROSECUTION DIVIDES THE PRIVY COUNCIL Christopher Russell

of malicious prosecution, in the light of the 2000 UK House of Lords decision in Gregory v Portsmouth City Council [2000] 1 AC 419; the current state of the law at the time confined the tort of malicious prosecution primarily to criminal proceedings.

Criminal ProceedingsThe Cayman Islands Court of Appeal dismissed Mr Paterson’s appeal. On further appeal to Judicial Committee of the Privy Council, it was held unanimously that Sagicor was not liable for the tort of abuse of process, but, by a 3:2 majority, that Sagicor was liable for the tort of malicious prosecution. Underlying the majority decision, is the fact that, absent the availability of the tort of malicious prosecution to civil cases generally, Mr Paterson would have been without remedy, save for his costs of the litigation. The tort of defamation was unavailable to him, because of the rules of privilege relating to court proceedings.

It is now clear that, in principle, the tort extends generally to the institution of all civil proceedings, as well as criminal cases. But there are serious uncertainties, as recognised by the majority in Sagicor themselves. These uncertainties over the ambit of the revived (or extended) tort are unhelpful and add weight to the view of the minority that the extension of the tort to all civil cases is far too uncertain to be permitted. The uncertainties are not satisfactorily addressed by the answer preferred by the majority, that because the extension of the tort is judge-made, judges can adjust the scope of the tort, if it is itself used as a means of abuse. To bring civil proceedings of any kind now carries with it the risk of being

sued, if unsuccessful, for malicious prosecution. The majority in the Sagicor case sought to diminish that risk by pointing out that the hurdles of proving malice and lack of reasonable and probable cause are high; but as Lord Sumption observed:

“It is no answer to say that the bar can be set so high that few will succeed. Malice is far more often alleged than proved. The vice of secondary litigation is in the attempt. Litigation generates obsession and provokes resentment. It sharpens men’s natural conviction of their own rightness and their suspicion of other men’s motives. It turns indifference into antagonism and contempt. Whatever principles may be formulated for allowing secondary litigation in some circumstances, for every case in which an injustice is successfully corrected in subsequent proceedings, there will be many more which fail only after prolonged, disruptive, wasteful and ultimately unsuccessful attempts”.

Endless Secondary LitigationThe path for endless secondary litigation is wide open; a claim properly brought, but which fails, may spawn a malicious claim for malicious prosecution, which in turn may give rise to a claim for malicious prosecution of the failed malicious prosecution claim - and on it goes. The Sagicor decision provides a recipe for further litigation and deterrence of honest claims. Whether it has this effect in practice, only time will tell.

“Malice is far more often alleged than proved.”

CONTACT

Cayman IslandsChristopher Russell, PartnerLitigation & Insolvency+1 345 814 2794cgrussell@applebyglobal.com

It is a frequent and necessary function of the law to create a balance between competing and conflicting desirable aims. Three such are (1) no wrong should go without remedy; (2) there should be an end to litigation and (3) there should be no deterrence from bringing justified proceedings. These, in some respects conflicting, policies lie at the heart of the recent decision of the Judicial Committee of the Privy Council, on appeal from the Cayman Islands Court of Appeal Crawford Adjusters v Sagicor General Insurance (Cayman) Ltd [2013] UKPC.

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The resulting unanimous decision of the Supreme Court Justices found in favour of Mrs Prest, finding that Mr Prest was entitled on trust to the properties despite their legal ownership being within a group of companies which Mr Prest controlled, known as the Petrodel group. The Court held that the manner in which the properties had been originally transferred to the companies left a presumption in equity that Mr Prest was beneficially entitled to the properties. This presumption was not satisfactorily rebutted, and the Supreme Court Justices were left to draw adverse inferences from Mr Prest’s and the companies’ obstructive behaviour and failure to assist throughout proceedings.

Obstructive BehaviourThree of the companies that made up the Petrodel group were incorporated in the Isle of Man, including the principal company in the Supreme Court litigation, Petrodel Resources Limited (Petrodel) which held legal title to the majority of the disputed properties, including the matrimonial home. Since the Supreme Court’s decision in June, winding-up proceedings have progressed in the High Court of Justice of the Isle of Man to the appointment of a Provisional Liquidator and Official Receiver. The winding-up application was originally brought before the Manx Court by Munin Navigation Company Limited (Munin) in May 2012. It was re-amended on 28 June 2013.

At a hearing in the High Court of Justice of the Isle of Man on 1 August 2013, the winding-up application was contested by Petrodel, however not on the grounds that the debt it owed to Munin was in dispute, but rather that leniency should be displayed by the Court. Counsel for Petrodel argued for further time to be provided in order for the company to meet its debts to Munin.

Further TimeDeemster Corlett presiding, noted that if a creditor with standing applied for a company to be wound up and the court was satisfied that it was unable to pay its debts, a winding-up order should be made, unless there was a special reason to the contrary. The burden to show such resting with the objector. Further, if a winding-up petition were opposed the petitioner needed to establish the prospect of a benefit from the winding-up, but it was only necessary to show a “reasonable possibility of some advantage.” Counsel explained that collateral deposited with the bank BNP Paribas would be seized if a winding-up order was made as the bank see it as an event of default, compounding the financial problems for the company and negatively affecting its creditors. An alternative was proffered where, if further time was granted, Petrodel would effect the sale of its properties, the subject matter of the Supreme Court proceedings, providing the requisite funds to

STILL PREST TO DISCLOSE: PETRODEL WOUND UP

Andrew Newton

discharge security and provide for both the debt to Munin and the monies due under the Supreme Court divorce award to Mrs Prest.

Special GroundsDeemster Corlett was left with the decision as to whether the submissions and evidence provided by Legal Counsel for Petrodel justified the threshold of “special grounds” with which to stay a winding-up order. However, as had been the case in the Supreme Court where Lord Justice Sumption highlighted proceedings as being characterised by persistent obstruction and failure to comply with Court procedure, Deemster Corlett noted in his judgement the unsatisfactory manner that arguments made on foot had not been included in pleadings, and the failure to sufficiently furnish the Court with evidence in support of arguments for more time.

More TimeOf particular confusion for the Court was the true financial picture of Petrodel. Surprisingly, the properties that the company owned in London,

awarded to Mrs Prest by the Supreme Court, were not included in the financial picture postulated, along with the amounts owing to banks in relation to these properties.

Application to Wind-upIn conclusion, Deemster Corlett decided in favour of the application to wind-up on the grounds set out by Deemster Kerruish in Lehman Bros. Inc v Navigator Gas (2004) CPL 9-14, that some benefit would be derived for creditors by the order to wind-up being granted. He was not convinced by Petrodel’s arguments of an exceptional case and the request for more time, distilling them to an offer of an ‘’unspecified date sometime in the next several months when cash may become available’’.

The complex picture of creditors and debts emerging from proceedings in the Isle of Man somewhat echo Baroness Hale’s reservations expressed in the Supreme Court, where she concluded that: “I fervently hope that the wife will gain some benefit … although in the light of the mortgages which apparently encumber the properties I am not optimistic”. Time will tell whether the appointment of a provisional liquidator and Official Receiver will speed up the transfer of the properties to Mrs Prest, or whether it will result in more complexities emerging.

“Time will tell whether the appointment of a provisional liquidator and Official Receiver will head up the transfer of properties of Mrs Prest, or whether it will result in more complexities emerging.”

CONTACT

Isle of ManAndrew Newton, Trainee AdvocatePrivate Client & Trusts+44 (0)1624 647 669anewton@applebyglobal.com

This June, the decision of the Supreme Court in London in the divorce proceedings of Prest v Petrodel Resources Limited and Others [2013] UKSC 34 was awaited with eager anticipation and trepidation by family, corporate and litigation practitioners alike. The expectation for the decision of the presiding Supreme Court Justices hinged on the possibility that the previous Court of Appeal decision in this case could be overturned, and the corporate veil pierced to allow for seven disputed properties to be transferred in the divorce award from Mr Prest, an oil trader, to his former wife.

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The articles in this newsletter are for information only. They should not be acted upon and are no substitute for specific legal advice. In the event that any clarification or advice is required, please contact the editor, Gillian Robinson (grobinson@applebyglobal.com)

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This publication is for general guidance only and does not constitute definitive advice © Appleby Global Group Services Limited 2013

Global/CaymanAndrew Bolton, PartnerGlobal Practice Group Head+1 345 814 2011abolton@applebyglobal.com

BermudaKiernan Bell, PartnerGroup Head, Bermuda+1 441 298 3205kbell@applebyglobal.com British Virgin IslandsAndrew Willins, PartnerGroup Head, BVI+1 284 852 5323awillins@applebyglobal.com

Cayman IslandsJeremy Walton, PartnerGroup Head, Cayman Islands+1 345 814 2013jwalton@applebyglobal.com

GuernseyJeremy Le Tissier, PartnerGroup Head, Guernsey+44 (0)1481 755 605jletissier@applebyglobal.com

Hong KongEliot Simpson, PartnerGroup Head, Hong Kong+852 2905 5765esimpson@applebyglobal.com

Isle of ManChristopher Cope, PartnerGroup Head, Isle of Man+44 (0)1624 647 633ccope@applebyglobal.com

JerseyFraser Robertson, PartnerGroup Head, Jersey+44 (0)1534 818 032frobertson@applebyglobal.com

MauritiusGilbert Noel, PartnerGroup Head, Mauritius+230 203 4302gnoel@applebyglobal.com

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