Conyers Offshore Case Digest (Issue No.11 April - December 2015)

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BERMUDA BERMUDA BERMUDA SUPREME COURT SHARE TRANSFER - INJUNCTION TO RESTRAIN COMPANY FROM HOLDING SPECIAL GENERAL MEETING TO ADOPT AMENDED BYE-LAWS - PRE-EMPTION RIGHTS M Pulido -v- UST Holdings Ltd et al [2015] SC (Bda) 67 Com (25 September 2015) A transferee of shares who has not yet been registered on the share register of the company does not have standing to obtain interim relief prohibiting an impugned meeting. Hellman J found that a transfer of shares who contended that they were the legal owner of 50,000 shares in UST Holdings Ltd (the “Company”), but who had not yet been entered on the company register, did not have standing to seek injunctive relief to prevent a resolution being put to the members of the Company to adopt restated bye-laws in full substitution for the Company’s existing bye-laws. Under the new proposed bye-laws, the Company could refuse to register the Plaintiff as a shareholder without giving any reason. The Transferee strongly suspected one of the purposes of restating the bye-laws was to allow the Company to prevent him from becoming a member. It was held that a company is not bound to recognise trusts of shares; the company can only look to the man whose name is upon the register. A company is not obliged to recognise a person claiming title to shares as transferee until an instrument of transfer in the prescribed form has been submitted for registration and has been registered. The Company could consider the restatement of the bye-laws without regard to the Transferee’s beneficial interest. The material distinction was held to be not between legal and beneficial ownership, but between members and non-members. Only members have standing to challenge a proposed restatement of a company’s bye-laws in the courts. CONFIDENTIALITY IN TRUST PROCEEDINGS - SECTION 47 OF THE TRUSTEE ACT - PRIVACY OF BENEFICIARIES BCD Trust [2015] SC (Bda) 83 Civ Confidentiality in trust proceedings, especially non-contentious proceedings, can be a pressing issue for trustees. Trustees sometimes need to obtain the guidance of the Bermuda Court, or the exercise of the Court’s broad powers under Section 47 of Bermuda’s Trustee Act, on entirely non-contentious issues. The trustees may not, however, want undue press attention placed on the beneficiaries. Trustees may avoid seeking the assistance of the Court if, by doing so, they might undermine their beneficiaries’ privacy. For this reason, trustees often seek confidentiality orders, which typically provide that the names of 2
BERMUDA the parties involved can be anonymised in the cause book, for the hearing to be heard in private and for subsequent access to court files by the public to be restricted. Confidentiality, however, is increasingly hard to find in modern courts. The courts continually trend towards ever greater transparency. While non-contentious trust actions were, in the past, heard in chambers (which meant members of the public and the press were in practice, left outside), chambers hearings are now held in court rooms to which the public have ready access. Further, due to recent procedural reforms in Bermuda, court papers held in the Registry are increasingly open to public and media scrutiny. Thus, confidentiality orders are in increasing demand. They can, however, be hard to obtain. In England for example, such orders, even in non-contentious matters, are treated as exceptional and only granted on the basis of cogent evidence of need (V -v- T [2014] EWHC 3432 (Ch) Civ). This effectively means that trustees must show evidence of a security risk or dangers such as ‘false friends’ latching on to minor beneficiaries. In BCD Trust [2015] SC (Bda) 83 Civ, Kawaley CJ in an ex tempore ruling adopted a liberal and pragmatic approach. The Chief Justice emphasised that the Bermuda Constitution specifically permits the Courts to hold hearings in private if it considers it necessary or expedient for the protection of the private lives of the persons concerned in the proceedings. He also commented that, in the absence of any obvious public interest in knowing about internal trust administration, it was in the public interest to deal with noncontentious trust applications as private hearings. Trustees who wish to obtain the Court’s guidance, while protecting the privacy of the beneficiaries, can be confident that their privacy will be protected. COMPANY LAW - SHAREHOLDERS - TEST FOR UNFAIR PREJUDICE - APPLICATION TO PUBLIC COMPANIES Annuity & Life -v- Kingboard [2015] (Bda) LR 97 Shareholders who believe that they are being treated unfairly have several remedies. One of the most effective can be an unfair prejudice petition. Such petitions were historically rare in Bermuda, not least because the hurdle is a high one. A petitioner must not only show that its interests (as shareholder) have been unfairly prejudiced. It must also show that the prejudice is so bad that it would justify the winding up of the company on just and equitable grounds. In Annuity & Life -v- Kingboard [2015] (Bda) LR 97, Kawaley CJ found that this test had been met. What makes the case particularly notable is that Kingboard is a company publically listed on the Singapore Stock Exchange. The shareholder’s allegations in Kingboard were two-fold. The first allegation was that Kingboard had intentionally depressed its own profitability. The Claim was that Kingboard, which produced copper foil and sold it to affiliated companies, had been selling its copper foil at an under-value. Shareholders in Kingboard, it was claimed, suffered at the expense of shareholders in the affiliated companies. The second allegation was that, when minority shareholders raised these allegations and blocked Kingboard’s ability to sell its copper foil to affiliates, as they had the power to do, Kingboard’s reaction had been unreasonable. (Kingboard’s reaction had been to cease producing copper foil altogether, instead licensing its production facilities to a third party. The third party then proceeded to supply copper foil to the same affiliates). Much of the trial was taken up with the allegations of transfer pricing and allegations as to whether or not the licensing arrangement was a sham. Ultimately, Kawaley CJ rejected the transfer pricing allegations in their entirety and also rejected the Claim that the license arrangement was a form of sham. He did, however, find that Kingboard’s reaction (ceasing all production of copper foil) to the minority shareholders’ concerns about transfer pricing had been unreasonable and “a visible departure from the standards of fair dealing”. He concluded that the test for unfair prejudice had been met and that the remedy was for the majority shareholders to purchase the petitioner’s shares at a price to be assessed. Both sides are appealing the Judgment and any appeal will likely not be heard until 2017. However, the Kingboard decision shows the power of the unfair prejudice petition and that it applies equally to publicly listed companies as to private. INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE AGREEMENTS) ACT, 2005 (THE “2005 ACT”) - CONTEMPT - COSTS Minister of Finance -v- A Company [2015] SC (Bda) 51 Civ (24 July 2015) The Plaintiff alleged that the Defendant Company had failed to comply with a Production Order made under the 2005 Act. It was common ground that, by the date of the hearing, the Company had in fact complied; the Plaintiff therefore sought the imposition of a fine. 3
Page 1 and 2: APRIL 2015 - DECEMBER 2015 ISSUE NO
Page 3: ABOUT THE DIGEST The Offshore Case
Page 7 and 8: BERMUDA apply to many cases, and as
Page 9 and 10: BRITISH VIRGIN ISLANDS INTERLOCUTOR
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Page 13 and 14: BRITISH VIRGIN ISLANDS standing, ot
Page 15 and 16: CAYMAN ISLANDS On 18 September 2012
Page 17 and 18: CAYMAN ISLANDS J (applying Section
Page 19 and 20: CAYMAN ISLANDS The Judgment of the
Page 21 and 22: INDEX Arbitration 7 BVI - CIVIL APP

Conyers Offshore Case Digest (Issue No.11 April - December 2015)

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