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

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BERMUDA The Company denied that it had in fact breached the Order, and sought an Order that each party bear its own costs. The Company asserted that it had only been required to disclose documents that were in existence and were in its custody, and also that it was only required to disclose documents it considered relevant. The Court held that the wide definition of “document” as held in Derby & Co Ltd -v- Weldon (No.9) [1991] WLR 652 applied to Production Orders under the Act. The Court also held that the scope of ‘information’, which may be requested and made the subject of a Production Order under the 2005 Act, is much broader than particular documents, as may be requested in foreign judicial proceedings. As to relevance, the Court held that it is a matter for the Court, not for the Company or its legal advisors to determine. If the Company believed that some documents were irrelevant, or the Order overly burdensome, it should have applied to Court to vary the Order. The Court applied principles from an earlier Bermuda case, namely Joliet 2010 Ltd -v- Goji Ltd [2012] (Bda) Lr 75. The Court held that the terms of the Production Order were clear, certain and unambiguous. The Court was satisfied that the Company was in breach of the Production Order. However, as the Company had substantially complied with the Order, albeit belatedly, the interests of justice did not require any consideration of whether the breaches were deliberate. As the Plaintiff had been the, de facto, successful party, the Company was ordered to pay its costs. The Court reaffirmed that it was in the public’s interest that Bermuda comply with its obligations under Tax Information Exchange Agreements, in a timely manner, to enhance its reputation in the sphere of international tax enforcement. DISCLOSURE OF DOCUMENTS USED BY TRUSTEE IN BEDDOE PROCEEDINGS - USE OF DOCUMENTS OUTSIDE OF BEDDOE PROCEEDINGS - APPLICATION TO VARY CONFIDENTIALITY ORDER Trustee N and Others -v- The Attorney General and Others [2015] SC (Bda) 50 Com (13 July 2015) At the outset of the Beddoe proceedings the Plaintiff Trustee obtained a Confidentiality Order as is necessary to protect the information being disclosed in the proceedings. The Trustee then filed a number of affidavits in the proceedings and provided very considerable disclosure. The Second Defendant applied to discharge or vary the Confidentiality Order so as to grant him leave to use a number of specified documents for the purpose of other proceedings (“the Main Action”). The Second Defendant asserted that the documents were relevant to the pleaded causes of action in the Main Action, and would also disclose new causes of action in the Main Action, and new causes of action in relation to different trusts. The traditional view, set out in Midland Bank Trust Co -v- Green [1980] Ch. 590, was that no obligation to disclose arose, as the documents were obtained in confidential proceedings. However, the Court noted that a general principle had developed, that a claimant in a main action should be permitted to participate in the Beddoe hearing as fully as reasonably practicable. In this case, the Confidentiality Order protected the specified documents in any event. However, in the absence of the Confidentiality Order, as the specified documents were not privileged and did not disclose the Trustee’s view of the strengths or weaknesses in the Main Action, if the Trustee wished to rely on the specified documents, they ought to have been disclosed. The Court also held that the purpose of a Beddoe application is to allow the Trustees to obtain guidance from the Court, not to provide a hostile litigant with ammunition. It was this purpose that underpinned the Confidentiality Order. The Second Defendant got to see material that he would not otherwise have seen (at least until discovery, if at all). But the disclosure of that material in the Beddoe proceedings was on condition that it could not be used for any other purpose. It was an important consideration that the Trustee had applied for and obtained the Confidentiality Order, and that the Second Defendant had not sought to vary it until after the documents had been disclosed. The Court considered that the use of documents following disclosure in Beddoe proceedings was analogous to the implied undertaking given in civil disclosure generally, although it will be a more onerous task to obtain leave to use documents obtained in Beddoe proceedings, as there are strong policy reasons militating against disclosure. The Court, therefore, applied a two-limb test. Firstly, whether there were special circumstances, meaning cogent reasons for disclosure, that were particular to the facts of the case, which would not normally be present in other cases, as opposed to particular examples of generic reasons, which might apply to many cases. Secondly, whether such disclosure would cause injustice to the disclosing party (in this case, the Trustees). Applying that test, the Court found that the reasons given by the Second Defendant were examples of generic reasons which might 4
BERMUDA apply to many cases, and as such did not amount to special circumstances. The Court went on to hold that the Second Defendant should receive material that would, in fact, be discoverable in the Main Action in any event. It was held that there was no specific prejudice to the Trustee from this early disclosure, and, if the Second Defendant was then to amend the pleadings in the Main Action, he could do so now, rather than having to wait until after disclosure. However, the Court stated that it would be wrong to waive or dilute the requirement of special circumstances for the sake of good case management. The application for leave to use the specified documents for purposes other than the Beddoe proceedings was therefore dismissed. CONTRACT - ENTITLEMENT TO FEES - UNJUST ENRICHMENT - MISTAKE Kingate Global Fund Limited (In Liquidation) and Others -v- Kingate Management Limited and Others [2015] SC (Bda) 65 (25 September 2015) The Plaintiffs were ‘feeder funds’ for the Bernard L. Madoff Investment Securities LLC (“BLMIS”). As a result of the Ponzi scheme run by Mr. Madoff, the Plaintiff Funds collapsed and were placed in liquidation. The Plaintiffs had paid management fees to the First Defendant (“KML”). The Defendants sought the determination of a preliminary issue, being whether the fees actually paid were in fact payable under the various management agreements and, if so, whether the Plaintiffs were able to assert a claim in unjust enrichment against KML and the other Defendants. The preliminary issue was brought about following the decision of the Privy Council in Fairfield Sentry Ltd -v- Migani & Others [2014] 1 CLC 611. The management agreements provided that the management fees would be calculated by reference to the Net Asset Value (“NAV”) of the Plaintiffs calculated by the Administrators. The NAV was also used to determine the subscription and redemption prices for investors and, in the absence of bad faith or manifest error, the NAV calculation was binding as between the Plaintiffs and investors. Administrator made a manifest error. The Plaintiff also asserted that in practice the calculation was not carried out by the Administrator. The Court held that in the absence of bad faith or manifest error, the NAV, as calculated by the Administrator, was binding as between the Plaintiff and KML for the purpose of calculating the management fees. The Court also held that the calculation of the NAV was undertaken by the Administrator and that, in the absence of bad faith or manifest error, the management fees were properly due to KML pursuant to the management agreements. A consequence of the receipt of the fees, pursuant to a valid contract, is that the receipt could not be unjust for the purpose of unjust enrichment and any mistake was not such as to avoid the management agreement. However, the Court did find that, if the mistake on the part of the Plaintiff was induced by the Defendants, then such inducement would negate the right to rely on the contract. Thus, the right to payment under the contract would not be a defence to the Claim for unjust enrichment for those sums in excess of the true NAV. No findings of fact were made, however, as to whether there was such an inducement. In regards to the ‘bad faith’ or ‘manifest error’, it was held that the impropriety of Madoff did not transfer to the Administrators so as to render the NAV calculation invalid. It was only the bad faith or manifest error of the Administrators themselves that was relevant. The Court was asked to consider whether, if the facts are found in the Plaintiffs’ favour, they would amount to manifest error. The Plaintiffs argued that the Administrator should have spotted certain errors, which included ignoring or failing to consider and address inconsistencies in the information provided by Bernard L. Madoff Investment Securities LLC. The Court was not required to resolve the disputes of fact, but held that if the facts were as the Plaintiff asserted, the Administrator may have made a manifest error. The Judge concluded by noting that in order for the Plaintiff to succeed in a claim based on mistake, they must first establish fault on the part of the Administrator or KML. The Plaintiffs alleged that as a result of the fraud committed by Madoff, the NAV calculations were massively overstated and the management fees were mistakenly overpaid. KML asserted that it was contractually entitled to the fees as calculated by the Administrator and that the NAV was binding between the Plaintiffs and KML. The Plaintiffs’ response was that in calculating the amount, the 5
Page 1 and 2: APRIL 2015 - DECEMBER 2015 ISSUE NO
Page 3 and 4: ABOUT THE DIGEST The Offshore Case
Page 5: BERMUDA the parties involved can be
Page 9 and 10: BRITISH VIRGIN ISLANDS INTERLOCUTOR
Page 11 and 12: BRITISH VIRGIN ISLANDS INTERLOCUTOR
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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