Emerging Markets Special Solutions 3 Ltd v Laep Investments Ltd

• Jurisdiction: Bermuda
• Judgment Date: 02 October 2017
• Date: 02 October 2017
• Docket Number: Commercial Jurisdiction 2013 No 333
• Court: Supreme Court (Bermuda)

[2017] Bda LR 103

In The Supreme Court of Bermuda

Commercial Jurisdiction 2013 No 333

In the matter of LAEP Investments Ltd

And in the matter of the Companies Act 1981

Between:

Emerging Markets Special Solutions 3 Ltd

Petitioner

and

Laep Investments Ltd

Respondent

Mr J Wasty for the Petitioner

Mr D Duncan for the Respondent

The following cases were referred to in the judgment:

Re LAEP Investments [2015] Bda LR 38

Re LAEP Investments Ltd [2014] Bda LR 35

In re Majory [1955] 1 Ch 600

Re a Company [1983] BCLC 492

Ross v Stonewood Securities Ltd [2000] BPIR 636

Ebbvale Ltd v Hosking [2013] UKPC 1

Maud v Aabar Block and Edgworth Capital [2015] EWHC 1626

Re Z-OBEE Holdings Ltd [2017] Bda LR 19

Mann v Goldstein [1968] 1 WLR 1091

IPC Mutual Holdings Ltd v Friedberg [2004] Bda LR 27

Jinpeng Group Ltd v Peak Hotel Resorts Ltd [2016] J1208–4

Re Parmalat Capital Finance Ltd [2006] CILR 480

Parmalat Capital Finance Ltd v Food Holdings Ltd [2008] UKPC 23

Paramount House Property Estate Ltd v Koshal [2015] EWHC 1097

Bank Saderat Iran v Calgarth Investments Ltd [1997] EWCA Civ J0508–1

Re Sol Group Ltd [1998] EWHC J1005–3

Phoenix Global Fund Ltd v Citigroup Fund Services (Bermuda) Ltd [2009] Bda LR 70

Majuro Investment Corp v Timis (Costs) [2016] Bda LR 23

Winding-up petitioner — Enforcement of arbitration award — Prosecution of petition after suspension of award — Dismissal of petition — Abuse of process — Collateral purpose — Disputed debt — Indemnity or standard costs

RULING of Kawaley CJ

Introduction and summary

1. The present application represents only one scene in the drama which has been played out in the form of a multi-jurisdictional and multi-layered ‘cat and mouse’ legal battle between the parties in Bermuda and Brazil over the last four years.

The Enforcement Action

2. In Bermuda, the present winding-up proceedings were preceded by proceedings to enforce a Brazilian arbitration award obtained by the Petitioner1 against the Company on 18 March 2013 requiring the Company to pay sums in excess of US$73 million (“the Award”) in Civil Jurisdiction 2013: No.84 (the “Enforcement Action”). In the Enforcement Action, with which I was seised, the main events were the following:

• • 22 March 2013: leave to enter judgment in terms of the Award ordered ex parte (the “Enforcement Order”);

• • 26 March 2013: ex parte Mareva injunction granted against the Company;

• • 21 June 2013: application to set aside the ex parte Orders of 23 March and 26 March 2013 dismissed.

The winding-up proceedings

3. The main events in the winding-up proceedings prior to the present action were the following

• • 20 September 2013: the Petition herein was presented based upon the Company's failure to pay the sums due under the Award which the Petitioner was entitled to enforce as a local judgment;

• • 23 September 2013: Messrs Morrison and Thresh of KPMG Advisory Services Limited appointed as joint provisional liquidators (“JPLs”);

• • 24 October 2013: Messrs Bailey and Hutchison of Ernst & Young replace the initial JPLs;

• • 13 December 2013: JPLs restrained from assuming control of Brazilian proceedings brought by the Company to, inter alia, annul the Award;

• • 4 April 2014: the Company is wound-up;

• • 9 May 2014: the Company files its Notice of Appeal;

• • 29 May 2014: the Official Receiver is appointed as Liquidator of the Company without a committee of inspection;

• • 20 March 2015: Court of Appeal for Bermuda sets aside Orders of 23 September 2013 and 4 April 2014, stays the Enforcement Order and remits the matter back to Hellman J in the Supreme Court;

• • 9 April 2015: Court of Appeal delivers Reasons for Decision;

• • 7 December 2015: Judicial Committee of the Privy Council refuses leave to appeal.

The Brazilian proceedings

4. A compressed version of the key events in the Brazilian proceedings is as follows:

• • 18 June 2013: Company files annulment application on public policy grounds with the 43rd State Lower Civil Court in Sao Paulo;

• • 10 September 2013: Petitioner appeals Court of Appeals (37^th Private Law Chamber) 23 August 2013 decision holding public policy is a valid ground of annulment, reversing trial court's initial dismissal of annulment application;

• • 19 December 2013: Company obtains Suspension Order staying Award, which is still in force pending the determination of the annulment application;

• • 19 October 2016: 13^th Private Law Chamber of Court of Appeals upholds 37^th Private Law Chamber's decision that annulment application may be entertained by trial court.

The present application

5. By a Summons dated 27 June 2017, the Company sought an Order:

• i. That the Amended Petition of Emerging Markets Special Situations 3 Limited be dismissed;

• ii. That the Petitioner pay the Company's costs of the Petition up to and including the hearing on 4 April 2014;

• iii. That the Petitioner pay the costs of the provisional liquidation;

• iv. That the Petitioner pay the Company's costs of the present application.

6. This Summons was supported by a short Affidavit sworn on 11 April 2017 by Ms Maria Salgado, a Partner with the Company's Brazilian lawyers, Escritório de Advocacia Sergio Bermudes. It was first heard on 6 July 2017 when by consent a timetable was fixed for filing further evidence and filing of skeleton arguments. The Company filed a further Affidavit sworn by director Raphael Silveira on 13 December 2016, who deposed that “the outstanding Petition is hampering on-going discussions about the restructuring and/or financing of LAEP and its operational subsidiaries in Brazil”. The Company also filed a skeleton argument prior to the hearing. The Petitioner filed neither evidence nor written arguments in opposition to the 27 June 2017 Summons.

7. At the effective hearing of the Company's application to dismiss the Petition, Mr Wasty appeared and indicated that he had no instructions to oppose the Petition but only to orally address the Court on the issue of costs. No point was taken on the fact that the present application had been listed before me and not Hellman J, as the Court of Appeal contemplated. I accordingly dismissed the Petition on 19 September 2017, but reserved judgment on the legal basis for the dismissal since this question raised somewhat complicated legal and factual issues which did not receive the benefit of full argument.

8. Mr Duncan agreed that the issue of who should bear the costs of the provisional liquidation should not be disposed of without affording the provisional liquidators an opportunity to be heard. That aspect of the Company's Summons was adjourned to a date to be fixed. The main question in controversy on costs was not whether the Petitioner was liable to pay the Company's costs, but whether the Petition was being dismissed on one of three potential grounds, each of which would result in potentially different costs consequences:

• i. if the Petition was dismissed on the grounds that it was presented for improper motives, the Company would in principle be entitled to its costs from the date of the presentation of the Petition (20 September 2013) on an indemnity basis;

• ii. f the Petition was dismissed on the grounds that it was based on a disputed debt, the Company would only be entitled at best to its costs from the date when the Award was stayed in Brazil (19 December 2013), but in principle also on an indemnity basis; and

• iii. if the Petition was dismissed on the grounds that it was an abuse for it to remain on the Court's file by reason of non-prosecution, the Company conceded that it would at best only be entitled to the costs of the dismissal application and (it seemed to me) merely on the standard basis.

Summary

9. Having considered the written and oral submissions of the Company's counsel and the oral submissions of the Petitioner's counsel, I have concluded that:

• • the appropriate ground on which to base the dismissal of the Petition is the abuse of process (disputed debt) ground.; and

• • that the Company is entitled to its costs in relation to the Petition (including the costs of the present application) on the standard basis from December 20, 2013;

• • unless either party applies to the Registrar within 14 days to be heard as to the costs of the present application, the Company is awarded its costs on the standard basis discounted by 25% because of the time apparently devoted to the rejected collateral/improper purpose arguments.

Was the Petition presented for an improper purpose?

10. The argument that the Petition was presented for an improper purpose (essentially preventing the Company from attacking the Award) was potentially supported by both legal authority and the undisputed evidence. However, in my judgment the argument must be rejected because it was both evidentially and legally fundamentally unsound. Mr Duncan in evidential terms highlighted the following chain of events:

The factual matrix

• • On 23 August 2013, the Company succeeded in restoring its annulment application in Brazil;

• • On 10 September 2013, the Petitioner appealed against that first tier appellate decision;

• • On 20 September 2013, the Petition was presented;

• • On 23 September 2013, the JPLs were appointed on the Petitioner's application and empowered to, inter alia, independently assess overseas arbitration proceedings involving the Company;

• • On 13 December 2013, the Company obtained an Order from Hellman J restraining the JPLs from taking control of the annulment proceedings pending the determination of the Company's application to discharge the appointment of the JPLs.

11. It was firstly submitted that it was self-evident that the dominant purpose of the winding-up proceedings was to prevent the Company from annulling the Award because no benefit could be obtained by the Petitioner from the present winding-up proceedings. This contention was supported by reference to the fact that:

• • the...