Hopewell International Insurance Ltd v Gold Medal Insurance Company 1995 Civil Jur. No. 206

• Jurisdiction: Bermuda
• Judgment Date: 22 March 2001
• Date: 22 March 2001
• Docket Number: Civil Jurisdiction 1995 No. 206
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Meerabux, J

Civil Jurisdiction 1995 No. 206

Hopewell International Insurance Limited

Applicant

and

Gold Medal Insurance Company

Respondent

Mr. G. Moss, Q.C. and Mr. Jan Woloniecki for the Applicant

Mr. R. Potts, Q.C. and Mr. A Martin for the Respondent

Boyd v Colonial Medical Insurance Co Ltd 1996 Civil Jur. No. 446

Stevedoring Services Ltd v Burgess 1998 Civil Jur. No. 314

Investors Compensation Scheme Ltd v West Bromwich Building SocietyWLR [1998] 1 WLR 896

In re Land Securities ex parte FarquharELR [1896] 2 Ch 320

Re T.H. Downing & Co LtdUNK [1940] 1 All ER 333

Re Windward Islands (Enterprises) LtdUNK [1983] BCLC 293

Niltan Carson v HawthorneUNK [1988] BCLC 299

McGuinness v Bremner plce [1988] BCLD 673

Kempe v Ambassador InsuranceWLR [1987] 1 WLR 271

Johnson v Gore Wood & CoWLR [2001] 2 WLR 72

Amalgamated Investment and Property Co Ltd v Texas Commerce International BankELR [1982] QB 84

The VistafjordUNK [1988] 2 Lloyds Rep 343

Allison Ltd v Limhouse CoELR [1992] 2 AC 105

Scheme of arrangement — Captive insurance companies — True meaning and effect of provisions of the scheme — Although Scheme is not a contract, the court interprets it as if it were a contract — Principles of construction — Run-off — Definition of ‘convene’— Final distribution — Estoppel

JUDGMENT

PRELIMINARY

There are before the Court a summons by the Applicant, Hopewell International Insurance Limited, and a cross-summons by the Respondent, Gold Medal Insurance Company.

The Applicant filed a summons, dated 17 October 2000, seeking the following declarations:

• (1) That the Applicant is required and/or entitled:

  • (a) by virtue of paragraphs 5.1.1 and 5.1.2 of the Scheme to hold a Final Meeting of Scheme Creditors no later than 30 June 2001;

  • (b) by virtue of paragraphs 5.2.1 and 5.2.3 of the Scheme to make a Final Distribution out of its available assets as soon as practicable after 30 June 2001 to all Scheme Creditors whose claims have become Established Scheme Liabilities prior to 30 June 2001.

• (2) That in the event that the claim made against the Applicant by the Respondent has not been agreed and finally determined or the arbitration proceedings pending between the Applicant and the Respondent have not been concluded and a final award has not been published prior to 30 June 2001, the Applicant shall be entitled:

  • (a) to proceed with a Final Distribution of its assets to its Scheme Creditors without any regard to the claim made by the Respondent;

  • (b) to distribute by way of final dividend to its Scheme Members any of its assets which remain following the final Distribution to Scheme Creditors, provided always that the Applicant shall take no steps to have itself dissolved until such time as the arbitration proceedings pending between the Applicant and the Respondent have been concluded and a final award has been published.

• (3) That in the event that a final award is made in favour of the Applicant in the arbitration proceedings after 30 June 2001, the Respondent shall have no claim to any of the assets of the Applicant save for such rights as it may have under such contracts of retrocession with the Applicant is entitled to have assigned to it by the Respondent pursuant to paragraph 3 6.1 of the Scheme.

• (4) Such further declaratory relief as may be just and appropriate.

The Respondent filed a cross-summons, dated 26 October 2000, seeking the determination of a number of questions with regard to the meaning and effect of the Scheme and the following relief;

• (1) That an injunction be granted restraining Hopewell from:

  (a) convening a Final Meeting,

  (b) holding a Final Meeting;

  (c) sending Gold Medal a notice pursuant to Clause 3.6.3;

  (d) making any Final Distribution pursuant to Clause 5.2.1 or Clause 5.2.2 in each case before the Scheme Claim of Gold Medal has been finally agreed or determined as a result of publication of a final award in the arbitration between Hopewell and Gold Medal.

• (2) That an injunction be granted restraining Hopewell, in the event that the Scheme Claim of Gold Medal becomes an Established Scheme Liability by the time that a Final Distribution is made under Clause 5.2.1 or Clause 5.2.2 from making any such Final Distribution (a) without reference to Gold Medal's Established Scheme Liability, and (b) on any basis other than that determined by the Court under question (9).

• (3)That such further or other declarations are made and/or relief granted as the Court shall think just and appropriate.

• (4) That Hopewell shall pay gold Medal's costs of and occasioned by the cross-summons.

I think that the words ‘paragraphs’ and ‘paragraph’ wherever they appear in the Applicant's summons should be read and construed as ‘Clauses’ and ‘Clause’ respectively.

FACTUAL BACKGROUND

From the affidavit evidence I find the following facts. The Applicant is a reinsurance company incorporated in Bermuda. It principally reinsured the property risks of captive insurers. The Respondent is a captive insurance company incorporated in Minnesota and is wholly owned by General Mills Inc. (‘GMT’). The Respondent is an insurer of GMI under certain insurance policies. The Applicant is a reinsurer of the Respondent in respect of the policies issued to GMI.

On 10 June 1994 GMI alleged that it first had knowledge of the ‘Pesticide Incident’. In 1994 before it knew anything about the Pesticide Incident, the Applicant was preparing for the possibility that the Retrocession Treaties might not renew and that it would go into run off as of 30 June 1994. The Pesticide Incident was not known during the renewal negotiations.

On 30 June 1995 the Applicant went into run off. A Scheme of Arrangement between the Applicant, its Scheme Creditors and Scheme Members was sanctioned by the Court in an Order dated 29 June 1995. The Respondent had received notice of the Applicant's Scheme of Arrangement and proxy holder appointed by the Applicant attended the meetings of Scheme Creditors held in Bermuda on 23 June 1995 and was recorded as having voted in favour of the Scheme. The Respondent did not object to the making of the Order of the Court dated 29 June 1995 sanctioning the Scheme and has made no application seeking to challenge the Order dated 29 June 1995.

In 1995 GMI made a claim against the Respondent in respect of losses which it allegedly suffered as a result of the application between April 1993 and 1994 of a certain pesticide to oats by a contractor employed by GMI.

The Respondent denied coverage for GMI's claim and proceedings were commenced by GMI against the Respondent in the Minnesota Court in March 1996. On 23 June 2000 the Minnesota Court gave final judgment in favour of GMI against the Respondent in the sum of US$203,532,692.01. On 17 August 2000 the Respondent filed an appeal against the judgment with Minnesota Court of Appeals. On 6 February 2001 the Minnesota Court of Appeals unanimously denied the Respondent's appeal against the judgment of the lower court.

The Respondent threatened to bring proceedings against the Applicant in the United States in contravention of the Scheme. The Applicant in order to prevent that applied for and obtained an ex parte injunction dated 29 July 1998 from the Supreme Court. The Respondent has not applied to the Court to set aside the injunction.

The Applicant then commenced proceedings in the United States Bankruptcy Court for the Southern District of New York seeking to have the Applicant's Scheme enforced in the United States and to give effect to the Bermuda injunction. The Respondent and GMI participated in the New York proceedings. On 19 August 1999 the Chief Judge of the Bankruptcy Court ruled in favour of the Applicant's section 304 application. There is an appeal pending to the United States District Court from the Order of the Bankruptcy Court.

In July 1998 the Respondent had entered into a settlement agreement with GMI (‘Agreement for Alternative Dispute Resolution’) which provided for resolution of the Pesticide claim by means of a ‘baseball arbitration’ On 10 June 1999, upon the motion of GMI and without any opposition on the part of the Respondent, the Minnesota Court set aside its previous order approving the ‘Agreement for Alternative Dispute Resolution’.

On 25 June 1999, shortly before the claims filing deadline, the 30 June 1999, under the Applicant's Scheme expired, the Respondent filed a Final Notice of Claim against the Applicant and in absence of agreement of its Scheme Claim, the Respondent on 27 January 2000 invoked the arbitration proceedings under the dispute resolution provisions of the Scheme before its deadline expired on 31 January 2000.

Pleadings were served in the Bermuda arbitration during the summer of 2000. The dates fixed for the arbitration hearing are 7 May to June 2001.

The Applicant has rejected the Respondent's claim in its entirety. An arbitration tribunal has been constituted and in its interim award dated 12 December 2000 the tribunal rejected the Respondent's contention that the Applicant is bound by the outcome of the litigation in Minnesota between the Respondent and GMI.

On 12 February 2001 the arbitration tribunal gave directions that statements of witnesses of fact were to be exchanged on 30 March 2001 and experts' reports on 17 April 2001. The tribunal provisionally fixed a date for farther directions hearing on 2 April 2001 in anticipation of a decision from this Court before that date on the summons and cross-summons. The tribunal expressed the hope that, in the event this Court upheld the Applicant's view as to the effect of the Scheme, it would be possible to conclude the arbitration and produce an award in summary form before 30 June 2001, The tribunal indicated that additional time was potentially available in the last two weeks of June, The Applicant's counsel made clear to the tribunal that...