Jupiter Asset Management (Bermuda) Ltd v The Asset Management Group Ltd

• Jurisdiction: Bermuda
• Judgment Date: 07 January 2005
• Date: 07 January 2005
• Docket Number: Civil Jurisdiction 2002 No. 395
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Ground, CJ

Civil Jurisdiction 2002 No. 395

BETWEEN:

Jupiter Asset Management (Bermuda) Limited

Plaintiff

and

The Asset Management Group Limited

Defendant

Mr. N. Hargun for the Plaintiff

Mr. G. Bell for the Defendant

The following cases were referred to in the judgment:

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

Repayment of loan notes — Implied terms — Construction of contracts — Whether voluntary winding up triggers the repayment of the loan — Discretion for interest

JUDGMENT of Ground, CJ

INTRODUCTION

By this action the plaintiff seeks various declarations to the effect that it is not liable to pay under three Loan Notes issued by it to the defendant and repayable at par without interest on 31^st December 2006. The defendant seeks immediate payment and has counterclaimed to that effect. Although the matter largely turns upon a construction of the Loan Notes themselves, the plaintiff also relies upon an alleged implied term, and I heard evidence from both sides on the factual matrix against which the Notes were issued.

The Notes are in identical terms except as to amount, and are as follows:

• (i) a note for $4,010,328 issued on 6^th December 2001

• (ii) a note for $2,022,110.10 issued on 31^st January 2002

• (iii) a note for $2,674,128.58 issued on 30^th August 2002

Each Note is subject to Conditions endorsed on it ‘which are deemed to be part of it.’ Repayment is governed by Condition 2, which provides that:

‘Unless previously repaid or purchased pursuant to this Condition 2, the Loan Note will be repaid at par without interest on 31 December 2006 …’

However, Condition 2.6 provides as follows:

‘2.6 The Noteholder shall be entitled to call for immediate repayment of the Loan Note at par if:

2.6.1. …

2.6.2 An order is made or an effective resolution is passed for the winding up of the Issuer (other than a members' voluntary winding up previously approved by the Noteholder) or for the winding-up of the Noteholder.’

On 8^th September 2002 the directors of the defendant company, at a meeting held in Guernsey, resolved to recommend to the members that it be wound-up voluntarily. On the 10^th September the two members duly resolved to wind up the company and appoint a liquidator. On 20^th September 2002 the liquidator so appointed demanded, pursuant to Condition 2.6.2, payment of the US $8,706,556.68 due under the three notes. None of that is disputed.

The plaintiff pleads that:

(i) The phrase ‘effective resolution’ in Condition 2.6.2 applies only to the Issuer and not the Noteholder, and that as far as the Noteholder is concerned Condition 2.6.2 only allows the Noteholder to seek immediate payment if an order is made for its winding-up.

(ii) On a true construction of Condition 2.6.2 it only applies if an order is made at the behest of a third party who is not colluding with the Noteholder.

(iii) Alternatively, ‘an effective resolution’ only refers to a non-voluntary resolution as far as the Noteholder is concerned.

(iv) The defendant's construction is inconsistent with the other provisions of the Notes, namely Conditions 2.3 and 2.4.

(v) Alternatively, it was an implied term of the Notes that the defendant would not voluntarily wind itself up in order to claim immediate repayment.

In whatever way it is put, the essence of the plaintiff's case is that to allow the defendant to rely on Condition 2.6.2 in circumstances where it had voluntarily wound itself up, would be to convert the Notes into demand notes, and that would be contrary to their whole tenor and purport both as expressed internally in the other Conditions, and as demonstrated by the factual matrix against which they were issued.

THE FACTUAL BACKGROUND

The factual matrix, in a somewhat simplified form, is as follows. The plaintiff (“Jupiter”) is a subsidiary of Jupiter International Group PLC, a financial services company, owned since May 1995 by Commerzbank AG, a large German bank. Jupiter is in the business of acting as investment manager for both closed-end and open-ended investment funds, and in this capacity was the investment manager for certain property funds in the Far East. The Funds were managed in such a way as to permit property owners to sell property to the Funds in exchange for shares in the Funds, and then to redeem a proportion of those shares (up to 25%) for cash, which Jupiter itself provided. This made the Funds attractive in an illiquid property market, and generated considerable fees for Jupiter: in 1999 the fees amount to 60% of its total gross income. However, the redemptions meant that Jupiter became heavily invested in the Funds under management by it, to the tune of something like $260M, which represented 90% of its assets.

This arrangement was devised, and the Funds set up, by a Mr. Robinson, who was then an employee of Jupiter. The successful management of the Funds depended upon his personal knowledge and contacts in the region. He himself derived considerable personal profit, in the way of a share incentive scheme, from the success of the Funds. Indeed, the share incentive scheme was so successful for its beneficiaries that, in or about 1999, Jupiter's ultimate parent, Commerzbank, questioned the accounting treatment of the profits generated by the Funds. One result was that they lost a key senior employee. In addition they forbad Jupiter to continue investing in the Funds, and that took away the rationale for Mr. Robinson's employment, and in April 2000 he left, regarding himself as constructively dismissed. That left Jupiter in what their witness, Mr. Reef Hogg, described as a “serious and delicate position”, because they had lost the expertise of two senior employees, and because Mr. Robinson had been their liaison with the management of the Funds. As a result they came to terms with Mr. Robinson, first of all in a Settlement Agreement of 24^th May 2000 and then in a more formal Consultancy Agreement of 28^th July 2000 (“the Consultancy Agreement”), which effectively provided for the retention of his services. This was at a price—a...