KPMG Tax Ltd v Frank Majors
| Jurisdiction | Bermuda |
| Judge | Hargun CJ |
| Judgment Date | 20 October 2023 |
| Court | Supreme Court (Bermuda) |
| Year | 2023 |
| Docket Number | CIVIL JURISDICTION COMMERCIAL COURT |
[2023] SC (Bda) 78 Civ.
The Hon. Chief Justice Hargun
CIVIL JURISDICTION COMMERCIAL COURT
2021: No. 257
In The Supreme Court of Bermuda
Application for anti-suit injunction restraining the defendant from continuing with foreign proceedings; principles to be applied; whether anti-suit relief should be granted on the basis that the defendant is a party to an arbitration agreement; whether anti-suit relief should be granted on the basis that the defendant is seeking quasi-contractual relief in the foreign proceedings; whether anti-suit relief should be granted on the basis that the foreign proceedings are unconscionable, vexatious and/or oppressive
Mr David Scorey KC, Mr Mark Chudleigh and Mr Erik Penz of Kennedys Chudleigh for the Plaintiff
Mr John Jarvis KC and Mr Nicholas Howard of Walkers (Bermuda) Limited for the Defendants
Following an ex parte hearing on 3 September 2021, Subair Williams J ordered that the Defendants, whether by themselves or through their trustees, officers, directors, employees, servants, agents, representatives, attorneys or otherwise shall be restrained from:
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(1) prosecuting, pursuing and/or otherwise continuing and/or taking any further substantive or procedural step against the Plaintiff in the proceedings commenced by the Defendants in the Chancery Court of the State of Tennessee, in the United States of America, Case No. 21-0641-III (the (“Tennessee Proceedings”) because the Tennessee Proceedings breach the terms of the valid and binding arbitration agreement (“Arbitration Agreement”) governing the Defendants claims contained in Paragraph 14 of the Plaintiff's Standard Terms and Conditions for Advisory and Tax Services (the “Terms and Conditions”), save for the purpose of dismissing, withdrawing and/or otherwise discontinuing the Tennessee Proceedings;
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(2) seeking and/or obtaining an anti-suit and/or anti-anti-suit injunction and/or a temporary order restraining and/or preventing the Plaintiff for pursuing and/or otherwise enforcing the said valid and binding Arbitration Agreement; and/or
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(3) prosecuting, pursuing and/or otherwise continuing and proceeding against the Plaintiff in respect of any dispute subject to the Terms and Conditions other than pursuant to the valid and binding Arbitration Agreement (the “ Interim Order”).
On 26 September 2023 the Court heard an application by the Plaintiff seeking a permanent injunction restraining the Defendants in terms of the Interim Order. The Court also heard an application on behalf of the Fourth Defendant, Majors Family LLC (the “ LLC”) seeking to discharge the Interim Order against the LLC. Mr Frank Majors (“ Mr Majors”); Mrs Maxine Majors (“ Mrs Majors”) and the Modified MDMW 2010 Family Trust (the “ Family Trust”) have written to the Court in letters dated the 6 January 2023 and 10 January 2023 undertaking “ to the Supreme Court of Bermuda and to the Plaintiff not to prosecute, pursue or otherwise continue or take any step against the Plaintiff in respect of any dispute that falls within the scope of the Plaintiff's Standard Terms and Conditions for Advisory and Tax, save for dismissing, withdrawing and/or otherwise discontinuing the proceedings commenced in Tennessee.” The undertakings given to the Court and to the Plaintiff add that it is the understanding of Mr Majors, Mrs Majors and the Family Trustee that they “ will not be in breach of this undertaking merely by reason of the Fourth Defendant [LLC] continuing with this claim in Tennessee, should the Fourth Defendant succeed on its application to the Court to discharge the Interim Injunction granted by the Court on 3 September 2021.” Mr Majors is the sole managing member of the LLC and in his capacity as the managing member, controls and directs the affairs of the LLC.
In summary, the LLC contends that the Interim Order should be discharged since its claims in the Tennessee Proceedings are grounded in negligence only and that the LLC is not a party to any arbitration agreement with KPMG. KPMG submits that the LLC's application for discharge of the Interim Order is misconceived, and it should be made permanent on the grounds that:
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(1) The LLC is in fact party to the Arbitration Agreement with KPMG which provides that any disputes must be resolved through mediation and/or arbitration in Bermuda which the Defendants appear to have accepted the by their conduct in relation to this application.
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(2) In the alternative, the LLC's claim in the Tennessee Proceedings is in any event subject to that arbitration agreement.
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(3) In the further alternative, it would be oppressive and/or vexatious to permit the LLC to pursue its claim against KPMG in Tennessee, particularly in light of the other Defendants' concession that their claims are subject to arbitration.
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(4) There are no “strong reasons” why the Interim Order should not be continued and made final.
The essential background to these proceedings is set out in the First Affidavit of Mr Michael Morrison dated 2 September 2021, the then Chief Executive Officer of KPMG Bermuda. Mr Majors is a co-founder and director of Nephila Holdings Ltd and its wholly owned subsidiary Nephila Capital Ltd (together “ Nephila”), both Bermuda companies. Mr Majors is a resident of Tennessee in the United States and is a member and the sole manager of the LLC.
Mrs Majors is the wife of Mr Majors and is also a resident of Tennessee. She is the settlor of the Family Trust and a member of the LLC.
The Family Trust is described in the Complaint in the Tennessee Proceedings as a Delaware inter vivos trust. As noted earlier, Mrs Majors is the settlor of the Family Trust, and the Family Trust is in turn a member of the LLC.
The LLC is a Delaware limited liability company of which Mr Majors, Mrs Majors and the Family Trust are members.
In 2018, Mr and Mrs Majors and The MDMW Discretionary Settlement, a Jersey trust (the “ Jersey Trust”) were partners in Nephila Partners LP, a Bermuda Limited partnership, which owned approximately 56% of Nephila. The Jersey Trust was settled by Mrs Majors in 2010 to hold a portfolio of investment securities, including any interest in Nephila. The assets of the Jersey Trust were re-domesticated from Jersey to Delaware and are now held by the Family Trust.
An agreement was reached in 2018 whereby the shares held by Mr Majors' family in Nephila (including via the Jersey Trust and Nephila Partners LP) were to be sold to the global (re)insurance group Markel Corporation (“ Markel”).
By letter dated 31 January 2018 Mr Majors engaged KPMG to provide tax advisory services and to prepare certain income tax returns and other revenue related filings for himself and others (the “ Majors First LoE”). The Majors LoE stated that “ if you are in agreement with the terms of this engagement letter (and the attached Standard Terms and Conditions), please sign the enclosed copy of this letter to confirm our agreement.” Mr Majors signed this letter on 7 March 2018 confirming his agreement. Mr Majors is a party to a further letter of engagement dated 7 February 2019 (the “ Majors Second LoE”).
By letter dated 30 January 2018 the trustee of the Jersey Trust engaged KPMG to provide tax compliance and tax advisory services (the “ Trust LoE”). The Trust LoE stated that “ if you are in agreement with the terms of this engagement letter (and the attached Standard Terms and Conditions), please sign the enclosed copy of this letter to confirm our agreement.” The trustee of the Jersey Trust signed this letter on 21 February 2018 confirming the agreement on behalf of the Jersey Trust.
In anticipation of the potential sale of Nephila to Markel, in or about August 2018 KPMG proposed that, for tax purposes, the interest of the Majors family in Nephila should be transferred to a Delaware limited liability company in exchange for Mr and Mrs Majors and the Jersey Trust acquiring ownership interest in the company, with Mr Majors as the managing member. This led to the formation of the LLC. Accordingly, it is not in dispute that the LLC was the result of, and in furtherance of, the tax advice provided by KPMG to Mr and Mrs Majors and the Jersey Trust.
Although the First Majors LoE was addressed to and executed by Mr Majors, Mr William McCallum has advised that it was contemplated that the engagement would include work to be carried out by KPMG on behalf of Mrs Majors and others. Thus, the First Majors LoE references tax returns to be completed for Bedford Avenue LLC, a Tennessee company in which Mrs Majors was a member, and the charitable Devine-Majors Foundation. In the event, KPMG assisted in the completion of tax returns for both Mr Majors and Mrs Majors as well as for the Jersey Trust and provided all three with tax planning advice, advice which led to the creation of the LLC.
KPMG performed services on behalf of Mrs Majors. By emails of 2 February and 5 March 2018 KPMG tax manager, Ashley Godek, and Melissa Singler of Nephila Advisers stated that both Mr and Mrs Majors would need to sign the KPMG Tax Ltd Annual Consent to Disclose Tax Return Information and, in an email of 5 March 2018, Ms Godek requested they, “ let us know if Frank or Maxine have any questions”. On 8 March 2018, Ms Singler replied to KPMG by email enclosing, among other documents, the Annual Consent to Disclose Tax Return Information signed on 7 March 2018 by Mr Majors in his capacity as the taxpayer and by Mrs Majors in her capacity as the taxpayer's spouse. A similar KPMG Tax Ltd Annual Consent to Disclose Tax Return Information form was signed by Mr and Mrs Majors on 18 February 2019 in connection with the subsequent tax year returns.
Mr Morrison states that in...
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