LAEP Investments Ltd v Emerging Markets Special Solutions 3 Ltd

• Jurisdiction: Bermuda
• Judge: Baker P,Kay JA,Bell JA
• Judgment Date: 09 April 2015
• Court: Court of Appeal (Bermuda)
• Docket Number: Civil Appeal 2014 No 6
• Date: 09 April 2015

[2015] Bda LR 38

In The Court of Appeal for Bermuda

Before:

Baker P; Kay JA; Bell JA

Civil Appeal 2014 No 6

Between:

Laep Investments Ltd

Appellant

and

Emerging Markets Special Solutions 3 Ltd

Respondent

Mr D Duncan and Ms N Tovey for the Appellant

Mr J Wasty for the Respondent

The following cases were referred to in the judgment:

Hammond Suddard Solicitors v Agrichem International Holdings LtdUNK [2001] EWCA Civ 2065

LV Finance Group Ltd v IPOC International Growth Fund LtdBDLR [2006] Bda LR 67

IPCO (Nigeria) Ltd v Nigerian Petroleum CorpUNK [2005] 2 Lloyd's Rep 326

Yukos Oil Co v Dardana LtdUNK [2002] EWCA Civ 543

Hadmor Productions Ltd v HamiltonELR [1983] 1 AC 191

Stay of Enforcement Order — Arbitration — Winding up — Terms of the Stay Order — Basis of application — Bias towards enforcement — Discretion

JUDGMENT of Bell JA

1. On 20 March 2015, we indicated that we would allow the appeal, grant a stay of the Enforcement Order (as defined in this judgment), and set aside the order to wind up the Appellant (‘the Company’), and those orders ancillary to the winding up order, including orders relating to the appointment and activities of the Joint Provisional Liquidators (‘the JPLs’). Mr Duncan for the Company raised a number of issues upon delivery of judgment. The principal matters were the costs of the JPLs, and whether or not our order should have been to dismiss the winding up petition, rather than set aside the order to wind up the Company. We gave liberty to apply to the trial judge in respect of both matters. In relation to the latter, we would simply comment that in circumstances where the outcome of the proceedings in Brazil cannot presently be ascertained, it seems sensible to allow for the possibility that the Respondent might ultimately prevail. We indicated that we would give our reasons in writing as quickly as possible. This we now do.

2. The dispute ultimately giving rise to this appeal goes back to a reference to arbitration submitted by the Company in Brazil in October 2010. That reference to arbitration followed a dispute as to the existence and/or extent of obligations owed by the Company to the Respondent. The transaction which led to the arbitration request arose from the restructuring of a debt owed by a wholly owned subsidiary of the Company, pursuant to which the Respondent discharged a substantial debt owed by the Company and its subsidiaries. In a Ruling dated 1 April 2014 (‘the Ruling’) the judge at first instance, Hellman J, dismissed the Company's application for a stay of the arbitration award dated 18 March 2013 (‘the Award’) and held that he was in principle prepared to order that the Company be wound up, subject to hearing the parties as to the terms of such order. The judge then adjourned to hear argument, and when the matter came back before him on 4 April 2014, made an order winding up the Company. He subsequently gave a ruling on 23 April 2014 dealing with other matters relating to the appointment of JPLs, who were by that time represented before him.

The Brazilian Arbitration Proceedings and the Status of the Award

3. Pursuant to the Award, the Company was ordered to pay to the Respondent a sum of approximately R$145 million, including interest and costs, an amount said by the judge in paragraph 3 of the Ruling to be equivalent to well in excess of US$73 million at the then current exchange rates. On 29 April 2013, the arbitral tribunal rendered an addendum to the Award, providing that payment of the amount awarded became due immediately as of the date of the notification of the Award, presumably because there had been some contention to the contrary.

4. As the judge set out in paragraphs 11 to 15 of the Ruling, there were two principal challenges to the Award made in the Brazilian courts. The first he defined as the Annulment Application, which was filed by the Company on 18 June 2013, in which the Company sought to annul the Award under article 32 of the Brazilian Arbitration Law, on the basis that the decision of the arbitral tribunal was inconsistent with and was rendered in violation of Brazilian public policy. That application was dismissed on 20 June 2013, but this dismissal was in turn reversed by the Court of Appeals of the State of Sao Paulo, on 23 August 2013. The effect of that reversal was to remit the request for annulment to the lower court, and this process has yet to be completed. The judge commented (paragraph 26) that he had no information as to when the lower court was to hear the Annulment Application, and that he had no doubt that the unsuccessful party would wish to pursue an appeal.

5. The second application was defined by the judge as the Suspension Application, which was filed ex parte by the Company and by its parent company LAEP Holdings Ltd (‘Holdings’) on 1 October 2013 in the 43rd State Lower Civil Court in Brazil. That application was denied the following day, but the Company and Holdings appealed, and on 19 December 2013 the Sao Paulo State Court of Appeals made an interim order (‘the Stay Order’), staying the effect of the Award pending the hearing of the Annulment Application. In our view this order and its effect are key to the determination of this appeal.

6. Accordingly, the position at the time of argument in this appeal is that the Award stands as a valid award, albeit one which remains subject to attack in terms of the Annulment Application, and the effect of which is subject to the Stay Order, pending both conclusion of the application to annul the Award, and of any further order which might be made regarding either the terms or continued existence of the Stay Order.

The Bermuda Proceedings

7. Against that summary of the steps that have been taken in Brazil following delivery of the Award, it is next necessary to consider the steps taken in Bermuda. First, four days after the arbitral tribunal had made the Award in Brazil, the Supreme Court made an order (‘the Enforcement Order’) granting the Respondent and its majority shareholder, GLG Emerging Markets Special Situations Fund (‘GLG’), leave under Order 73 rule 10 of the Rules of the Supreme Court 1985 (‘RSC’) to enforce the Award in the same manner as a judgment or order. Some four days later, the Supreme Court granted a worldwide Mareva injunction against the Company, prohibiting it from dealing with its assets up to the value of the Award. The Company then made an application to set aside the Enforcement Order, but following a hearing, that application was dismissed by the Chief Justice on 21 June 2013. That, of course, was at a time when the Award had, at first instance, withstood the attack of the Annulment Application, and before the appellate court had reversed that dismissal and remitted the request for annulment to the lower court, on 23 August 2013, and, most significantly, before the Stay Order was made on 19 December 2013.

8. Following the dismissal of the application to set aside the Enforcement Order, the Respondent then issued a statutory demand on 27 June 2013, and a petition to wind up the Company was issued on 20 September 2013, which petition was later amended. The judge consequently had before him for the March 2014 hearings which led to the Ruling, the amended petition, the Company's summons of 23 October 2013 to dismiss the petition and set aside the appointment of JPLs, and, lastly, the Company's summons to stay execution of the Enforcement Order, which had been issued just two days before the hearings before the judge.

9. The judge dealt first with the application to stay the Enforcement Order, which application was made pursuant to RSC Order 45 rule 11. This order is concerned with the enforcement of judgments and orders generally. We will similarly deal with that aspect of matters first.

Stay of the Enforcement Order

10. RSC Order 45 rule 11 provides that a party against whom an order has been made may apply to the Court for a stay of execution of that order ‘on the ground of matters which occurred since the date of the … order’. Accordingly, the Court has power to grant a stay of execution of any judgment or order made, in the event of some relevant subsequent event. As the judge pointed out in paragraph 17 of the Ruling, this means that the facts must be such as would or might have prevented the judgment or order being made, or would or might have led to a stay of execution, if the matters in question had already occurred at the date of the judgment or order.

11. The particular matter which the Company submitted before the judge represented a material change in circumstances since the Enforcement Order had been made by the Court on 22 March 2013 was the Stay Order, which it maintained had the effect of suspending the operation of the Award (see paragraph 5 above). The Enforcement Order had been granted only four days after the issue of the Award, and before the various steps identified in paragraphs 3 and 5 above had been taken by the Company in an effort to set aside the Award. As appears in paragraph 3, the Annulment Application was denied at first, but following an appeal remains extant. The Suspension Application was similarly denied at first, but subsequently the appellate court made its order on 19 December 2013, and that order survived an appeal by the Respondent which the Sao Paulo Court of Appeals rejected in a decision published on 11 March 2014. The Respondent's expert indicated that the Stay Order...