Mexico Infrastructure Finance LLC v Par-la-Ville Hotel and Residences Ltd

• Jurisdiction: Bermuda
• Judgment Date: 18 June 2015
• Docket Number: Commercial Jurisdiction 2015 Nos 21, 49 & 77
• Date: 18 June 2015
• Court: Supreme Court (Bermuda)

[2015] Bda LR 56

In The Supreme Court of Bermuda

Commercial Jurisdiction 2015 Nos 21, 49 & 77

Between:

Mexico Infrastructure Finance Llc

Plaintiff

and

Par-La-Ville Hotel and Residences Ltd

Michael Maclean

Yasmin Maclean

Shane Mora (as Trustee of The Skyline Trust)

Matthew Hollis (as Trustee of The Skyline Trust)

Defendents

Mr N Hargun and Ms R Mayor for the Plaintiff

Mr M Daniels for the 1^st Defendant

Mr E Johnston for the 2^nd— 5^th Defendants

The following cases were referred to in the judgment:

Fourie v Le RouxWLR [2007] 1 WLR 320

Locabail International Finance Ltd v Manios and Transways Chartering SABDLR [1988] Bda LR 26

The NiedersachsenWLR [1983] 1 WLR 1412

Derby & Co Ltd v Weldon (Nos 3 and 4)ELR [1990] 1 Ch 65

Utilicorp United Inc v RenfroBDLR [1994] Bda LR 79

TSB Bank International v ChabraWLR [1992] 1 WLR 231

Mediterranea Reffineria Siciliana Petroli Spa v Mabanaft [unreported, 1 Dec 1978, EWCA]

A v CELR [1981] QB 956

Barclays Bank v Quistclose Investments LtdELR [1970] AC 567

Bellis v ChallinorUNK [2015] EWCA Civ 59

Royal Brunei Airlines v TanELR [1995] 2 AC 378

Twinsectra v YardleyELR [2002] 2 AC 164

Application to discharge Mareva injunctions — Loan to fund hotel development — Security of equity — Escrow agreement — Whether dishonest conduct

RULING of Hellman J

Introduction

1. The Plaintiff is a company registered in Delaware, USA (‘MIF’). The First Defendant is a company registered in Bermuda (‘PLV’). The Second and Third Defendants, who are husband and wife, are directors of PLV (‘the Directors’). The Fourth and Fifth Defendants are trustees (‘the Trustees’) of a trust known as the Skyline Trust (‘the Trust’). The Trust was established by a written instrument dated 19th October 2014. The settlor was the Second Defendant and the beneficiaries are the Directors and, after their deaths, their children and remoter issue.

2. This is a ruling on an application by the Directors and the Trustees to discharge as against them ex parte injunctions made by this Court against PLV and the Directors on 10th February 2015 and against the Trustees on 20th February 2015. The injunctions prohibited the Defendants from dealing with their assets up to the value of $15,449,858, with exceptions permitting them to spend reasonable sums on legal advice and representation in relation to these proceedings and to cover their reasonable costs of living and the ordinary costs of business. PLV was represented at the hearing of the application but did not apply to discharge the injunction against it and played no active role.

Facts

3. The background to the injunctions was a loan of US$ 18 million made by MIF to PLV in order to help fund a hotel development by MIF in Hamilton. The purpose of the loan was not to fund the project but to put PLV in funds to discharge certain debts and to enable it to secure the equity and senior lending that would fund the project (‘the Permanent Loan’).

4. The loan was made pursuant to a credit agreement (‘the Credit Agreement’) between MIF and PLV dated 9th July 2014. This provided that upon satisfaction of all the funding conditions contained in the Credit Agreement, the net proceeds of the loan, after deduction of interest, loan costs and various fees payable to MIF, would be disbursed by MIF to The Bank of New York Mellon (‘the Bank’) to hold as escrow agent in escrow pursuant to an escrow agreement (‘the Escrow Agreement’) between MIF, PLV, the Corporation of Hamilton (‘the Corporation’), which was the guarantor of the loan, and the Bank. The amount of the net proceeds was US$ 15,449,858, ie the sum mentioned in the injunctions.

5. The Escrow Agreement was to provide that the escrowed funds would be disbursed by the Bank as directed by PLV so long as the conditions set forth in the Escrow Agreement were satisfied.

6. The maturity date for the loan was 30th December 2014. Failure to repay it in full by that date was an event of default, whereupon MIF could serve notice on PLV which would have the effect that the loan, including all interest and other payments due under it, would become immediately due and payable to MIF.

7. The Credit Agreement was governed by the law of the State of New York in the USA. It contained a jurisdiction clause which provided that the courts of the State of New York had exclusive jurisdiction over any action brought by PLV in relation to the Credit Agreement and non-exclusive jurisdiction in relation to any such action brought by MIF.

8. The Escrow Agreement was also dated 9th July 2014. Recitals to the Escrow Agreement recorded that MIF had deposited US$ 15,449,858 into escrow (‘the Escrow Property’); that pursuant to a security agreement of even date PLV had granted MIF a lien and security interest over the escrowed funds; and that the purpose of the escrow was to (a) establish a controlled account for the escrowed funds; and (b) restrict the disbursement of the escrow until the satisfaction of certain conditions, specified in the Escrow Agreement, relating to the Permanent Loan.

9. Section 3 of the Escrow Agreement dealt with the distribution of the Escrow Property.

• i. Section 3.1 contained a mechanism for PLV to draw down from the Escrow Property in one or more tranches an initial aggregate sum of up to US$ 1.2 million to pay expenses associated with the Permanent Loan.

• ii. Section 3.3 contained a mechanism for the payment of the balance of the Escrow Property into the ‘Senior Escrow’ (‘the Senior Escrow Account’):

  ‘In order to obtain a distribution of the Escrow Property into the Senior Escrow’, the parties shall, subject to section (d) below, comply with the following:

  (a) PLV shall deliver to the Corporation (with copies to [MIF] for information purposes only): (i) a certification, signed by an officer of PLV, certifying that all conditions precedent have been satisfied for the funding of a loan of $225 million and an equity investment of $100 million or for such substantially similar financing structure from the Permanent Lender in substance reasonably acceptable to the Corporation…. To PLV…; and (ii) copies of the Permanent Loan Funding Agreement, the Senior Escrow Agreement and all ancillary documents, duly executed by the parties thereto, and in form and substance reasonably acceptable to the Corporation; and

  (b) No sooner than three (3) Business Days after receipt by the Corporation (and receipt of copies for information purposes only by the [Plaintiff] of the items in subsection 3.3(a) above, the Corporation and PLV shall provide joint written notice to the [Bank] (i) stating that the documents delivered pursuant to subsection 3.3(a)(i) and (ii) above are approved by the Corporation (such approval not to be unreasonably withheld, delayed or conditioned), and (ii) authorizing disbursement to the Senior Escrow.

  (c) [PLV's] obligation to provide [Plaintiff] with copies of the Permanent Loan Funding Agreement in accordance with subsection 3.3(a)(i) above will apply insofar as PLV is permitted to release same without being in breach of any confidentiality owed to the permanent Lender, provided that the [First Defendant] hereby undertakes to apply its best endeavors to have the [Plaintiff] included in a permitted category in the Permanent Loan Funding Agreement as it relates to confidentiality or non-disclosure.’

  [Emphasis added.]

• iii. Section 3.3 also provided that a minimum of US$ 500,000 was to remain in escrow until the loan was repaid in full.

• iv. Section 3.4 provided that upon satisfaction of the above conditions, the Bank shall, within three business days of receiving notice in accordance with sections 3.3(a) and (b), transfer the balance of the Escrow Property, less US$ 500,000, to the Senior Escrow.

• v. Section 3.8 provided, inter alia:

  ‘the Senior Escrow’ is an escrow established by PLV, the Permanent Lender, and [the Bank] (or another escrow agent reasonably acceptable to the Corporation) for the purpose of paying expenses associated with the Permanent Loan; and …‘the Senior Escrow Agreement’ is the agreement among PLV, the Permanent Lender and [the Bank] (or another escrow agent reasonably acceptable to the Corporation) governing the Senior Escrow.’

  [Emphasis added.]

10. Section 4 of the Escrow Agreement provided that while the Escrow Property remained in Escrow, the Bank would permit withdrawals of the Escrow Property only as permitted in section 3 of the Escrow Agreement.

11. In summary:

• i. The Bank was to make an initial payment of up to US$ 1.2 million to PLV from the Escrow Amount for the purpose of paying expenses associated with the Permanent Loan. It was to pay the balance of the Escrow Amount into the Senior Escrow Account, to be used for the same purpose.

• ii. As a condition of releasing the balance, the Bank was required to receive a joint written notice from PLV and the Corporation certifying inter alia that the Corporation had received and approved a copy of the Permanent Loan Funding Agreement, ie an agreement for borrowing the Permanent Loan.

• iii. The Permanent Loan was to be a loan of $225 million and an equity investment of $100 million, or a substantially similar financing structure from the Permanent Lender that was reasonably acceptable to the Corporation.

• iv. The Senior Escrow Account was to be governed by an agreement made between PLV, the Permanent Lender, and either the Bank or an alternative escrow agent that was reasonably acceptable to the Corporation.

• v. PLV was to supply copies to MIF of the Permanent Loan Funding Agreement and the Senior Escrow Agreement. The duty to supply a copy of the Permanent Loan Funding Agreement was contingent on the terms of its duty of confidentiality to the Permanent Lender, but the duty to supply a copy of the Senior Escrow Agreement...