N-Ren International Ltd v Adria Aktiengescellschaft

• Jurisdiction: Bermuda
• Judge: Hellman, J.
• Judgment Date: 25 January 2018
• Neutral Citation: [2018] SC Bda 7 Civ
• Docket Number: CIVIL JURISDICTION 2017: No 466
• Court: Supreme Court (Bermuda)
• Date: 25 January 2018

[2018] SC (Bda) 7 Civ

In The Supreme Court of Bermuda

Hellman, J.

CIVIL JURISDICTION 2017: No 466

In The Matter of the Companies Act 1981

and

In The Matter of N-Ren International Ltd

and

In The Matter of Adria Aktiengescellschaft (a.k.a. ADRIA AG)

Mr Orlando Smith, Milligan-Whyte & Smith, for the Applicant, Adria AG

Whether Applicant was a person entitled to disclaimed property which had passed bona vacantia to the Crown upon dissolution of company indebted to Applicant — whether Applicant had to show a proprietary interest or merely a financial interest in disclaimed property — whether Applicant had a proprietary interest in disclaimed property — Companies Act 1981 sections 240(4) and 263

RULING

(Ex parte in Chambers)

Introduction

1 This is an interesting and unusual application. The Applicant is a company known as Adria AG (“ Adria”), which is incorporated under the laws of Liechtenstein. By an ex parte originating summons dated 18 ^th December 2017, Adria seeks an order under section 240(4) of the Companies Act 1981 (“ the 1981 Act”), read in conjunction with section 263 of the 1981 Act, for the vesting of certain property in the company (“the Property”).

2 The Property formerly belonged to another company, N-ReN International Ltd (“ N-ReN”), which was incorporated under the laws of Bermuda. But the Property reverted bona vacantia to the Crown when N-ReN was dissolved. The Acting Attorney General has issued a notice disclaiming any interest in the Property.

3 Following the initial hearing, I invited written submissions from the Applicant's counsel, Orlando Smith, and then further oral submissions. I am grateful for the care and skill with which Mr Smith presented his case. The issue which troubled me was whether Adria had an interest in the disclaimed property, as this was a precondition for the making of a vesting order.

Background

4 The facts relied upon by Adria are set out in affidavits sworn by Glenn Kielty, the duly authorised representative of Adria, and Thomas C Snyder (“ Mr Snyder”), a former director of N-ReN. For the purposes of this application, I accept that, save where appears to the contrary in this judgment, the facts alleged by these deponents are true and correct.

5 Adria entered into a consultancy agreement dated 20 ^th October 1978 with N-ReN (“ the Consultancy Agreement”). The services which Adria provided under the Consultancy Agreement concerned a contract dated 30 ^th December 1975 for the construction and operation of certain fertilizer plants in Sudan (“ the Project Contract”) which N-ReN had entered into with a company incorporated under the laws of Sudan known as Sudan ReN Chemicals & Fertilizers Limited (“ Sudan ReN”).

6 The Property was as follows:

• (1) 12 promissory notes issued by Sudan ReN to N-ReN (“ The Promissory Notes”), representing unpaid retention monies payable under the Project Contract. The Promissory Notes were guaranteed by the Government of Sudan. The last payment under the Promissory Notes fell due on 3rd October 1988. However, no payments have in fact been made under any of the Notes.

• (2) Certain debts owed by Sudan ReN to N-ReN under the Project Contract, and the right to demand repayment thereof.

• (3) 403,900 shares in Sudan ReN (“ the Shares”), which comprised a 35 per cent ownership interest in the company. These were issued to N-ReN's parent company N-ReN Corporation, which was incorporated in Delaware in the United States (“ N-ReN Delaware”), under an agreement between N-ReN Delaware and the Government of Sudan dated 30 ^th November 1975 (“ the Founders Agreement”). N-ReN Delaware held the shares as nominee for N-ReN.

• (4) The Property includes all rights, benefits and interests pertaining to the Promissory Notes and the Shares, including the right to arbitrate under the Project Contract and the Founders Agreement.

7 Pursuant to the Project Contract, Sudan ReN deposited the Promissory Notes in escrow with American Express International Bank (“ Amex”) in London. By an escrow agreement dated 8 ^th March 1982 made between N-ReN, Adria and Amex (“ the Escrow Agreement”):

• (1) Amex agreed to hold in escrow any proceeds realised by discounting or payment of the Promissory Notes and to pay N-ReN's indebtedness to Adria out of such proceeds without further instruction from Adria (clause 4).

• (2) Should any of the Promissory Notes not be paid or discounted and the proceeds thereof paid into the Escrow Account on or before 3 months after the due date of such Note, Adria would be entitled to issue proceedings against N-ReN for an amount equal to or in excess of the face value of the dishonoured Note (clause 5).

• (3) In such event, ie if Adria did issue proceedings against N-ReN, the Bank would release to N-ReN from the Escrow Account, without further instruction from Adria, the dishonoured Promissory Note and further Notes to the approximate value of the proceedings issued against N-ReN by Adria (clause 5).

8 By a deed of power of attorney dated 1st August 1994 (“ the Power of Attorney”), N-ReN appointed Mr Snyder and John J Kelley Jr (“Mr Kelley”) as its attorneys in fact. The Power of Attorney authorised the attorneys in fact to dispose of any assets of N-ReN and to assign the benefit or burden of any contract to which N-ReN was a party. Mr Snyder explained in his affidavit that he was instructed to wind down N-ReN's affairs and to complete contracts with creditors, chiefly Adria.

9 By a deed of transfer dated 24 ^th February 1995 between N-ReN (ostensibly) and Adria (“ the Deed of Transfer”), Mr Snyder, purportedly acting pursuant to the Power of Attorney, agreed: (i) following the procedure laid down in the Founders Agreement, to offer to sell the Shares to the Government of Sudan, and if the Government of Sudan did not exercise its right to purchase the Shares, to transfer them to Adria; and (ii) to instruct Amex to release the Promissory Notes to Adria. The purpose of these transactions was to discharge the debt which N-ReN owed to Adria for outstanding consultancy fees. The Deed of Transfer noted that as at 31st December 1994, the amount of the debt, including interest, was $3,050,914.00.

10 I was referred to a letter dated 8 ^th April 1994 from Mr Kelley to Mr Snyder proposing various insertions to the draft agreement that became the Deed of Transfer (“ the April 1994 letter”). As appears later in this judgment, Adria invites the Court to attach considerable importance to this letter.

11 By a letter to Amex, also dated 24 ^th February 1995, Mr Snyder, purportedly on behalf of N-ReN, informed Amex that N-ReN had modified its agreement with Adria (ie by the Deed of Transfer) and that this impacted on the Escrow Agreement. Mr Snyder instructed Amex that: (i) all proceeds received by Amex from Sudan ReN and/or the Government of Sudan in payment of the Promissory Notes should be paid directly on receipt to Adria; (ii) in accordance with the Deed of Transfer, Adria was now the exclusive owner of the Promissory Notes; and (iii) all the Promissory Notes should be released to Adria.

12 By a letter to N-ReN dated 7 ^th July 1995, Adria stated that, in accordance with “ the Contract between [Adria] and [N-ReN]”, Adria confirmed the transfer to it of the Shares. On 11 ^th July 1995, Mr Snyder endorsed the letter as signed and accepted by N-ReN.

13 Confusingly, the said contract for the transfer of the Shares (“ the Share Transfer Contract”), which Mr Snyder signed purportedly on behalf of N-ReN, bears the subsequent date of 19 ^th August 1995. Under this contract: (i) N-ReN agreed to transfer the Shares to Adria; (ii) Adria purportedly accepted the transfer; and (iii) N-ReN authorised the registration of the Shares in the name of Adria. I am not told whether registration in fact took place. The Government of Sudan had been invited by N-ReN in accordance with the Founders Agreement to purchase the Shares but had not done so.

14 Custody of the Promissory Notes passed from Amex to Standard Chartered: it appears that Standard Chartered acquired all or part of Amex's business. Although the Promissory Notes were held by Standard Chartered Private Bank in London, they were governed by the Bank's US entity: Standard Chartered International (USA) Ltd. They were therefore subject to a United States sanctions regime prohibiting transactions with Sudan which prevented their release to Adria. The sanctions, which commenced in 1997, were not lifted until January 2017. The Promissory Notes were released to Adria on 16 ^th March 2017.

The problem

15 Adria commenced arbitration proceedings before the International Chamber of Commerce against Sudan ReN and the Government of Sudan (“ the ICC Respondents”) to enforce its purported rights in relation to the Property. A Revised and Amended Request for Arbitration was filed on 30 ^th June 2017.

16 Adria was in for a nasty shock. The ICC Respondents took the point that N-ReN was struck off the Register of Companies (“ the Register”) on 30 ^th September 1994. Notice thereof was duly published in a local newspaper, “ The Bermuda Sun”. Upon such publication, N-ReN was dissolved by operation of statute. See section 261 of the 1981 Act, which is headed “ Registrar may strike defunct company off register” and sets out the procedure whereby the Registrar may do just that.

17 Upon the dissolution of N-ReN, all property and rights whatsoever vested in or held on trust for it immediately before its dissolution, not including any property held by it on trust for any other person, were deemed to be bona vacantia and accordingly to belong to the Crown. See section 262 of the 1981 Act, which is headed “ Property of dissolved company to be bona vacantia”. The UK Government website helpfully explains that “ bona vacantia” means “ vacant goods” and is the name given to ownerless property, which by law passes to the Crown.

18 In the premises, the...