Re LAEP Investments Ltd

• Jurisdiction: Bermuda
• Judgment Date: 01 April 2014
• Date: 01 April 2014
• Docket Number: Commercial Jurisdiction 2013 No 333
• Court: Supreme Court (Bermuda)

[2014] Bda LR 35

In The Supreme Court of Bermuda

Commercial Jurisdiction 2013 No 333

In the matter of LAEP Investments Ltd

and in the matter of the Companies Act 1981

Mr J Wasty and Mr H Tucker for the Petitioner

Mr D Duncan and Ms N Tovey for the Company

Mr D Kessaram for Joint Provisional Liquidators

The following cases were referred to in the judgment:

EI Du Pont de Nemours & Co v Enka BV (No 2)UNK [1988] RPC 497

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

Re Gerova Financial Group LtdBDLR [2012] Bda LR 43

Re a CompanyUNK [1983] BCLC 492

Re Douglas (Griggs) Engineering LtdUNK [1962] 1 All ER 498

In re LHF Wools LtdELR [1970] 1 Ch 27

Ebbvale Ltd v HoskingUNK [2013] UKPC 1

Moor v Anglo-Italian Bank (1879) 10 Ch 681

Cleaver v Delta American Reinsurance CoELR [2001] 2 AC 328

In re Carmarthenshire Anthracite Coal and Iron Co (1875) 45 LJ Ch 200

Commercial Bank of Scotland Ltd v Lanark Oil Co LtdSC (1886) 14 R 147

Forsayth NL v Juno Securities Ltd [1991] 4 ACSR 281

In re Crigglestone Coal Co LtdELR [1906] 2 Ch 327

Enforcement of arbitral award — Application for stay — Whether change of circumstances — Comity — Balance of convenience — Guiding principles of winding-up — Whether debt is fully secured

RULING of Hellman J

Introduction

1. There are three applications before the Court:

• i. An amended petition dated 23^rd September 2013 to wind up the Company (‘the Petition’). The Petitioning Creditor is Emerging Markets Special Situations 3 Limited (‘the Petitioner’).

• ii. The Company's summons dated 23^rd October 2013 to dismiss the Petition and set aside the appointment of Joint Provisional Liquidators (‘JPLs’).

• iii. The Company's summons dated 24^th March 2014 to stay execution of an Order of this Court made on 22^nd March 2013 (‘the Enforcement Order’). The Enforcement Order gave leave to the Petitioner to enforce against the Company an arbitral award (‘the Award’) made in ICC arbitration 17446/JRF/CA seated in Sao Paulo, Brazil (‘the Arbitration’) and entered judgment for the Petitioner in the amount of the Award.

Arbitration

2. The Company submitted a Request for Arbitration on 4^th October 2010. The Arbitration concerned the Company's ostensible obligations to the Petitioner under a number of agreements in relation to the restructuring of a debt issued by the Company's indirectly wholly owned subsidiary, Parmalat Brasil SA Industria de Alimentos. In particular, pursuant to these agreements, the Petitioner discharged a very substantial debt due on some debentures that was owed by the Company and its subsidiaries. The Company has yet to pay the Petitioner in consideration of that discharge. The Company maintained that the agreements were null and void and that consequently the Petitioner had no enforceable claim against it of any kind. It also asserted monetary claims against the Petitioner.

3. The Tribunal made its final Award on 18^th March 2013. The Company was ordered to pay the Petitioner approximately R$ 145 million, including interest and costs. At present exchange rates, this is equivalent to well in excess of US$ 73 million.

4. On 29^th April 2013 the Tribunal rendered an addendum to the Award providing that payment of the amounts awarded became due immediately as of the date of notification of the Award.

Enforcement proceedings in Bermuda

5. The Award was made in Brazil, a country which is party to the New York Convention on the Reciprocal Enforcement of Arbitration Awards 1958 (‘the Convention’). Section 40(1) of the Bermuda International Conciliation and Arbitration Act 1993 (‘the 1993 Act’) provides for the enforcement of a Convention award in Bermuda. The award may be enforced by action or alternatively, with leave of the Court, may be enforced in the same manner as a judgment or order to the same effect. Where leave is given, judgment may be entered in terms of the award.

6. As noted above, on 22^nd March 2013 the Court made the Enforcement Order. This was pursuant to Order 73 rule 10 of the Rules of the Supreme Court 1985 (‘RSC’).

7. On 26^th March 2013 the Court made a worldwide Mareva injunction against the Company prohibiting it from dealing with its assets up to the value of the Award.

8. The Company issued a summons pursuant to RSC Order 73 rule 10(6) to set aside the Enforcement Order. On 21^st June 2013 that summons was dismissed.

9. On 27^th June 2013 the Petitioner issued a statutory demand to the Company seeking payment of the Award. That demand has not been met.

10. It is against this background that on 20^th September 2013 the Petitioner issued the Petition, which was amended on 23^rd September 2013.

Challenge to the Award in Brazil

11. The Company, as is its right, has sought to challenge the Award in the Brazilian courts. After initial setbacks it has currently gained the upper hand. There are two sets of proceedings: (i) an action to annul the Award (‘the Annulment Application’) and (ii) an action to suspend the Award pending the determination of the Annulment Application (‘the Suspension Application’).

12. The Annulment Application was filed by the Company on 18^th June 2013 in the 43^rd State Lower Civil Court of the City of Sao Paulo. It seeks to annul the Award under Article 32 of the Brazilian Arbitration Law on the basis that the decision is inconsistent with and was rendered in violation of Brazilian public policy.

13. On 20^th June 2013 the Annulment Application was dismissed. But on 23^rd August 2013 this decision was reversed by the 37^th Civil Chamber of the Court of Appeals of the State of Sao Paulo. The Court remitted the request for annulment to the 43^rd State Lower Civil Court. Subsequent attempts by the Petitioner to appeal this decision have been dismissed, most recently by the 37^th Private Law Chamber on 11^th March 2014.

14. The Suspension Application was filed ex parte by the Company and its parent company LAEP Holdings Ltd (‘Holdings’) on 1^st October 2013 in the 43^rd State Lower Civil Court. On 2^nd October 2013 the Application was denied.

15. The Company and Holdings appealed. On 19^th December 2013 the 13^th Private Law Chamber of the Sao Paulo State Court of Appeals made an interim order staying the effects of the Award pending the hearing of the appeal. On 28^th January 2014 the Sao Paolo Court of Appeals rejected the Petitioner's appeal against the interim stay.

Application for stay of execution

16. The Company applies for a stay of execution of the Enforcement Order, pursuant to RSC Order 45 rule 11. This provides that a party against whom an order has been made may apply to the Court for a stay of execution on the ground of ‘matters which have occurred since the date of the judgment or order’. The Court may grant such relief, and on such terms, as it thinks just.

17. What that means is 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 they had already occurred at the date of the judgment or order. See EI Du Pont deNemours & Co v Enka BV (No 2)UNK[1988] RPC 497, Patents Court, per Falconer J at 509 line 11 – 510 line 14.

18. The principles applicable to the grant of a stay are helpfully set out in the commentary to the 2014 Edition of the White Book:

‘General approach

52. 7. 1Neither the commencement of an appeal nor the grant of permission to appeal affects the enforceability of the judgment below. If the appellant desires a stay, they must apply for it and put forward solid grounds why such a stay should be granted. …R (Pharis) v SSHDUNK[2004] EWCA Civ 654; [2004] 1 WLR 2590.

Under RSC Ord. 59 (which governed appeals prior to May 2000) the courts had established the principle that a successful litigant should not generally be deprived of the fruits of their litigation pending appeal, unless there was some good reason for this course. This general principle still applies. The normal rule is for no stay per Potter LJ in Leicester Circuits Ltd v Coates Brothers plcUNK[2002] EWCA Civ 474 at [13]. In DEFRA v DownsUNK[2009] EWCA Civ 257 at [8]–[9] Sullivan LJ, having noted that a stay is the exception rather than the rule, stated that the solid grounds which an applicant must put forward are normally some form of irremediable harm if no stay in (sic) granted.

The balancing exercise

52. 7. 2If an appellant puts forward solid grounds for seeking a stay, the court must then consider all the circumstances of the case. It must weigh up the...