Re Lehman Re, Ltd

• Jurisdiction: Bermuda
• Judgment Date: 20 September 2011
• Date: 20 September 2011
• Docket Number: Commercial Jurisdiction 2008 No. 217
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2008 No. 217

In the Matter of Lehman Re, Ltd

And in the Matter of the Companies Act 1981

And in the Matter of the Insurance Act 1978

Mr J Riihiluoma and Mr J Wasty for Pulsar Re Ltd

Mr K White and Ms S Hurrion for Lehman Brothers Holdings Inc and Lehman Commercial Paper Inc

Mr D Duncan and Mr H Tucker for the Joint Provisional Liquidators

The following cases were referred to in the judgment:

Alterskye v ScottUNK [1948] 1 All ER 469

Prudential Assurance Co v Fountain PageWLR [1991] 1 WLR 756

Distillers Co (Biochemicals) Ltd v Times Newspapers LtdELR [1974] 1 QB 613

Dory v Richard Wolf GmbH [1990] 1 FSR 266

Halliburton Energy Services Inc v Smith International (North Sea) Inc [2004] EWHC 2181

Sybron Corp v Barclays BankELR [1985] 1 Ch 299

In Re Contract Corporation (Gooch's Case) (1871) 7 LR Ch App 207

Re Electric Mutual Liability Insurance Company LtdBDLR [1996] Bda LR 62

Gurtner v CircuitELR [1968] 2 QB 587

Abstract:

Release from duty of confidentiality - Disclosure - US proceedings - Implied undertaking

RULING of Kawaley, J

Introductory

1. The present application raises, seemingly for the first time under Bermudian law, the question of when a party who has received documents subject to an implied duty of confidentiality may be released from such undertaking so as to deploy the relevant material in proceedings overseas. By its Summons dated April 29, 2011, Pulsar Re Limited ("Pulsar Re"), a general business creditor of Lehman Re Limited-in Provisional Liquidation ("Lehman Re" or "the Company") seeks an Order that:

"1. Pulsar Re Limited be released from its implied confidentiality undertaking in these proceedings so it can use the discovery obtained herein from the Joint Provisional Liquidators in proceedings that Pulsar Re Limited has brought in New York in the United States Bankruptcy Court in the Southern District of New York against Lehman Brothers Holdings Inc. and Lehman Commercial Paper Inc."

2. This relief is not sought in the ordinary commercial litigation context. On September 23, 2008, the Company entered provisional liquidation on the Order of the Chief Justice. The Company had reinsured risks on a segregated basis with Long Term Creditors, as well as reinsuring its General Creditors. On February 19, 2009, the Joint Provisional Liquidators ("JPLs") issued a Summons seeking "directions about the treatment of the Congress Life asset in the books and records of the Company". They were unable to decide whether the Congress Life asset should properly be treated as a Long Term asset or a General Asset. On March 25, 2009, directions were ordered for the filing of factual and expert evidence by the JPLs, Pulsar Re and the Long Term Creditors. The JPLs have from the outset maintained a neutral position in respect of this question which has arisen in the course of the liquidation, on the basis that the relevant stakeholders will themselves advance the necessary arguments to enable this commercial dispute to be adjudicated.

3. The present application arises from discovery ordered by this Court in the process of preparing for the final determination of this issue. On November 10, 2010, I made the following further directions:

"(iv)On application by Counsel for Pulsar Re Ltd by summons issued dated 23rd September 2010,

(a)The Joint Provisional Liquidators shall within 28 days give specific discovery of the documents, correspondence and records identified at paragraphs 19(i) to 19(xviii) of the First Affidavit of John Symon Wasty…;

(b)The Joint Provisional Liquidators shall have liberty to apply for directions including an extension of time, with respect to paragraph (a);

(c)Pulsar Re Ltd. shall, within 3 months of receipt of the documents identified in paragraph (a), or such longer period as may be agreed by all parties, notify all parties as to whether it intends to pursue its proprietary claim;

(d)Pulsar Re has liberty to apply with respect to further document requests and extensions of time in respect of paragraph (iv)."

4. The proprietary claim Pulsar Re might bring, and referred to in the November 10, 2010 Order, was a claim against the Company. Pulsar Re had not at this juncture commenced an Adversary Proceeding against LBHI and LCPI in the jointly administered Chapter 11 proceedings filed by LBHI and others (case No. 08-13555) in the United States Bankruptcy Court for the Southern District of New York (Hon. James M. Peck). The documents disclosed to Pulsar Re by the Company in Bermuda were obtained by the JPLs under a Data Sharing Agreement dated March 2, 2010 between the Company and LBHI (the "DSA").

5. The DSA contemplated that, although the JPLs had requested only information and data in LBHI's possession which belonged to the Company, such data "is or may be commingled with information and data owned by or relating to LBHI or another entity". Accordingly the Company agreed not disclose any such information which was confidential without the prior consent of LBHI or other relevant entity, save as required by applicable law. LBHI and LCPI responded to Pulsar Re's application for leave to use the material obtained by Pulsar Re from the Company in the following way.

6. By an Amended Summons dated May 31, 2011, the US Debtors to Pulsar Re's US proprietary claim sought the following principal relief, namely an Order that:

"1. LBHI and LCPI be added as parties to this matter limited only to issues arising out of or related to Pulsar Re Limited's Summons dated 29th April 2011 for an order that it be released from its implied confidentiality undertaking…;

2. Pulsar Re Limited do provide a list of the documents in respect of which it seeks a release from its implied confidentiality undertaking by 16th June 2011…."

7. The parties having agreed that Pulsar Re need not file its Amended Complaint in New York until 14 days after this Court's adjudication of its application for a release in these proceedings, LBHI and LCPI invited the Court to decline to consider Pulsar Re's application on its merits until it had specified what documents it proposed to rely upon so that any objections could be properly formulated. The two applications were heard together. On the second day of the hearing, Pulsar Re's counsel served a copy of the documents upon which it proposed to rely. I gave LBHI and LCPI 14 days to file supplementary submissions, if so advised, to deal with this new material. However, at first blush it appeared impossible to credibly suggest that the documents in question contained data which belonged to the US Debtors. In the event, 'Further Submissions on behalf of LBHI and LCPI' were filed.

Factual findings: the documentary scope of Pulsar Re's application

8. Pulsar Re's Summons was initially supported by the Second Wasty Affidavit sworn on June 28, 2011. Pulsar Re's claim against the Company is based on the core assertion that Lehman Re failed to segregate and misappropriated $450 million posted by Pulsar Re as collateral for its obligations as Lehman Re's reinsurer under a Quota Share Agreement pursuant to which Pulsar Re assumed approximately $1 billion worth of risk. Pulsar Re's Adversary Complaint dated January 26, 2011 in the US proceedings alleges that all of this collateral was transferred by Lehman Re to LBHI or LCPI under a repurchase agreement which did not reflect arms-length terMs It is said to be appropriate to lift the undertaking to enable Pulsar Re to recover its misappropriated collateral, wherever it may be found.

9. The Pulsar Re Summons was also supported by the First Affidavit of Dorothy McNaughton Cory-Wright, sworn on June 28, 2011. The Sidley Austin LLP partner deposed that, inter alia, (a) she believed that all documents disclosed by the JPLs were having regard to the terms of the specific discovery Order "Lehman Re documents" (paragraph 27); (b) as the US Debtors' opposition was purely speculative (they had not objected to the production made by the JPLs when afforded an opportunity to do so (paragraph 27), it was vexatious and oppressive for them to require Pulsar Re to provide discovery by list. Moreover it would be unfair to restrict Pulsar Re to using only those documents it wished to rely upon in formulating its Amended Complaint (paragraph 28).

10. The application for Pulsar Re to produce a list of the documents to which their release application related was initially supported by the First Affidavit of Sarah-Jane Hurrion dated June 1, 2011.The deponent complained that the documents had not been identified making it impossible for the US Debtors to determine their substantive position on Pulsar Re's application. (This position was echoed by the JPLs). Its attorneys' request that LBHI and LCPI particularize the documents believed to belong to LBHI was impossible to comply with. LBHI and LCPI also relied upon the First Affidavit of Richard Lawrence Levine dated July 27, 2011. The Weil Gotschal & Manges LLP Partner deposed, inter alia, that (a) the documents Pulsar Re sought to rely upon might not be available under US discovery procedures, which...