Re Mentor Insurance Ltd

• Jurisdiction: Bermuda
• Judgment Date: 28 September 1987
• Date: 28 September 1987
• Docket Number: Civil Jurisdiction 1985 No: 228
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Collett, J

Civil Jurisdiction 1985 No: 228

Re Mentor Insurance Limited

Mr. Crystal Q.C. & Mrs. D. Kempe for Joint Liquidators

Mrs. Arden Q.C. & Mr. M. Diel for Pinicle Insurance.

JUDGMENT

COLLETT, J.

Mentor Insurance Limited, a Bermuda incorporated exempted company, was ordered to be wound up by this Court on 25th June, 1985: Charles W. Kempe and Michael J. Arnold were appointed as Joint Liquidators. Mentor was at the date of winding-up a wholly owned subsidiary of Mentor Holding Corporation (“MHC”) a Deleware corporation which in turn is a wholly owned subsidiary of another Deleware corporation, Ocean Drilling and Exploration Company (“ODECO”).

Pinnacle Reinsurance Company Limited is another Bermuda incorporated exempted company, which at all material times has carried on reinsurence business from a place of business in Bermuda. It is a wholly owned subsidiary of C.E. Heath Underwriting Agencies Pty Ltd. of Australia.

On 3rd March, 1986 the joint liquidators, having obtained the sanction of the committee of inspection in the Mentor Liquidation persuant to section 175 (1) (a) of The Companies Act 1981, commenced proceedings in the U.S. District Court for the Eastern District of Louisiana against a number of Defendants including Pinnacle, ODECO, MHC and sundry corporate officers individually, claiming damages for alleged fraud. Some of the causes of action comprised in the Complaint by which these proceedings were launched are founded upon alleged violations of U.S. statute known as the Racketeer Influenced and Corrupt Organisation Act (RICO) which finds no counterpart in the laws of Bermuda and under which treble damages can be awarded against defendants who are found guilty in civil actions.

On 27th May 1986, Pinnacle filed a motion in the Louisiana Court to have those proceedings against it dismissed for want of personal jurisdiction of that Court over Pinnacle. On 22nd December, 1986 that motion was dismissed by Judge Livaudais, the judge in the Louisiana Court to whom the matter had been assigned. Subsequently, Pinnacle applied to that judge to have his ruling re-considered and, at the present time no further ruling has been given on that application, which is still therefore pending in the District Court.

Meanwhile in Bermuda, the attorneys acting for Pinnacle had written to the joint Liquidators inviting them to discontinue the Louisianna proceedings against their clients and threatening action in this Court to obtain an injunction to prevent them from continuing with those proceedings if that were not done. The Liquidators response was to apply to Judge Livaudais in Louisiana for a temporary restraining order which was issued on 24th November, 1986 enjoining Pinnacle from taking steps in any court outside the U.S.A. to interfere with the jurisdiction of his court in Louisiana over the complaint before him.

An inter parties hearing was held before Judge Livandais on 26th November, 1986 at which time, upon instructions, the attorney there representing Pinnacle made a representation, which appears to be in the nature of an undertaking to the Court and parties there, that Pinnacle would not seek an injunction against the Liquidators from proceedings with their action in that court without first giving seven days notice of intention to do so to the Liquidators counsel. Upon the basis of that undertaking the temporary restraining order was allowed to expire and has not been renewed.

On 21st January 1987 Pinnacle issued an Originating Summons in this Court claiming persuant to section 176(5) of the Companies Act 1981 and/or the inherent jurisdiction of this Court a declaration that in instituting and/or maintaining the Lousiana proceedings against pinnicale the Joint Liquidators ‘have acted and continued to act in excess of and/or in abuse of their powers as such Liquidators’. They also claim further or other relief. This is the Summons which is the subject matter of the joint Liquidators present application to strike out or stay.

To complete the chronology of relevant events, steps were subsequently taken by the parties U.S. attorneys to draw the attention of Judge Livadais to the issuence of this Originating Summons which the Liquidators allege, although this is strongly denied on behalf of Pinnacle, to constitute a breach of the representation or undertaking given on Pinnacles behalf on 26th November. It would appear that the Judge invited counsel on both sides to file briefs for his later consideration setting out the parties' respective positions. Before this could be done, however, Pinnacle applied ex parte to this Court for ‘a direction' that the Liquidators ‘should take no steps or otherwise conduct themselves so as to have the result of restricting or impeding in any way’ the consideration by this Court of their Originating Summons. An order in these terms was made on 23rd February, 1987 by Melville J. in chambers. The Liquidators present application seeks additionally to have his order discharged.

The Liquidators application was filed on 6th March, 1987. Insofar as it seeks the striking out or stay of the Origionating Summons it is based upon order 19 rule 27 of the Rules of the Supreme Court 1952 or upon the inherent jurisdiction of the Court. Before turning to examine the several arguements which have been urged by Counsel in support of that application and against it, the principles governing the proper approach of these courts to applications of that kind need to be recalled. The jurisdiction to strike out summarily must be exercised only in plain and obvious cases, as has repeatedly been laid down in a long line of authorites. This Court should not strike out this Origionating Summons unless it can be demonstrated by the Liquidators that it is almost incontestably bad and further that the exercise of that jurisdiction would obviate the necessity for a trial: see Williams v. HumbertELR(1986) 1 AC. 368 at page 436 per Lord Templeman.

The first submission made by the Liquidators' counsel in support of this application is directed towards the locus standi of Pinnacle to seek any relief under Section 176 (5) of the Companies Act 1981. It is common ground that Pinnacle is neither a creditor nor a contributory of Mentor, nor does it claim to fall within either category. The essense of Mr. Crystal's arguement is that Part XIII of the Act which contains that section and which is closely modelled on the U.K. Companies Act 1948, creates a statutory scheme in a winding-up by the Court which regulates the relationship of liquidators, creditors and contributories inter se. There is, he says, no place for a stranger to the winding-up such as Pinnacle in this case, to come within it so as to question the exercise of the statutory powers of the liquidator and least of all should this be permitted to a defendant in litigation which the liquidator has commenced. In support, he cited Dublin City Distilliary v. DohertyELR(1914) A.C. 832, a decision of the House of Lords. Their Lordships were there concerned with an appeal by a liquidator who had failed to obtain leave from a judge to appeal to that House as was required by statute. It was held that the objection failed since, as Lord Atkinson pointed out at p. 843, leave was not necessary prelimary and that the only sanction against failure to obtain it lay in costs. Although counsel in arguement had also suggested that want of leave was not a point open to the adverse litigant, there is no mention of this point in the speech of Lord Atkinson as a reason for their decision on the point. It is true that Lord Parker of Waddington at p. 860 said that the section requiring leave did not confer upon Third parties any right to object to the preceedings; but I cannot read that passage as seeking to lay down any general principle such as that for which counsel in the present case contends.

Counsel relied also upon Ex parte BrownELR(1876) 2 Ch. D. 799 in which the English Court of Appeal refused to allow a person whom the Court had directed a trustee in bankruptcy to prosecute, to be heard in opposition to that order: the ground relied on was that orders to prosecute are preliminary matters between the Court and its own officer which are properly dealt with ex parte. That decision was followed and applied by the Court of Appeal in Ex parte Evans(1981) 64 L.T. (N.S.) 762, where the person ordered to be prosecuted was held to have no right of appeal against the original order even upon grounds of alleged lack of jurisdiction to make the order in the first place.

In Re Branson, (1914) 2 K.B. 701 Horridge J. refused to allow a bankrupt to be heard as a party aggrieved against a motion which his trustee had brought Before the court without obtaining the required permission of the committee of inspection. Once again, the decision was to the effect that that was merely a provision for the protection of the estate and not a condition precedent to the bringing of the motion itself of which accordingly, the bankrupt could not avail himself. The ratio of that decision was adopted and applied by a strong Court of Appeal in Clark v. SmithELR(1940) 1 K.B. 127, where a trustee in bankruptcy was held entitled to enforce a contract which he has made with a third party notwithstanding that the trustee had been found to have carried on the business of the bankrupt outside the strict limits of the enabling statute, the U.K. Bankruptcy Act 1914. That circumstance of itself did not afford the third party a defence to the trustee's action since it did not render the contract void or illegal. Although a member of the committee of inspection might probably have complained about it to the Court, the third party defendant could not do so.

Finally in Ex parte DittonELR(1879) 11 Ch. D. 56, the English Court of Appeal refused to allow an appeal as a person aggrieved to be brought by an appellant who claimed to be a creditor...