Re SFH Trading and Brokerage Ltd ((in Liquidation)) 1998 Companies (Winding-Up) Jur. No. 437

• Jurisdiction: Bermuda
• Judgment Date: 05 December 2001
• Date: 05 December 2001
• Docket Number: Companies (Winding-up) 1998: No. 437
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Meerabux, J

Companies (Winding-up) 1998: No. 437

Re SFH Trading

and

Brokerage Ltd (in liquidation)

Mr. D. Dwyer for the Appellant.

Dr. I. Kawaley for the Joint Liquidators.

Stock v Frank Jones (Tipton) LtdUNK [1978] 1 All ER 948

Preston v BuckleyENR (1870) 5 QB 391

IRC v Dowdall O'Mahoney & Co.ELR [1952] AC 401

Re Lonrho plc (no. 2)WLR [1989] 3 WLR 1106

Tracey v Crossville Wales LtdWLR [1997] 3 WLR 800

Bermuda Telephone Co. Ltd. v Quantum 1998 Civil Jur. No. 283

Re Davis, ex parte Davis (1872) 7 Ch App 526

Tomlinson v Scottish Amalgamated Silks (Liquidators) [1935] SC

Companies Act 1981, s. 98

Application to reverse or vary decision of joint provisional liquidators to reject proof of debt — Indemnity — Allegations of fraud and embezzlement — Director's duties

JUDGMENT

PRELIMINARY

This is an application by the Appellant, Swiss Financial Holding Limited (‘SFH Holding’) by Summons dated 19 April 2001 under Rule 75 of the Companies (Winding Up) Rules 1982 (‘the 1982 Rules’) ‘that the decision of the joint provisional liquidators to reject their proof of debt as creditor filed on the 30^th April, 1999 and subsequently restated on the 2^nd September, 1999 be reversed and/or varied’.

FACTUAL BACKGROUND

The Appellant is the parent company of SFH Trading and Brokerage Limited in Bermuda (‘SFH Bermuda’) and of SFH Trading and Brokerage Limited in Switzerland (‘SFH Zurich’). The Appellant is ultimately wholly owned by the Guy H. Barbier Trust. Guy Barbier himself was a Director of all three companies and the settlor of the Trust. At all relevant times Guy Barbier, Arnold Heer and J. Keyes were the directors of SFH Bermuda.

The matter before the Court concerns the Appellant's appeal against the refusal of the joint liquidators of SFH Bermuda to accept a proof a debt lodged by the Appellant, a large proportion of which is in relation to Guy Barbier's purported indemnity for legal fees incurred in his position as director of SFH Bermuda which fees were paid on his behalf by the Appellant.

SFH Zurich was the agent of SFH Bermuda in its dealings between Swiss clients as commodity trading. In or about December, 1998, Pricewaterhouse Coopers were the liquidators appointed for SFH Zurich by the Swiss Federal Banking Commission which had filed a complaint with the District Attorneys' Office in Switzerland making allegations against its director, Guy Barbier, as well as others, of fraud and embezzlement of some 35 million Swiss francs. In consequence of the complaint, Guy Barbier was immediately arrested and put into protective custody under Swiss law. During this period, Guy Barbier had no alternative but to seek legal representation and he consulted with both Swiss lawyers, Lalive and Partners, Staiger Schwald and Roesle and finally Baugortner Brianzel Machler and English solicitors, Thomas Cooper Stibbard assisted by McFadden Pilkington & Ward, who undertook a vast amount of legal work to secure Guy Barbier's final release after a period of some seven months. To date, no charges have been preferred against Guy Barbier.

In addition to securing Guy Barbier's release from protective custody, his attorneys also assisted greatly in providing information and documentation to the District Attorney for the purpose of enabling him to carry out his investigations. Their cooperation with the District Attorney in this respect and with his investigations were instrumental in securing the release of Guy Barbier and ultimately the non-preferment of charges.

It is the legal costs which the Appellant was obliged to incur on behalf of its director that the proof of debt lodged by the Appellant is primarily concerned with, and for which formal notice of rejection by the liquidators of SFH Bermuda was lodged in November 1999. Guy Barbier had previously lodged a personal claim for recovery of these fees but it was rejected on the basis that the Appellant had in fact paid the fees on his behalf.

The joint liquidators in a letter to the Appellant dated 8 November 1999 sent a notice of rejection of the proof of debt in accordance with Rule 74 of the 1982 Rules. Barry Hart for and on behalf of the Appellant in a letter dated 22 November 1999 to the joint liquidators responded to the notice of rejection. In paragraph 1 of the letter he says:

‘We thank you for your letter of November 8 1999, and according to the Notice of Rejection of Proof of Debt, we formally and respectfully apply for your decision to be reversed or varied on the basis of the following:

………………………………………………………………’

He concludes thus:

‘We thank you for your consideration of this appeal. We remain at your disposition to discuss further any of the issues raised in this letter.

……………………………………………………………….’

Thereafter the parties engaged in a series of ‘without prejudice’ correspondence to reach a settlement. However, the joint liquidators in a letter dated 29 March 2001 to Barry Hart made their final position known. Barry Hart for and on behalf of the Appellant responded by letter dated 5 April 2001. Barry Hart then indicated to the joint liquidators that the Appellant would proceed with the appeal process.

RIVAL CONTENTIONS

Mr. Dwyer for the Appellant submits that Guy Barbier's legal expenses as director of SFH Holding is available under Rule 124 and/or under Rule 125 of the Bye-Laws of SFH Bermuda, that the Liquidators are adopting the narrowest interpretation of section 98 of the Companies Act 1981 (‘the 1981 Act’), that the Court has to exercise its power to discover the intention of Parliament as expressed in the 1981 Act by considering it as a whole and in its context. He argues that the legal meaning arrived at will not necessarily correspond to its grammatical or literal meaning. He contends that section 98 of the 1981 Act clearly envisages proceedings and actions in this jurisdiction where a person accused of a crime has to be brought before a Court and charged as soon as possible. He submits that there is no specific definition of the term ‘criminal proceedings’, that the legal fees incurred by Guy Barbier and paid for by SFH Holding were properly and reasonably incurred in his position as director of the company, that section 98 (2) of the 1981 Act does not prohibit the indemnification of Guy Barbier concerning the liability incurred by SFH Holding for his legal fees and that section 98 (2) of the 1981 Act does not prohibit SFH Holding from seeking to recover the indemnity it has provided to its director under the Bye-Laws.

Alternatively he argues that Guy Barbier as Director of the company is an agent of the company and that the legal expenses Guy Barbier incurred were incurred in his position as agent and is entitled to indemnified for all such expenses properly and reasonably incurred as agent.

He cites Rules 124, 125 and 126 of the Bye-Laws of SFH Bermuda, section 98 of the 1981 Act, Halsbury Laws of England Fourth Edition Reissue, Volume 44 (1), paragraphs 1372, 1442, 1472 and 1477, Chapman v Attorney General and the Commissioner of Police, Court of Appeal for Bermuda, Civil Appeal No. 15 of 1982, judgment dated 17 November 1982, Halsbury's Laws of England, Fourth Edition, Volume 37, paragraph 1017, Halsbury's Laws of England, Fourth Edition Reissue, Volume 1 (2), paragraph 123, Palmer's Company Law, paragraph 8.041, page 8036 and paragraph 8.0402, page 8085, In re Famatina Development Corporation, LimitedELR[1914] 2 Ch. 271, Halsbury's Laws of England, Fourth Edition 1996 Reissue, Volume 7(1)...