S and L

• Jurisdiction: Bermuda
• Judge: Shade Subair Williams J
• Judgment Date: 10 October 2019
• Neutral Citation: [2019] SC Bda 70 Com
• Docket Number: COMMERCIAL JURISDICTION
• Court: Supreme Court (Bermuda)
• Date: 10 October 2019

[2019] SC (Bda) 70 Com

In The Supreme Court of Bermuda

Williams, J.

COMMERCIAL JURISDICTION

2019 No: 322

Between:

S

Plaintiff

and

L

Defendant

Plaintiff: Mr. Steven White and Mr. Sam Riihiluoma ( Appleby (Bermuda) Limited)

Urgent Ex-Parte Application on Notice for Interlocutory Freezing Order — Mareva Injunctions

Section 19(c) of the Supreme Court Act 1905 and RSC O. 29/1

Part IV of the Bermuda International Conciliation and Arbitration Act 1993

RULING (REASONS)

RULING of Shade Subair Williams J

Shade Subair Williams J

Introduction:

1 This matter concerns the Plaintiff's ex parte on notice applications for an interim freezing injunction and an ancillary order for disclosure to be made by the Defendant. These applications are made in furtherance of a final arbitral award (“the Final Award”) (which reaffirmed a partial final award made on 6 March 2019 (“the Partial Final Award”)) issued under the New York Convention on 9 May 2019 (collectively “the Award”).

2 Pursuant to sections 40 and 48 of the Bermuda International Conciliation and Arbitration Act 1993 (“the 1993 Act”), leave for the Award to be enforced in Bermuda was granted ex parte by the learned Chief Justice, Mr. Narinder Hargun, on 28 August 2019 (“the Enforcement Order”). Prior to the Enforcement Order, Hargun CJ granted the terms prayed on the Plaintiff's ex parte summons, dated 13 August 2019, for sealing and redaction orders preserving the general confidentiality of the Court documents underlying the Enforcement Order (“the Confidentiality Order”).

3 The Plaintiff's applications before me were made by ex parte summons dated 12 September 2019 with notice to the Defendant made on 12 September 2019. The Defendant's legal representative, Mr. Rod Attride-Stirling of ASW Limited (ASW) was not heard but attended the hearing only for the purposes of a watching brief.

4 At the close of the hearing, I granted the orders prayed on the Plaintiff's 12 September 2019 ex parte summons and agreed, at the request of Counsel, to provide this written summary of my reasons for so doing.

Summary of Factual Background

5 As the application before me was made ex parte, the underlying facts on which I based my decision were considered without regard to any evidence from the Defendant. Any reliance or reference I make to any of the facts stated on the Plaintiff's evidence are made without prejudice to the Defendant who will be given the opportunity to file its own evidence of the facts and to be heard on an inter parte basis, if it so chooses.

6 The backdrop to this litigation begins with the formation of three feeder funds and one master fund (collectively “the AB Funds” or “the Funds”). One of the three feeder funds is a Delaware Limited Partnership and the remaining two are Bermuda exempted mutual fund companies. The master fund is a Bermuda exempted limited partnership. The Defendant, had acted as the investment manager to the AB Funds.

7 Ensuing from an overflow of investor redemption requests leading up to the 2008 global financial crisis, the AB Funds' winding down came to pass in October of 2008 when the Defendant declared it would liquidate the assets of the Funds and distribute the proceeds to the investors. There emerged two distinct classes of investors: (i) voluntary redeemers and (ii) compulsory redeemers.

8 Effective 1 August 2011, this Court sanctioned a scheme of arrangement (“the Scheme”) under which a Joint Plan of Distribution of the AB Funds was implemented in Bermuda (“the Plan”). One of the compulsory redeemers did not submit to the Scheme and instead filed an action in the Supreme Court of the State of New York for recovery of its redemption request.

9 The Plaintiff was created on 15 July 2011 pursuant to the Scheme and Plan. It is stated at paragraph 20a of the Plaintiff's written submissions that the Plaintiff was created to represent the AB Funds' investors, constituted by 10 members, being 5 representatives of the Prior Redeemers, nominated from and voted on by the Prior Redeemers, and 5 representatives of the Compulsory Redeemers, nominated from and voted on by the Compulsory Redeemers. The powers, rights, duties and functions of the Plaintiff were restated in the Plaintiff's written submissions.

10 Under the Plan, the Defendant was tasked to continue as the investment manager of the AB Funds. However, concerns and allegations of breach of the Plan and breach of fiduciary obligation by willful misconduct followed. Particulars included a wrongful payment to itself of USD $30,000,000 of deferred fees which were only permitted to be disbursed upon completion of the liquidation and USD $3,700,000 of distribution fees to which it was not entitled. On 5 July 2016, the Plaintiff, by unanimous vote, sent the Defendant a 30 day notice of termination of its services as investment manager and made a Demand for Arbitration.

11 In this case, no independent arbitration agreement appears to have been made between the parties. However, the Plan contained mediation clauses and arbitration clauses which led to S.9.03 as a final procedural phase of resolution of a dispute between the parties. S.9.03 of the Plan provided that:

“ Any dispute referred to in Sections 2.09 which cannot be resolved through mediation referenced in Sections 2.09…shall be subject to and decided by arbitration administered by the American Arbitration Association (AAA) in accordance with its Commercial Arbitration Rules, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof pursuant to applicable law. Arbitration shall be conducted in New York, New York.”

12 On 5 July 2016, the Plaintiff also commenced Court proceedings in the Delaware Chancery Court seeking (1) relief for claims which were not the subject of arbitration and (2) a Status Quo Order in aid of the pending arbitration proceedings (which was granted and upheld).

13 A copy of the Status Quo Order was produced as part of the Plaintiff's evidence 1. At the nuts and bolts of the Order, the Defendant was restrained from disposing of its assets for anything less than “ reasonably equivalent value” and it was further prohibited from making change to the structure of its assets. Under the Status Quo Order, the Defendant was also barred from authorizing any distributions or dividends from its own entity or that of any other wholly owned subsidiaries.

The Award made under the New York Convention

14 The Demand for Arbitration included the following seven counts (as recited in the Plaintiff's written submissions):

• Count 1: Interim Order of Specific Performance to Enforce the Plaintiff's Contractual Authority to Transfer Control of the Fund;

• Count 2: Interim Order of Specific Performance to Provide Fund and Fund Asset Financial and Governing Documents;

• Count 3: A Preliminary and Permanent Injunction to Return Deferred Fees to the Fund;

• Count 4: A Declaration that the Fund has no Obligation to Indemnify the Defendant or Pay the Defendant's Legal Fees in Relation to the Claims Herein;

• Count 5: Money Damages for Breach of Contract;

• Count 6: Request for Money Damages to Remedy Breaches of the Defendant's Fiduciary Duties; and

• Count 7: Disgorgement of Wrongfully Transferred Plan and Scheme Claims.

15 Under an Amended Demand for Arbitration, Count 8 was added: Count 8: Money Damages for Unjust Enrichment (In The Alternative):

16 The success of the Plaintiff in the arbitration proceedings is recorded in the 9 May 2019 Final Award which incorporated the Partial Final Award made on 6 March 2019. Certified copies of these awards were exhibited to the second affidavit of one of the US attorneys for the Plaintiff, Mr. FV (sworn on 12 August 2019). In explaining the Defendant's liability under the Award, Mr. FV said at paragraph 5 of his second affidavit:

“ A duly certified copy of the Partial Final Award is at FV-2 pages 1 to 64 and a duly certified copy of the Final Award is at FV-2 pages 65–91. Together, they require for substantial damages in the total sum of $US136, 808,283.00 plus interest and to take certain steps, as set out in further detail in paragraph 34 below. The Awards are binding, enforceable and payable, and have not been paid. Whilst the Defendant has made an application to the Court of Chancery of the State of Delaware (the Delaware Chancery Court) to vacate part (and only part) of the Final Award, it has not obtained a stay of the Final Award pending its application.”

17 Mr. White advised that the first payment batch was due to be paid by the Defendant on 26 March 2019 and the next tier was to be paid by 21 May 2019. To date, no payments have been made by or on behalf of the Defendant in satisfaction of the Awards.

The Motion for Partial Vacatur

18 Further explaining the Defendant's unresolved application before the Delaware Chancery Court for part of the Final Award to be vacated, Mr. FV disclosed in his evidence that on 6 June 2019 the Defendant filed a Motion for Partial Vacatur. Therein, the Defendant is said to have alleged that the Arbitration Panel exceeded its powers in breach of the American Arbitration Association Rules (“the AAA Rules”) by purporting to award additional relief after the issuance of the Partial Final Award. Copies of the Motion for Partial Vacatur and the Defendant's Memorandum were produced by Mr. FV. At paragraph 49 of his second affidavit he deposed:

“ Even if the Motion for Partial Vacatur were to succeed, it only takes aim at the relief awarded for the [B Claim] and the award of prejudgment interest for the period after the date of the Partial Final Award (March 6, 2019). The Defendant does not seek to vacate the Partial Final Award or any of the other damages included in the Final Award.”

19 Mr. FV also stated that the Vice Chancellor will likely rule on its request for judgment on the Partial Final Award and...