S v L

• Jurisdiction: Bermuda
• Judgment Date: 10 October 2019
• Docket Number: Commercial Jurisdiction 2019 No 322
• Date: 10 October 2019
• Court: Supreme Court (Bermuda)

[2019] Bda LR 83

In The Supreme Court of Bermuda

Commercial Jurisdiction 2019 No 322

Between:

S

Plaintiff

and

L

Defendant

Mr S White and Mr S Riihiluoma for the Plaintiff

The following cases were referred to in the judgment:

Polly Peck International plc v Nadir and Ors (No 2) [1992] 4 All ER 769

American Cyanamid v Ethicon Ltd [1975] AC 396

Tucker v New Brunswick Trading Co of London (1890) 44 ChD 249

The Niedersachsen [1983] 2 Lloyd's Rep 600

Locabail International Finance Ltd v Manios and Trasways Chartering SA [1980] Bda LR 26

Mubarak v Mubarak [2002] Bda LR 63

Walker International v Republic of Congo [2003] CILR 457

Gidrxslme Shipping Co v Tantomar-Transportes Maritimos LDA [1955] 1 WLR 299

Mobile Telesystems v Nomihold Securities Inc [2011] EWCA Civ 1040

Yukos CIS Investments Ltd v Yukos Hydrocarbons Investments Ltd HCVAP 2010/028

Applications for interim freezing order and ancillary order for disclosure — Enforcement of arbitration award — Scheme of arrangement for funds — Proceedings in Cayman and Delaware

RULING of Subair Williams J

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 formed (“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. 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 evidence1. 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...