Tensor Endpwment Ltd and USB Fund Services (Cayman) Ltd v New Stream Capital Fund Ltd

• Jurisdiction: Bermuda
• Judge: Kawaley, J.
• Judgment Date: 17 June 2010
• Court: Supreme Court (Bermuda)
• Docket Number: 42 of 2010
• Date: 17 June 2010

Supreme Court

Kawaley, J.

42 of 2010

Tensor Endpwment Limited and USB Fund Services (Cayman) Ltd.

and

New Stream Capital Fund Limited

Appearances:

Mr. Andrew Martin, Mello Jones and Martin, for the plaintiffs

Mr. Cameron Hill, Sedgwick Chudleigh, for the defendant

Civil practice and procedure - Summary judgment — Undisputed redemption of debt — Striking out of claim — Whether plaintiff's claim amounted to an abuse of process.

Kawaley, J.

1 The plaintiffs (“Tensor”) applied by Summons dated February 26, 2010 for Summary Judgment in respect of their claim set out in a Specially Indorsed Writ issued on February 5, 2010. According to the Prayer, the plaintiffs claimed “payment of the price due upon the redemption of redeemable shares in a segregated account maintained by the defendant and known as Class K”, being “a liquidated sum of 88,820,838.03”. This claim was further elaborated upon in the Statement of Claim filed on February 5, 2010 together with the Writ.

2 The defendant filed its Defence on March 11, 2010. It is admitted that the redemption sum payable to Tensor is the amount claimed, but averred that this amount is only payable under the Bye-laws “as soon as practicable”. It is averred that Tensor is estopped from asserting the present claim because it ought to have brought the claim before, no later than when it brought its application to appoint a receiver under section 19 of the Segregated Accounts Companies Act 2000, which was refused in Tensor Endowment Limited et al v. New Stream Capital Fund Ltd. [2009] SC (Bda) 69 Civ. (18 December 2009) (“Tensor I”). It is also averred that the plaintiffs are not entitled to interest in any event.

3 By Summons dated March 16, 2010, the defendant applied to strike out Tensor's action on the grounds that it was frivolous and vexatious and/or otherwise an abuse of the process of the Court under Order 18 rule 19(1)(b),(d) of the Rules. The parties' respective Summonses came on for hearing together. At the hearing it became clear that no dispute existed in relation to Tensor's claim for payment as such. Rather the defendant challenged the plaintiffs' right to bring the present proceedings on technical grounds and, alternatively, their right to claim interest on any judgment this Court might enter in Tensor's favour.

THE PLAINTIFFS' CLAIM

4 Although Tensor's claim is not disputed on its merits, it must be understood in order to evaluate the interest issue. It is undisputed that from around July 1, 2007, the Tensor beneficially owned segregated account Class K shares in the defendant Fund as a result of investing US$8 million. The Statement of Claim places reliance on two matters in support of the averment in paragraph 14 that on or before 31st May 2008 the Shares were redeemed and the defendant was immediately liable to pay the Redemption Price to the first or second plaintiff calculated on the Valuation date in the sum of USS 8,820,838.03”. One is a matter of record and has no bearing on the interest controversy. This is the reliance pleaded in paragraph 13 on the finding in Tensor I that “Tensor became an actual (redemption) creditor on May 31, 2008 in respect of its redemption request in the agreed amount.” However, it is also averred that:

• “12. By his affidavit sworn in [Tensor I] at paragraph 75 Mr. Perry Gillies, President of New Stream Capital LLC deposes as follows;

• The [second plaintiff] served notice of redemption on 22nd January 2008 in relation to its shares in Class K for a 31 May 2008 redemption. On 29 May 2008, [New stream Capital LLC] offered the [first plaintiff] the chance to ‘float’ its redemption, which would have allowed interest to continue to accrue on the balance of the redeemed amount until payment, which would be made in due course based on the effective date of redemption. The [first plaintiff] declined to respond and the net asset value (NAV) of its redemption was therefore fixed and became effective as of 31 May 2008 in the amount of USS 8,820,838.03”‘

5 Tensor nevertheless claimed either compound interest or interest pursuant section 10 of the interest and Credit Charges (Regulation) Act 1975 at the rate of 7.5% from June 1, 2008 until judgment or sooner payment. The defendant averred in paragraph 23 of its Defence that: (a) the right to interest had been waived; (b) under the terms of the Amended Loan Notes, Tensor has been receiving 3% interest in any event; and/or (c) it would be inequitable to other Class K shareholders for Tensor alone to be paid interest out Class K assets. In addition, liability was challenged, somewhat weakly, on the grounds that the obligation to pay had yet to accrue and more forcefully on the grounds that it was an abuse of process for the present action to be pursued at all.

FINDINGS: ARE THE PLAINTIFFS ENTITLED TO SUMMARY JUDGMENT?

6 Subject to the defendant's strike-out application, the plaintiffs are entitled to summary judgment for the amount claimed. In Tensor I, this Court found on December 18, 2009 that “Tensor became an actual (redemption) creditor on May 31, 2008 in respect of its redemption request in the agreed amount.”

7 This finding was based in part on the legal finding that the definition of solvency under section 2(2) of the 2000 Act excluded redemption claims from the assessment of solvency. In this regard, the following observations were made:

• “36. This construction of section 2(2) (b) of the Act does not leave an unpaid redemption creditor with no enforcement remedies whatsoever. The Act permits ordinary civil proceedings to be brought against a company in respect of one of its segregated accounts. A civil judgment could be enforced against any free assets in the segregated account…”

8 These obiter dicta find further support in the following provisions of section 18 which have yet to receive the benefit of argument by counsel (Either in Tensor I or in the broader examination of the 2000 Act in BNY AIS Nominees Limited et al v. New Stream Capital Fund Ltd [2010] SC (Bda) 26 (27 May, 2010), perhaps because in neither case was section 18(14) crucial to the issues to be determined):

• “(14) Subject to the segregated accounts company complying with section 15, and except to the extent it may be agreed otherwise by virtue of the governing instrument or contract, as the case may be, at the time an account owner or counterparty becomes entitled to receive a payment, distribution, allocation or dividend pursuant to any governing instrument, he has the status of and is entitled to all remedies available to, a creditor of the segregated account with respect to the payment, distribution, allocation or dividend, and the governing instrument or contract may provide for the establishment of record dates with respect to such payment, distribution, allocation or dividend” [emphasis added]

9 Accordingly, the plaintiffs are prima facie entitled to enter...