Oakrun Precious Metals Fund, Ltd

¶ IN THE GRAND COTJRT OF THE CAYMAN ISLANDS FINANCIAL SERVICES DIVISION CAUSE NO: FSD 9 0F 2019 (IKJ) m THE MATTER OF THE COMPANIES LAW (2018 REVISION) AND IN THE MATTER OF OAKRUN PRECIOUS METALS FUND, LTD IN COTJRT Appearances: Mr Guy Cowan, Campbells, on behalf of the Petitioner, Bejoy International Ltd. ("Bejoy" and/or "Petitioner") Mr Scott Rhodenizer, a former director of the Company and the principal of Oakrun Capital LLC (the "Manager") appeared in person on behalf of the Company The Company (the "Fund") did not formally appear Mr Jeremy Snead and Mr David Jin, Appleby, on behalf of Echelon Wealth Partners Inc ("Echelon") Before: The Hon. Justice Kawaley Heard: 22 March 2019 Date of decision: 22 March 2019 Draft Judgment Circulated: 23 April 2019 Judgment Delivered: 30 April 2019 a [ €" 190430 In the Matter of Oaia'un Precious Metals Firnd, Ltd - FSD 9 of 2019 (IKJ) Reasons I HEADNOTE Petition presented as creditor and shareholder to wind-ttp Ftmd on insolvency and/or just and equitable grounds- principal of the Manager appearing in person to seek adjournment of petition in order for Frmd to obtain legal advice-custodian of Fund's assets seeking validation order to enable Company to pay for legal advice-principles governing applications for validatiort order-principles applicable to costs of an unsuccessfid application for a validation order REASONS FOR MAKING WINDING-UP ORDER AND DISMISSING APPLICATION FOR VALIDATION ORDER AND RULING ON COSTS Background 1. The Petitioner, legally domiciled in the British Virgin Islands and commercially based in Malaysia, is the sole participating shareholder of the locally incorporated Fund. The Fund was incorporated on April 25, 2008 and was registered as a regulated mutual fund under the Mutual Funds Law on October 20, 2010. On November 1, 2010, Bejoy subscribed for 5000 Class A Participating Shares for $1,000 per share, investing a total of $5 million in the Fund. It is rinaware of any other subscriptions before or since. The Manager is the sole holder of the voting Management Shares. 2. The Fund's Articles conferred redemption rights which were exercised by Bejoy on June 30, 2016. The Fund admitted an obligation to pay $5million. $1 million was paid as of July 31, 2016. The balance was never paid. Before the present proceedings were commenced, Bejoy agreed to postpone payment rintil August and then December 2018. The Independent Directors (provided by International Management Services Ltd.) notified Bejoy on December 11, 2018 that the Manager had withdrawn funds in respect of expenses which the Independent Directors had been unwilling to approve. The Manager reportedly removed the Independent Directors on January 1, 2019 with effect from December 31, 2018. 3. It was against this backgrorind that the Petition was presented on January 24, 2019. The principal grounds for winding -"up were: (a) the Petitioner was an unpaid creditor in the amount of $4 million; (b) it was just and eqriitable that the Fund be worind-up in light o'f: (i) the Manager's improper expenses claim, (ii) the improper removal of the Independent Directors, (iii) the loss of substratum flowing from the redemption of the 9ole investor's shares, 190430 hi the Aifatter of Oakr'xm Precioyrs Ailetals Fund Ltd - FSD 9 of 2019 (IKJ) Reasom 2 C : (iv) breaches of the Directors Registration and Licensing Law and the Articles flowing from the removal of the Independent Directors. The Petition was verified by the First Affidavit of Sherrine Hart, Bejoy's attorney-in- fact pursuant to Powers of Attomey dated June 30, 2016 and Jamiary 17, 2019. This Affidavit also exhibited various supporting documents including correspondence from the Independent Directors expressing concerns about, inter alia, the regulatory implications of their removal. The Petition and the Verifying Affidavit were served on the Fund at its registered office on January 25, 2019, just short of two months before the Petition was listed for hearing. At this juncture, the Manager as the controlling voting shareholder of the Fund had just over 8 weeks to appoint new directors to consider how the Fund should respond to the Petition. In the event, the Fund did not appear in opposition of the Petition on March 22, 2019 and the Petitioner's strong prima facie case for a winding-up Order was not challenged by any contrary evidence. The Hearing of the Petition Order 5 rule 6 of the Grand Corirt Rules provides as follows: "(2) Except as expressly provided by or rmder any Law, a body corporate may not begin or carry on or defend any such proceedings otherwise than by an attorney." The spectre of Mr Rhodenizer, principal of the Manager, appearing in person to seek an adjournment on behalf of the Company provided vivid support for the Petitioner's case that the Fund was insolvent and, inter alia, had lost its substratum. I heard him to ensure that there were no unusual extenuating circumstances which might justify the Corirt granting the adjournment he sought to enable the Fund to obtain legal representation deploying funds held by Echelon for the Fund's account. Echelon was unwilling to release the funds without a Validation Order from the Corirt. Mr Rhodenizer claimed to be oblivious of the Fund's legal position in light of the Petition and had seemingly, notwithstanding his apparently undisputed pivotal position as the directing mind of the Manager, studiously avoided educating himself on the position. He was rinable to identify any arguable basis on which the Petition might successfully be opposed. Nor could he satisfactorily explain why the Manager had not been willing to obtain legal advice for the Fund at its own expense. When he was pressed by the Court, Mr Rhodenizer's main concerns appeared to be, unsurprisingly, his own personal commercial position. He had devoted years to the Fund and had seemingly spent most of the time after the Petition was served seeking to find a last- ditch commercial solution to the rinderlying liquidity problems. This apparently involved making an in specie distribution of the underlying investments and winding;'Ja- up the Fund in any event. He was convinced of the justness of the Manager's disputiJ, 190430 In the Matter of Oab'yrn Precioxrs Arktals Fund Ltd - FSD 9 of 2019 (IKJ) Reasons 3 expense claims and wished to ensure that they would be fairly adjudicated. I assured him that Official Liquidators would guarantee a fair adjudication of the Manager's claims. 8. The appearance of Echelon, represented by counsel, added to the other-worldly air of the hearing. Echelon was a custodian of certain of the Fund's cash assets. Its position was, quite properly, neutral on whether or not an adjournment should be granted. If an adjorirnment was granted it sought a Validation Order blessing the release of $25,000 from monies it held for the Fund for its proposed legal defence costs in relation to the Petition. Late on March 21, 2019, on the eve of the hearing of the Petition, Echelon filed a Summons seeking a validation Order rinder section 99 of the Companies Law ("Validation Summons" and "Validation Order")1. This application raised a mimber of obvious questions. Why was Echelon taking such an active step in the proceedings? Why did Echelon not leave it to the Fund to seek an adjorirnment, postponing any application to Court for a Validation Order until it was clearly necessary? What understandably enraged the Petitioner was that the main substantive position adopted by Echelon, supported by a Skeleton Argument and authorities, was to advance a positive case that it shorild be awarded its costs of participating in the hearing of the Petition in any event, on a priority basis. To rub salt in the Petitioner's wounds (as the sole economic stakeholder in the insolvent Fund), Echelon implied that it would ultimately rely upon contractual rights of indemnity against the Fund in respect of its costs. 9. The case for an immediate winding-up Order was compelling and the case for an adjournment was wholly insubstantial. I accordingly granted the relief the Petitioner sought. In the final analysis no need to consider the March 21, 2019 Echelon Summons for a Validation Order arose. The costs application made by Echelon in relation to its Summons arose in an unusual factual context. The competing written submissions and arithorities were only filed shortly before the hearing. I accordingly reserved judgment on the costs of the Validation Summons.

¶ [10] I set orit below my reasons for making the winding-up Order and dismissing the Validation Summons. As the Petition was not opposed and the need to consider the Validation Summons on its merits fell away once the winding-rip Order was granted, the reasons for that decision are in large part articulated as part of my reserved judgment on the costs of Echelon's application for a validation Order. The Validation Summons and the related costs The factual context

¶ [11] The Summons was supported by the First Affidavit of Carmen Diges, a Director of Legal Affairs for the Toronto-based Echelon. She deposed that Echelon provided broker-dealer services to the Fund as a successor to a prior service provider. However, it is clear that at all material times Echelon received directions from the Manager. The ' Electronic copies of the application were emailed to the Court at 6.46pm on March 21, 2019. The Clerk Court forwarded the materials to me at 8.22pm. The Petitioner's response materials were filed morning and reached me shortly before the hearing. 190430 In the Aibtter of Oah'ym Precioyrs Mess Fund, Ltd - FSD 9 of20l9 ([PCJ) Reasons 4 implication is that the Fund had authorised Echelon to act on the instructions of the Manager.

¶ [12] From correspondence the deponent exhibits, it appears that Echelon initially approached the Petitioner in February 2019 having been instructed to arrange to transfer the shares Echelon held in the Fund's accorint to the Petitioner. The Petitioner's attorneys responded by email dated February 11, 2019 advising that the Petition had been presented, supplying a copy of the Petition and warning Echelon not to transfer any of the Fund's assets without a Validation Order by this Court. Far from inviting Echelon to make an application for a Validation Order, Campbells' response clearly disavowed any interest of receiving the proposed distribution.

¶ [13] It is deposed that Echelon subsequently received instructions from the Manager to release funds in respect of (a) management fees, and (b) legal advice in relation to the Petition. Echelon took the view that it was"appropriate for the Fvmd' to expend fiinds on legal advice and instructed Appleby to seek to agree a Validation Order for this prirpose. Appleby made the request on March 19, 2019, just three days before the hearing of the Petition. Campbells responded as follows: "Thank you for your email. In circumstances where: a) thereisnoevidence(letalonecredibleevidence)thattheFundissolvent, and Bejoy is an undisputed creditor of the Fund; b) a validation order wordd not be in the interest of the Fvmd or its only independent stakeholder, Bejoy,' c) there are no bona fide grounds rtpon which the Petition covdd properly be opposed in the circumstances,' d) any validation application, if made, would be made at an unreasonably late stage of the proceedings; and e) Echelon has no legitimate interest in the validation of the Fund's proposed legal expenses Bejoy is riot prepared to consent to a validation order. In the event that you proceed to issue an application for a validation order, Bejoy expressly reserves all of its rights induding, without limitation, its right to seek an order for costs against Echelon."

¶ [14] The garintlet was thrown down. The Petitioner contended that there was no justification for Echelon making its proposed application and warned that it worild seek an adverse costs order if it did. Echelon persisted in pursuing its proposed application. According to the First Diges Affidavit, the decision to proceed with the application for a Validation Order was made in the following circumstances: (a) "Mr Rhodenizer...lprior to the decision to make the application] indicated that he would srtpport the application, and may seek fit'rther , ( .- (b) "Echelon is left in the invidious choice of refusing to release fimds to its dient to enable it to pay for legal advice or facing the threat from Campbells that any SZ/C/7 payment would be void pursuant to Cayman lcrw" (paragraph 16); (c) "the need to make an application is not of Echelon's making, and Echelon is making this application only to be of assistance" (paragraph 17).

¶ [15] Closely examined, the rationale for the application was an internally inconsistent and not entirely convincing one. The "invidious choice" seems somewhat contrived. If Mr Rhodenizer was willing to support the application and possibly make applications of his own, why was it necessary for Echelon to file its Summons at all? Wby could Echelon not simply have declined to file its Summons until Mr Rhodenizer had obtained an adjournment of the Petition, leaving it to the Court to decide whether the Fund required legal advice? The respective submissions

¶ [16] The main thrust of Echelon's submissions is reflected in the concluding paragraph of its Skeleton Argument: "21. Accordingly, Echelon respectfully requests this Honourable Court to determine whether Echelon shordd make a payment in respect of legal fees in the event that a winding ttp order is not made on 22 March 2019."

¶ [17] Its substantive application was clearly contingent ripon the Corirt deciding not to make an immediate winding-up Order, a contingency which Echelon's submissions did not seek to evaluate or even influence. It was submitted that Echelon had standing to apply for a Validation Order under section 99 of the Companies Law, which did not restrict who corild apply: Argentum Reductions (UK) Ltd [1975] 1 WLR 186. It was then submitted, after reciting the explanations set out in the First Diges Affidavit, that "Echelon has only taken the step of making the application itself given that Oakrrm is apparently unable to obtain legal advice".

¶ [18] Mr Snead in his oral argument made it clear that Echelon adopted a neutral position in relation to the adjorirnment of the Petition (orally requested by Mr Rhodenizer). However, Echelon's Skeleton Argument contained the following beguiling submission which was clearly designed to provide 'soft' support for the adjournment application:

¶ [13] The Court must determine whether it can at the hearing of the Petition resolve questions relating to the solvency of Oa7crrm and the interests ofsits,.'> :tsx\', !'i/;':'.'%;3

¶ [19] The submission perhaps reflects a morally laudable sympathy for the rules of natural justice and the Fund's fair hearing rights. But it also betrays a failure to appreciate the breadth and scope of the allegations made in the Petition supplied to Echelon on February 11, 2019. Firstly, it was or ought to have been obvious that the Fund was in no position to dispute that it was insolvent on a cash flow basis. Secondly it was or ought to have been obvious that, insolvency apart, there were compelling 'public interest' grounds for making a winding-up order based on apparently undisputed allegations of serious regulatory defaults. These grorinds seriously undermined the case for the Manager to be afforded the opporhinity (at the Fund's expense) to obtain legal advice for the Fund. If (as the Petition alleged and the supporting evidence strongly supported) the Manager had improperly removed the Independent Directors, who was capable of validly instrricting lawyers on behalf of the Fund rmder Cayman Islands law?

¶ [20] As regards the costs of its Summons, primary reliance was placed on Companies Winding-Up Rules Order 20 rule l(l) (a) which provides that the"costs ofthe petitioner and any person appearing on the petition whose costs are allowed by the Court" are payable on a priority basis. It was then submitted: "1 7. Echelon's position is that it is caught between complying with obligations to its client in making payment of legal fees and falling foul of an avoidance provision that has retrospective efjfect rtpon the making of a winding zp order. Echelon is an agent of Oakrrm, and therefore a contingent creditor of Oa7crun to the extent that its actions give rise to liabilities iri relation to which the standard indemnity principles of agent and principal apply.

¶ [18] b the recent case ofAbraaj Holdings (unreported decision ofMcMillan J, 4 January 2019, enclosed) McMillan Jaccepted that in the absence of a specific rvde the Court 'applies a general standard... as to whether a relevant party has acted unreasonably in determining that party's liability for costs' and the fact that the petitioning creditor did not prevail in its argvm'ient is in no way an adverse conclusion as to whether the arguments in the first place should have been placed before the Court.' The same judge in the matter of CAAdAC International Limited (order enclosed) allowed for the recovery of some of the Company's costs in responding to the petition, demonstrating that the Court has a broad discretion to allow costs orders in fmour of those appearing on the petition.

¶ [19] Echelon has sought to act reasonably in proposing a solution to the situation it faces and has made this application at its own expense because (A) Oa7crvm is apparently rmable to do so; and (B) the Petitioner has refitsed consent. 20.If the Court determines whether or not Echelon shovdd make a payment of legal.fees then Echelon's application was reasonable because it was, pending the making of a winding ttp [order], lefl in a position for which only the Court coulddeterminewhetherapaymentwasappropriateornot." [Emphasisadded] 190430 In the Matter of Oah'im Precroxrs Ailetds Fymd, Ltd - FSD 9 of 2019 (IKj) Reasons 7

¶ [21] Echelon's Skeleton apparently advanced an application for its costs to be awarded on a priority basis in any event "if' the Corirt determined the merits of its Summons. Mr Snead was eager to move his application for a Validation Order before the adjournment application was made, perhaps to avoid any suggestion that the Court did not consider it. But this merely added to the incongruity surrounding an application the need for which was wholly contingent on the Court being persuaded to adjourn the Petition. In all but an entirely artificial and wholly technical sense, Echelon's Summons was summarily dismissed because with the grant of a winding-up Order the need for the Validation Order sought fell away.

¶ [22] It is important nonetheless to briefly record what I regard as the highlights of the Petitioner's case as set out in its Skeleton Argument on the merits of the application for a Validation Order. It was argued that: (a) Echelon had no legitimate interest in having the payment validated and had taken six weeks to make the application, which should be struck- out; (b) the application was rinmeritorious because it was rmsupported by any evidence supporting the requisite finding that"the validation order is likely to benefit creditors as a class": Re Fairway Graphics Ltd. [1991] BCLC 468 at 469C (Harman J). Further,"[i]n considering whether to make a validation order the court must always... do its best to ensure that the interests of vmsecured creditors will not be prejudiced': Re Gray's Inn Construction Co Ltd. [1980]1 WLR 711 at 717 (Buckley LJ); (c) when a validation order is sought to pay legal fees for defending a petition, the merits of any potential defence will be a key consideration. In RC Brewery Limited -v-HMRC

¶ [2013] EWHC 1184 (Ch), Warren J opined as follows: "8. As a general rule, validation orders will only be made where there is no serious risk to creditors or where the court is satisfied that the company is likely to improve the position of creditors by trading at a profit.' see for instance Harman J in Re McGuinness Bros (UK) Ltd (1987) 3 BCC 571 at p74 col 1. In the case of a petition to which the company has a genuine defence which it wishes to raise, for instance where there is a bona fide dispute about the debt, it may be right to grant a validation order to enablethepaymentoflawyerstoraisethedefence. AsHoffmann J put it in the Crossmore case: 190430 In the kfatter of Oakrym Precrous Metals Fxrnd, Ltd - FSD 9 of 2019 (IKJ) Reasons 8 payments should fall within the scope of a validation order 'ymder sec. 127.

¶ [9] In the present case, there is no dispute about the petition debt. HMRC have a clear right to payment and were entitled to present the Petition. Had there been time for the Company to seek a validation order before incurring costs in relation to the application for the order to restrain advertisement, the Court would have wanted to know the outline of the case which was eventually presented to me. I wo'ydd not hme granted an order because I would have seen the arguments as very weak (as I did onthefirsthearing). Idonotthinkthatitwovddberighttomake such an order now. That is so in relation to the fees which have already been paid. It is even more the case where the fees relate to an appea7 forwhich Isee no prospect of success (which is why I refitsed permission to appeal). Further, it must be very doubtfid that such fees wovdd be incurred in the ordinary course of business. lO.Of course, some cost would have had to be incurred in investigating whether there was an argument at all which the Company could present in support of the making a validation order. It might be said, therefore, that the Company shordd be entitled to an order at least to the extent of the cost of obtaining the necessary preliminary advice. I do not agree with that suggestion. It is one thing to allow a con'ipany to fimd a genuine defence to a petition which, if successful, would show that the petition should newr have bee-n brought in the first place. It is quite another to allow the Company to fimd an application designed to buy time to pay off its liability to HMRC"; (d) "there is an overyvhelming case for a winding-tip order to be made... such that the Svmzmons is moot" (paragraph 19(d)).

¶ [23] After I granted the winding-up Order, Mr Cowan for the Petitioner orally sought an Order reqriiring Echelon to pay the Petitioner's costs of the validation application on the grounds that it had been unreasonable to make the application. Because Echelon had contractual indemnity rights in any event, an express direction was soright that the Fund's assets could not be rised to pay the Petitioner's costs. Those assets were "our n'toney".

¶ [24] Mr Snead responded that the ordinary costs rules applicable to inter partes hearings were displaced in winding-up matters by CWR Order 24 rule 8. However, this rule merely provides as follows: "General Rules as to Costs (0. 24, r. 8) 190430 In the Arjatter of CWcr'xm Precious Metals hmd, Ltd - FSD 9 oj20l9 (IKJ) Reasons 9

¶ [8] (1) The general rule is that the costs incurred by a person who successfully presents a creditor's winding up petition under Order 3, Part II or creditor's petition for a supervision order under Order 15, r'yde 3 should hme his costs paid out of the assets of the company, such costs to be taxed on an indemnity basis unless agreed with the ofjficial liquidator. (2) In the case of a contributory's winding vtp petition under Order 3, Part III, the general rrdes are that - if the Court has directed that the company itself is properly able to participate in the proceeding, the general rrde is that the costs of a successfid petitioner be paid out of the assets of the company; or (b) if the Court has directed that the winding ttp petition be treated as an inter partes proceeding behveen one or more members of the other members or members of the company as respondents, the general rule is that norre of the costs shovdd be paid out of the assets of the company and the unsuccessfid parties sho'i.dd pay the costs of the successfid party, such costs to be taxed on the standard basis vmless agreed. (2A) An order for security for costs may only be made if the petitioner is a nominal petitioner who has presented the petition for the benefit of another person and who would be rmable to pay the costs of the company or other respondent, as the case may be, if ordered to do so. (3) In the case of an Authority's petition rmder Order 3, Part fil, the genera7 rule is that - (a) the Authority's costs of successfidly presenting a petition shordd be paid out of the assets of the company, such costs to be taxed on the indenmity basis if not agreed with the official liquidator; or (b) the company's costs of successfidly resisting the petition shordd be paid by the Authority, such costs to be taxed on the indenmity basis if not agreed. (4) The Courtshall make orders for costs in accordance with these general rules vmless it is satisfied that there are exceptional andspecial circumstances which justifjy making some other order or no order for costs." Sadiq-v-Investcorp Bank BSC and Five Others [2012(2)CILR 33] (at paragraphs 14- 15). Indemnity costs under Order 62 rule 4(1 1) might potentially be awarded because: "14...A party who asserts a cause of action when he 7cnows that he has no legitimate basis for so doing is acting improperly...

¶ [15] Unreasonableconductfallingshortofimproprietyusuallyleadstoawasted costs order... but it can also lead to an indemnity costs order urider r.4 (1 1) if it can be characterized as substantive misconduct. For example, one can envisage a case in which it was not improper to hme asserted a particular cause of action, but the court might nevertheless conclude that it was rmreasonable to have pursued it beyond the point at which the party mttst hme realized that it was bound to fail." The Merits of the adiournment application and the need to consider the Validation Summons

¶ [26] I also accept the submission of Mr Cowan for the Petitioner that it was or ought to have been obvioris that an immediate winding-up Order would be made becarise there were no cogent reasons ever identified for granting the adjournment sought by Mr Rhodenizer. The adjournment application faced two main obstacles: (a) the fact that no evidence was filed on behalf of the Manager (or the Fund) by Mr Rhodenizerto contest the central allegations in the Petition; and (b) the fact that, as a result, no material was placed before the Court which supported (or was capable of supporting) a finding that paying the $25,000 retainer would potentially enable the Fund to persuade the Court that a winding-up Order shorild not be made.

¶ [27] When petitions are presented on the grorinds of insolvency and key stakeholders wish to defend the proceedings, it is not uncommon for the respondent to have no ready cash. Where it is desired to seriorisly contest the winding-rip proceedings, the controlling shareholders will typically advance fimds to retain counsel to ensure that the petition can be effectively opposed. When regulated companies have been accused of regulatory non-compliance and lack the statutory directors, the responsible managers are usually keen to explain to the Court either why the accusations are unformded or what steps are being taken to bring a temporary state of non-compliance to an end. Against this backgrorind, Mr Rhodenizer's approach in seeking an adjournment on behalf of the Fund was surprisingly shambolic. For instance: 190430 In the khtter of OaJcrun Precrous kfetols Fymd, Ltd - FSD 9 of 2019 (IKj) Reasons 11 a ./ &J i (a) he was unable to convincingly explain why the Manager had not elected to financially support the defence of the Petition or engage its own counsel to appear at the hearing; (b) he was rinable to identify any potential defences to the Petition or to provide any practical justification for adjourning the Petition and permitting the Fund to obtain legal advice; (c) he professed complete unfamiliarity with Cayman Islands law, despite having been in charge of a regulated Cayman Islands mutual fund for over 10 years; (d) the Manager's principal still appeared to hope that he could 'wind-up' the Fund out of Court to the Petitioner's satisfaction, despite the Petitioner's determination to obtain a winding-up Order; (e) however, Mr Rhodenizer ultimately articulated his primary concern as being to procure a fair adjudication for his disputed fees claim, having spent many years of his life devoted to the Fund.

¶ [28] The surprisingly vivid picture painted by these 'submissions' only served to fortify the case for an immediate winding-up of the Fund because there was an obvious need for independent management to be placed in charge of an entity whose former Independent Directors had expressed concerns in writing to the Petitioner aborit (a) the conduct of the Manager and (b) the circumstances of their removal. Although I had considerable sympathy for Mr Rhodenizer's predicament, no amount of 'milk of human kindness' corild alter the toxic chemistry of the Fund's legal condition. The Validation Summons was accordingly not merely rinsustainable in its own right. It was filed in circumstances where it was or ought to have been obvious to Echelon that, absent grounds for believing that a coherent case for adjorirning the Petition would be advanced by Mr Rhodenizer, the Court would not in any event need to consider the Validation Summons on its merits.

¶ [29] For these reasons I refused the reqriest for an adjournment, granted a winding-up Order and summarily dismissed the Validation Summons on the grorinds that it had become otiose, Findings: the merits of the Validation Summons

¶ [30] As a matter of general principle, I consider that Echelon as a party concerned to la'iow whether a payment it wished to make out of funds held for the respondent to a winding- rip petition had in general terms standing to seek relief under section 99 of the Companies Law. Section 99 provides as follows: "99. en a winding up order has been made, any disposition of the company's property and any transfer of shares or alteration in the status of the co ' members made after the commencement of the winding up is, unless t otherwise orders, void." 190430 In the Aijatter of Oah'un Precious Metals Fund, Ltd - FSD 9 of 2019 (IKJ) Remons 12

¶ [31] Ordinarily, the relevant application would be made by a company or its liquidators as the most logical parties to seek approval of post-petition payments on a company's part. Circumstances where a company has no effective management or available funds so as to be able to make a validation application will be rare. Management typically either abandons the company altogether or marshals resources from shareholders or affiliates if a serious defence of a petition is proposed. Nonetheless it is impossible to read into the section any limitation on who may seek relief under section 99. Argentum Reductions (UK) Ltd [1975] I WLR 186, ripon which Echelon relied, was just such a case. A minority shareholder petitioned to wind-up a company on the grounds that a deadlock existed on the Board. The majority shareholders applied to validate the payment, post-petition, of certain debts owed by the company in circumstances where there was no allegation of insolvency. Megarry J held (at page 190): "The affairs of companies are almost infinitely various, and where the legislature has refrained from putting any express limit on those who may seek an order form the court, I wo'tdd be slow to attempt to spell out any implied limit which reaches beyond the ordinary limits imposed by the courts on almost any application, namely, that the applicant must have some discernible interest in the matter. The courts are not places for those who wish to meddle in things which are of no concern of theirs, just for the pleasure of interfering, or of proclaiming abroad some favourite doctrine of theirs, or of indulging a taste for forensic displcty."

¶ [32] That Echelon was in a very general sense a person with"some discernible interest in the matter" was of marginal relevance in the context of the present case. It was not necessary for me to dispose of the application by making any formal findings on the standing issue. The critical issue here was (and is for costs purposes) whether, in all the circumstances of the present case, it was reasonable for the Validation Order to be sought at all. The relevant factors which appertained were arguably the following: (a) no or no coherent basis was identified by Echelon (nor, apparently the Manager when reqriesting the release of the monies to obtain legal advice for the Fund) for believing that any arguable defence to the Petition existed; (b) it was or oright to have been obvioris that an adjournment application on behalf of the admittedly insolvent Fund made in person by the principal of the Manager which had been accused of, inter alia, regulatory misconduct and the misapplication of funds was bound to fail; and (c) no or no coherent reason was identified for the Summons being filed. before rather than after an adjournment of the Petition (in the evenj tqq. C<5;. 190430 In the Arbtter of Oab'w Precious Ariels Fund, Ltd - FSD 9 of 2019 (IKJ) Reasons 13

¶ [33] I accept the Petitioner's submissions as to the legal principles governing an application for a Validation Order in relation to an apparently insolvent respondent to a winding- up petition. The relevant payment must be in the interests of the general body of unsecured creditors: Re Fairway Graphics Ltd. [1991] BCLC 468 at 469C (Harman J); Re Gray's Inn Construction Co Ltd.

¶ [1980] 1 WLR 711 at 717 (Buckley LJ). Where the proposed payment relates to legal advice with a view to defending the petition, the Court must be provided some basis for concluding that a potentially successful defence exists: RC Brewery Limited -v-HAdRC

¶ [2013] EWHC 1184 (Ch) (Warren J, at paragraphs 8-10). Identifying a potentially valid complete defence to a petition is, in a practical sense, a necessary precondition for engaging the company's fair hearing rights. In the civil litigation context, the right to a full hearing or trial almost invariably presupposes the existence of an arguable defence to the merits of the claim.

¶ [34] The legally logical starting point for the present application ought to have been an assessment by Echelon of the extent to which legal advice was likely to assist the Fund to advance a defence to the Petition. Despite Campbells warning that there was, inter alia, no basis on which the Petition corild be successfully resisted, Echelon doggedly insisted on prirsuing its application without attempting to identify, in its evidence or its Skeleton Argument, how it considered the expenditure on legal advice would potentially undermine the allegations in the Petition. Instead, Echelon appears to have attempted to elevate the Fund's right to obtain legal advice in relation to the Petition to a far more rarefied, abstract and legally rinprecedented sphere. Only in the criminal context is the right to counsel generally recognised as an absolute right, wholly independent of the merits of the accused's defence2.

¶ [35] The central rational for Echelon's application appears to have been the view that its own commercial interests made it desirable to assist the Manager at all costs. The reasons for this view were opaqrie. It placed before the Corirt (without comment) its own statements which implied that the Fund was solvent in balance sheet terms based on the value assigned to the various shares. It did not put before the Court any correspondence with the Manager relating to the present application. It is possible that the Manager threatened legal action if Echelon did not release any funds and that the Validation Summons was a way of mitigating that threat. Unless something of this nature occurred it is difficult to make sense of its assertion that it was, in effect, on the horns ofa dilemma.

¶ [36] Be that as it may the commentary on the communications with the Manager in Echelon's Affidavit evidence, and indeed the Affidavit generally, made no allusions to the practical impact of the proposed legal advice on the defence of the Petition. The core allegations in the Petition were: (a) admitted insolvency of the Fund in cash flow terms; 2 The right to representation is a minimum right conferred on persons charged with criminal offences under 7(2) (d) of the Cayman Islands Constitution Order 2009. No corresponding right is conferred on civil a section 7. 190430 In the Mmer of Oala'un Precioxrs Metals Fund, Ltd - FSD 9 of 2019 (IKj) Reasons 14 (b) improper payment of expenses by the Manager out of the assets of the Fund; (c) improper removal of the Independent Directors by the Manager; (d) the Manager allowing the Fund to be in breach of regulatory reqriirements because it lacked the requisite management.

¶ [37] If there was a coherent answer to this catalogue of serioris complaints against the Manager in relation to its management of the Fund, one might have expected the Manager to instruct corinsel to appear on behalf of the Manager, which was a key stakeholder in the Fund, and file evidence (a) refuting the allegations, and (b) justifying an adjournment in order to retain corinsel to defend the Petition. Had an intervention of this substance been anticipated when Echelon filed its Summons, its decision to do so might have been legally comprehensible. Instead, for reasons that are ultimately unclear, it elected to provide logistical support to the attempts of an allegedly 'rogue' Manager to forestall the sole investor's attempts to wind-up the Fund. Most impoitantly of all, for present purposes, its application failed to advance any legally valid grormds for granting a Validation Order.

¶ [38] The Validation Summons was on its merits borind to fail and the supporting evidence did not disclose an arguable basis for granting a Validation Order. Had it been necessary to consider the application on its merits, I worild have dismissed it for the above reasons. Costs: governing principles

¶ [39] CWR Order 24 rule 8 provides as follows: "(1) The general r'bde is that the costs incurred by a person who successfidly presents a creditor's winding ttp petition rmder Order 3, Part II or creditor's petition for a sztpervision order under Order 15, rule 3 should have his costs paid out of the assets of the conyany, such costs to be tctxed on an indenmity basis vmless agreed with the official liquidator."

¶ [40] This is the general rule upon which Echelon relied and I was initially inclined to accept that this rule is at least potentially engaged by the present Petition which (a) primarily relied ripon the Petitioner's status as a creditor, and (b) resulted in a winding-up Order being granted on an rinopposed basis. However, on more carefril analysis, rule 8(1) is concerned with the petitioner's costs of the successfiil petition as against the respondent company. It is not concerned with the costs of a freestanding application made by a 'third party' to the proceedings in relation to which the company takes no position.

¶ [41] To the extent that the Order was also granted on the member, the following paragraph of Order 24 rule potentially engaged: 190430 In the kfatter of Otrkr'un Precrous Arktals Fund, Ltd - FSD 9 of20l9 (IKJ) Reasons 15 "(2) In the case of a contributory's winding up petition under Order 3, Part III, the general rules are that - if the Court has directed that the company itself is properly able to participate in the proceeding, the general rrde is that the costs of a successfid petitioner be paid out of the assets of the company; or (b) if the Court has directed that the winding tip petition be treated as an inter partes proceeding between one or more members of the other members or members of the company as respondents, the general rule is that none of the costs should be paid out of the assets of the company and the rmsuccessfid parties should pay the costs of the successfid party, SZ/C/;I costs to be taxed on the standard basis vmless agreed.

¶ [42] Rule 8 (2) (a) is concerned with the costs of a successful petitioner as against the company; rule 8(2) (b) is concerned with the costs as between disputing members. The present costs disprite is between the Petitioner and a stranger to the Fund.

¶ [43] Intuitively it seems to amorint to little more than wishful thinking to believe that a party such as Echelon can interpose itself into winding-up proceedings in which it has a negligible interest, make a misconceived application which is summarily dismissed and then escape the usual consequences in terms of legal costs. And Mr Cowan's straightforward primary submission was that CWR Order 24 rule 8(1), (2) only reflected general rules. Rule 8 (4) goes on to provide: "(4) The Court shall make orders for costs in accordance with these genera[ rules unless it is satisfied that there are exceptional and special circrmzstances which justify making some other order or no order for costs."

¶ [44] I have little difficulty in concluding that that the general costs rules are displaced as regards the exceptional and special circumstances presented by Echelon's unnecessary and unmeritorious Validation Summons. What principles then apply? Mr Cowan submitted that the general costs rules under GCR Order 62 applied by virtue of "GCR Order 1, r'tde 2(4)" (Skeleton Argument, paragraph 23 note 11). I accept this submission. GCR Order 1 rule 2(4) provides as follows: "(4) Exceptfor Orders 3 (Time), 4 (Assignment, Transfer and Consolidatiori of Proceedings), 5 (Mode of Beginning Proceedings), 38 Part II (Writs of Subpoena), 39 (Evidence byDeposition), 67 (Change ofAttorney), 45-51 (Enforcement) and 52 (Committal) these Rules shall not applv to anv proceedings which are - (a) governed by the Matrimonial Causes Rules (2005 Revision), (b) governed by the Grand Court (Ban7crttptcy) Rules 1971 as "a 190430 In the Arbtter of Oaja'un Precioyrs Arktals Fund, Lid - FSD 9 of 2019 (IKJ) Reasons 16 (c) governed by the Companies Winding Up Rules 2008; or (d) on appealfrom civil proceedings in the Summary Court." [Emphasis added]

¶ [45] The effect of these parallel provisions is that GCR Order 62 applies to winding-up proceedings save to the extent that special costs rules under the CWR are engaged. Even where Order 62 does apply, the way in which the Court's discretion is exercised may be shaped by any distinctive characteristics of the winding-up context. This view finds suppoit in the valuable recent decision of McMillan J in Re Abraaj Holdings, FSD 95 of 2018 (RMJ), Judgment dated January 4, 2019 (unreported), which I consider fiirther below.

¶ [46] As regards Echelon's Summons, therefore, the starting assumption in favorir of applying the usual 'costs follow the event' rule (Order 62 rule 4(5)) is properly engaged. Findings: should Echelon pay the costs of its unsuccessful Summons?

¶ [47] To the extent that Echelon seriously prirsued its application for its costs after its application was dismissed at all, I would summarily retuse this application. Mr Snead valiantly sought to contend that an adverse costs order was inappropriate in all the circumstances of the present case. He placed reliance upon Re Abraaj Holdings, FSD 95 of 2018 (RMJ), Judginent dated January 4, 2019 (unreported). An adjournment was granted of a winding-rip petition for restructuring efforts to be further pursued over the objections of the petitioning creditor. The adjournment was supported by a creditor and director/shareholder/founder of the company who sought an adverse costs order against the petitioner in respect of the unsuccessful adjournment application. The joint provisional liqriidators submitted that the petitioner had not acted unreasonably in opposing the adjorirnment that they considered was merited.

¶ [48] It was essentially common grorind that no adverse costs order shorild be made against the petitioner unless it had acted unreasonably. In Re Abraaj Holdings, there had apparently been several contested previoris hearings at which no adverse costs orders had been made. It was also unclear whether or not the petitioner would ultimately succeed on its petition engaging the general rule that it shorild recover its petition costs. The submission that the unsuccessful petitioner had acted unreasonably was firmly rejected. McMillan J, clearly placing primary emphasis on the distinctive character of the petitioner's rejected application in the winding-up context, crucially held as follows: "35. ThefactthatPIFSSdidnotprevailinitsargumentsisinnowayanadverse conclusion as to whether the argvmyents in the first place shordd ha've been placed before the Court.

¶ [36] In matters of so complex a nature the Court must be fidly receptive to weighing such arguments as a relevant party may wish to put forward. ':hl4i z 190430 In the hkrtter of Oah'xrn Precious Metals F ymd, Ltd - FSD 9 of 2019 (IKJ) Reasons 17

¶ [37] To impose vtpon an unsuccessfid creditor a costs order where its arguments have failed in these circumstances could be perceived as limiting or discouraging the expression of entirely legitimate differences of opinion."

¶ [49] I wholeheartedly endorse this analysis and find difficulty in seeing how it supports Echelon's brave efforts to extricate itself from liability for an adverse costs Order in the present case. McMillan J was clearly vindicating the rights of a petitioning creditor assessed by reference to (a) the application made and (b) the relevant principles applicable to the winding-up process as a whole. The Court had a broad discretion as to whether or not to adjourn the winding-up petition in circumstances where it seems implicit that the requirements for granting a winding-up order had also been validly met by the petitioner. The petitioner in Abraaj was clearly one of the leading characters in the cast. In stark contrast, in the present proceedings, Echelon's intervention resembled that of a member of the audience clambering onto the stage to interrupt the show.

¶ [50] Moreover, Echelon's Summons was premature, filed in circumstances in which there was no objectively reasonable basis for believing that the need to consider the application worild arise. This was because there was no objectively reasonable grounds for believing the Petition would be adjorirned to enable the Fund to obtain legal advice. The Validation Order was only needed if a winding-up Order was not made on March 22, 2019. Echelon's Summons was, for overlapping reasons, unsustainable on its merits because it failed to advance any arguable grounds for the relief sought being granted. It needed to demonstrate that the proposed expenditure for legal advice would potentially enable the Fund to defend the Petition. It failed to do so. In short the application was, properly analysed, a misuse of the winding-up jurisdiction of this Court.

¶ [51] ItfollowsthatEchelonshorildpaythePetitioner'scostsofthemisconceivedapplication for a Validation Order. Findings: should the Petitioner be awarded costs on the indemnity basis?

¶ [52] Applying the principles articulated by Jones J in Al Sadiq-v-Investcorp Bank BSC and Five Others [2012(2)CILR 33] (at paragraphs 14-15) upon which Mr Cowan relied, I find that this a very clear case for an indemnity costs award. Order 62 rule 34 provides: "(1 1) The Court may make an inter partes order for costs to be taxed on the indemnity basis only if it is satisfied that the paying party has conducted the proceedings, or that part of the proceedings to which the order relates, improperly, vmreasonably or negligently."

¶ [53] The application was an abuse of process because it was premature and wholly unmeritorious and made for reasons which are legally unintelligible. It matters not that Echelon had legitimate commercial reasons of its own for prirsuing the present application, albeit that those reasons were in evidential terms almost completely undecipherable. The Petitioner is entitled to its costs on an indemnity basis. 190430 In the Arftrtter of Oah'un Precious Arjetals Fund Ltd - FSD 9 of 2019 (IKJ) Reasons 18 Findings: should the Court make directions to ensure that Echelon is not able to fund the costs out of the Fund's assets?

¶ [54] On the face of it justice would not be served if Echelon was able to enforce a contractual indemnity against the Fund and pay the Petitioner's costs out of monies which worild otherwise be distributed to the Petitioner in any event. That is merely an instinctive provisional view made without the benefit of argument or evidence aborit the nahire and scope of the relevant indemnity rights. I only express that view to demonstrate that I have considered and understood why the Petitioner invited the Court to grant directions designed to avoid such an outcome.

¶ [55] In my judgment the winding-up scheme contemplates that any persons asserting claims against a company which is being wound-up should, prima facie, submit their claims to proof. It is for the Official Liqriidators, in the first instance, to adjudicate all such claims. It was premahire for the Validation Summons to be filed before it was known whether or not the need for it would actually arise. It is even more premature for this Court to adjudicate whether or not Echelon shorild be able to rely upon its contractual indemnity rights against the Fund. It has hinted at such a claim, but has not yet formally asseited it. I decline to make the directions sought by the Petitioner in this regard. Summary 56. For the above reasons the Petitioner was granted a winding-Up Order and Echelon's application for a Validation Order was refused on March 22, 2019. Echelon shall pay the Petitioner's costs of the Validation Summons to be taxed if not agreed on the indemnity basis. The Corirt declines to deal with any questions relating to Echelon's potential rights of indemnity against the Fund as the relevant issues.a;e';m rpperly '% JUDGE OF THE GRAND COURT 190430 Lx the Matter of Oah'un Preciom Arletals Fund, Ltd - FSD 9 of 2019 (IKJ) Reasons 19