I IN THE GRAND COURT OF THE CAYMAN ISLANDS 2 3 FINANCIAL SERVICES DIVISION 4 5 The Hon. Mr Justice Andrew J. Jones QC 6 In Chambers, 4 April 2014 7 8 9 10 11 CAUSE NO. FSD 82 OF 2010(AJJ) CAUSE NO. FSD 269 OF 2010(AJJ) 12 IN THE MATTER OF THE COMPANIES LAW (2012 REVISION) 13 14 AND IN THE MATTER OF ICP STRATEGIC CREDIT INCOME FUND LTD. 15 16 AND IN THE MATTER OF ICP STRATEGIC CREDIT INCOME MASTER FUND LTD. 17 18 19 Appearances: 20 Mr Tom Lowe QC instructed by MI' D. Fraser Hughes and Erik Bodden of Conyers Dill & 21 Pealman for the Joint Official Liquidators '2 13 The Liquidation Committee was not represented 24 25 DLA Piper LLP was not represented 26 27 28 29 30 31 32 33 REASONS 34
On 28 May 2013 I made all order sanctioning the commencement of proceedings by the 35 Joint Official Liquidators ("the JOLs") of the ICP Strategic Credit Income Flmd Ltd ("the 36 Offshore Feeder Fund") md the ICP Strategic Credit Income Master Fund Ltd ("the 37 Master Fund") against the United States finn of DLA Piper LLP ("DLA"). The order is 38 expressed in general terms. It authorises the JOLs to commence proceedings against DLA 39 in respect of its involvement in fhe payment of approximately US$36.5 million of the 40 Master Flmd's money to Barclays Ballk Pic in circumstallCeS which are alleged to 41 constitute a breach of fiducial'Y duty on the part of its directors. Although expressed in 42 these general terms, having regard to fhe way in which the application was presented by Reasolls- ICP Feeder Fund & ICP Master FUl1d-FSD #s 82 & 269 0/2010 (AlJ) Page 1 0/4 1 counsel for the JOLs I intended my order to authorise the JOLs to assert that DLA had 2 knovvingly aided and abetted a dishonest breach of fiduciary duty. 3 4
It was subsequently brought to my attention that the JOLs had come to the conclusion that 5 the factual evidence against DLA justified the inclusion of an additional cause of action in 6 the Funds' complaint. In addition to aiding and abetting the breach of fiduciary duty 7 (Count 1) and aiding and abetting fraud (Count 2), the complaint includes a clainl for a 8 declaration that DLA is liable to conh'ibute to the assets of the Ftmds pursuant to section 9 147 of the Companies Law (Count 3) on the grmmd that it was a party to fraudulent 10 h·ading. Cmmts 1 and 2 assert causes of action belonging to the Funds which arose tmder 11 United States law and were capable of being asserted prior to the commencement of the 12 liquidation proceedings. Cmmt 3 asserts a statutory claim arising under Cayman Islands 13 law as a result of the winding up order. It is a cause of action which belongs to the Official 14 Liquidators and was not capable of being asserted by the Funds themselves prior to the 15 commencement of their liquidation. Having already commenced proceedings in the 16 Supreme Court of the State of New York, the JOLs made an application (on notice to DLA) 17 for an order that the decision to include the fraudulent trading claim in the complaint 18 (Count 3) be sanctioned reh·ospectively. On 4 April 2014 I made an order in favolll' of the 19 JOLs and I now give my reasons for that decision. 20 21
Section 147 of the Companies Law provides as follows :- '2 L3 (1) If in the course of the winding up of a company it appears that any business of the company 24 has been carried on with intent to defraud creditors of the company or creditors of any other 25 person or for any fraudulent purpose the liquidator may apply to the Court for a declaration 26 under this section. 27 (2) TI,e Court may declare that any persons who are knowingly parties to the carrying on of the 28 business in the manner mentioned in subsection (1) are liable to make such contributions, if 29 any, to the company's assets as the Court thinks proper. 30 31 The word "COlll't" is defined by section 2(1) of the Companies Law to mean "the Grand 32 Court of the Cayman Islands" and so the question arises whether the Supreme Court of 33 the State of New York or any other foreign court has jurisdiction (as a matter to Cayman 34 Islands law) to exercise this stahl tory power. 35 36
I remind myself that the basic rule of statutory interpretation is that it is taken to be the 37 legislahlre's intention that a stahlte will be construed in accordance with the general 38 guides to legislative intention laid down by law. There is a presumption that the literal or 39 granunatical meaning should be followed. TI,e literal or grammatical meaning of the word 40 "Court" as defined in section 2(1) is cleat~ but I can nevertheless depart from that memung 41 if, when put into its proper context, the literal meatung creates atl anomaly or otherwise 42 produces atl ilTational or illogical result. See Bennion's Statutory Interpretation (5th Edition, 43 2008), Sections 285 atld 315 at pages 864-9 atld 986-999. t4 Reasolls- ICP Feeder Fund & ICP Master FUl1d- FSD #s 82 & 269 0/2010 (AJJ) Page2of4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 ,; 19, 20 21 '2 ·1 • 23 . ',<' . "24 '>< ; 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 3 "-"> "- ;1 , " _'0 ,
I think that section 147 should be read together with section 146. Both these sections were inh'oduced by the Companies (Amendment) Law 2007. Both sections deal with the consequences of fraudulent trading. Section 147 creates a compensatory remedy when any part of a company's business has been canied on with intent to deh'aud creditors. Section 146 creates a restitutionory remedy when any of a company's property has been disposed of at an lmdervalue with intent to defraud its creditors. TIlese sections create stahltory remedies aimed at different aspects of the same kind of mischief. TIlere is no apparent reason why the legislahlre should have intended that official liquidators be permitted to pursue the section 146 remedy in a foreign court but prohibited from pursuing the section 147 remedy in a foreign court. This would be the result if the word "Court" (which is used in section 147 only) is consh'ued to mean the Grand Court of the Cayman Islands. It seems to me that this is an anomalous and illogical result which the legislahue is inherently unlikely to have intended to achieve.
COlmsel for the JOLs also drew my attention to the fact that the section 147 remedy is modelled on the current English law. It is actually identical to section 213 of the English Insolvency Act 1986, except that the ""ord "court" (with a lower case 'c') is not used as a defined term to mean the English High Court. In Bilta (UK) v. Nazi}' (No.2) [2014] Ch. 52 it was held that section 213 of the English statute has extraterritorial effect and that the expression "any person" includes those who are domiciled and resident out of the jurisdiction. I think that section 147 of the Cayman Islands stahlte must be construed in the same way. If the remedy was available only against persons resident or domiciled in tl1is cOlmh-y it would be stripped of much of its utility. If the remedy is available against foreigners, as I think it is, then it is inherently milikely that tile legislature would have intended that official liquidators be prohibited from seeking the remedy in foreign courts.
For these reasons I concluded that, on its true consh'uction, official liquidators are not prohibited from pursuing section 147 claims in foreign courts. The altemative of pursuing the claim in this Court is not open to the JOLs in the circumstances of this case. DLA carries on its practice in the United States. TIle finn does not have any presence in the Cayman Islands. The danlage suffered by the Fmlds resulted from acts conunitted in New York and advice given by a lawyer working in the finn's New York office. In these circumstances there would appear to be no basis lmder GCR Order 11 upon which this Court could exercise jurisdiction over DLA. It follows that any proceedings against DLA for a section 147 remedy will have to be commenced, if at all, in the United States.
I also need to consider whether the Supreme Court of tile State of New York has jurisdiction to apply the substantive Cayman Islands law and grant the section 147 remedy. I would not sanction the JOLs to commence or continue an action in a foreign court if the evidence were tllat it was likely to be sh'uck out on jurisdictional gromlds. In this regard I have the benefit of expert evidence about tI1e applicable United States law in the form of a report from tI1e Honourable Melanie L. Cyganowski, who is a former Chief Judge of the United States Bankruptcy Court for the Eastem District of New York. TIle Reasons - ICP Feeder FUlld & ICP Master Fund - FSD #s 82 & 269 0/2010 (AJ]) Page 3 0/4 I 2 3 4 5 6 7 8 9 10 JOLs filed a petition for recognition lUlder Chapter 15 of the United States Bankruptcy Code and on 8 August 2013 the Bankruptcy Court for the Southern District of New York entered an order recognizing that the liquidation proceedings pending before this Court constitute the "foreign main proceedings" under Chapter 15. In these circumstances, Ms Cyganowski's opinion is that the Bankruptcy Court overseeing the Chapter 15 proceedings will authorise the JOLs to pursue claims against DLA in the State Court and that it will likely apply the substantive Cayman Islands law. In other words, her evidence is that COlUlt 3 of the complaint is likely to be entertained by the New York Court if the commencement or continuation of the proceeding has been sanctioned by this Court. II
For these reasons and for the reasons given in my previous ruling, I was satisfied that the 12 JOLs do have a cause of action lUlder section 147 which is capable of being pursued in the 13 Supreme Court for the State of New York and that the interests of the FlUlds' creditors will 14 be best served by allowing the proceeding to continue. 15 16 DATED this 15th day of May 2014 17 18 19 20 G~ 21 22 3 24 The Hon. Mr. Justice Andrew J. Jones QC 25 JUDGE OF THE GRAND COURT Reasolls- ICP Feeder FUlld & ICP Master FUJld-FSD #5 82 & 269 0/2010 (AJJ) Page 4 0/4