1 IN THE GRAND COURT OF THE CAYMAN ISLANDS 2 FINANCIAL SERVICES DIVISION 3 Cause No.63 of 2014 (AJJ) 4 Before The Hon Mr Justice Andrew J. Jones QC 5 In Chambers on 16'h October 2014 6 7 IN THE MAnER OF THE COMPANIES LAW (2013 REVISION) 8 AND 9 IN THE MAnER OF VC COMPUTER HOLDINGS LIMITED 10 11 Appearances: For the Petitioner - Mr. Alan Turner and Ms Charlotte Hoffman ofTurners 12 For the Company and Mertal Overseas Ltd - Mr. Paul Murphy of Stuarts 13 14 REASONS 15
Introduction 16 17 18 19 20 21 22 23 24 25 This is an application by the Company and its parent company, Mertal Overseas Ltd ("Merta I"), by a summons dated 10 October 2014 for (a) leave to adduce further affidavit evidence, which amounts to an application to vary the Order made on 3 September 2014, (b) orders requiring the Petitioner, which is an insolvent company in liquidation, to disclose the identity of the stakeholders who are funding this proceeding, the Maltese liquidation proceeding and an inter partes action pending in the Maltese court and the identity of anyone who has provided the Petitioner's official liquidator "with instructions and/or assistance to undertake these proceedings" and (c) an order for security for costs in the sum of US$290,000. 26
Further evidence 27 28 29 30 31 32 33 34 35 36 37 The Company and Mertal have consistently failed to comply with the Court's orders relating to the service of affidavit evidence with the result that the trial of this petition has been delayed. On 28 August 2014 Mr Azevedo swore his 2nd Affidavit on behalf of the Company in which he asserted for the first time that the flow of funds between Sakaras, Zukiapa and VC can be explained by reference to a series of supply agent agreements and supply credit agreements. This represented a significant change in the way in which the Company's case was being put. By an order made on 3 September, the day originally fixed for the trial of the petition, I allowed Mr Azevedo's 2nd affidavit to be admitted in evidence notwithstanding the failure to comply with the timetable, but I made an order that the Company be debarred from adducing and/or using any further evidence. The agreements referred to in Mr Azevedo's 2nd affidavit purport to have 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 31 32 33 34 35 36 37 38 39 40 41 42
been signed by Mr Krasnov and Ms Terekhova but they were not mentioned in their affidavits which are surprising having regard to the fact that they are now relied upon as a key part of the Company's defence. Inevitably, the Petitioner is suspicious about the authenticity of these agreements and for that reason I made an order that the originals be produced for inspection by 12 September. The Company failed to comply with this Order for reasons set out in Mr Azevedo's 3,d Affidavit. The Company's witnesses will be cross-examined about the circumstances in which these agreements were executed and it may well be that the Petitioner will seek to draw an adverse inference from the fact that they were not mentioned in the original affidavits of Mr Krasnov and Ms Terekhova. Counsel for the Company/Mertal now seeks leave to adduce new evidence on the basis that his clients are faced with a new allegation of fraud. I regard this as a contrived argument which is wholly lacking in merit. The only explanation of the new evidence is contained in Stuart's letter of 14 October 2014 (at pages 3 and 4). It seems to me that it is all evidence which could and should have been produced and served at the same time as Mr Azevedo's 2,d Affidavit. It should have been patently obvious to counsel that the failure to refer to the supply agent and credit agreements in the Company's original evidence would lead to adverse comment, with the result that it would be important to explain in detail the commercial rationale for these agreements and the circumstances in which they were executed. Mr Azevedo's 2nd Affidavit does in fact address this subject at length and I can see no justification for extending the timetable again allowing the Company/Mertal another yet another opportunity to supplement its evidence. For these reasons the application contained in paragraph 1 of the Summons is dismissed. Security for costs - The Insolvency Rules Committee, of which I am chairman, has decided as a matter of policy that creditors should not be required to put up security for costs as a pre- condition of pursuing a winding up petition on grounds of insolvency. Arguably, different considerations should apply to contributory's petitions, especially in circumstances where the Court has directed that the petition proceed as an inter partes proceeding between one or more shareholders as petitioners and other shareholders as respondents. In this type of case, it was arguable that the parties should be subject to the same rules relating to security for costs as those applicable in any other ordinary inter partes action, namely GCR Order 23, but CWR Order 24 is silent on this subject. Re Freerider Limited [2010(1)] CILR 285 was such a case. Foster J. held that the Court has no inherent jurisdiction to make an order for security for costs. Creswell J followed this decision In Re Dyxnet Holdings Limited (Unreported, 26 September 2013), which is different from Freerider in that it concerned a contributory's petition in which the company itself was treated as the respondent. I am told that the Court of Appeal has allowed an appeal in Dyxnet (and that Freerider has been overruled) although its reasons for doing so have not been published. Even if the Court of Appeal has held that there is jurisdiction to require that a creditor to put up security for the costs of a winding up petition on grounds of insolvency, until the judgment is published I cannot be sure about the scope of the jurisdiction or the criteria upon which the Court's discretion should be exercised. 2 1
However, assuming for the sake of argument that I do have an inherent jurisdiction to order 2 security for costs against a petitioning creditor, I would dismiss this application for the following 3 reasons. Firstly, it is a fundamental policy of the Cayman Islands insolvency law that all creditors 4 are treated equally. There is no preference for local creditors. It would be wrong in principle to 5 require a petitioning creditor to put up security for costs merely because it is a foreign entity. 6 Secondly, I think that it would also be wrong in principle to require a petitioning creditor to put 7 up security for costs merely because it is itself an insolvent company in liquidation whose official 8 liquidator is being funded by the stakeholders and/or may be said to be acting in the interests of 9 its stakeholders. Thirdly, the Petitioner has already made out a prima facie case, on a fully 10 contested hearing, for being a creditor of the Company for about US$32 million and it would not 11 be appropriate to require that it put up security at this very late stage - in effect, as security for 12 the costs of dealing with the Company's new defence. Fourthly, the Petitioner has made out a 13 case for the appointment of provisional liquidators for reasons given on 4 August 2014. Fifthly, 14 the Company and whoever controls it have failed to comply with the requirements of the 15 Court's order of 17 July 2014. They have failed to co-operate with the provisional liquidators. In 16 particular, they have failed to hand over all of the Company's books and records and its director 17 and officers have failed to provide any statements of affairs. Finally, even if the petition is 18 dismissed, I anticipate that the Petitioner may have legitimate grounds for arguing that no order 19 for costs should be made having regard to the manner in which the Company's defence has 20 been conducted. Even assuming that jurisdiction exists, for these reasons, I would dismiss the 21 application contained in paragraph 6 of the Summons. 22 23
It follows that the application in paragraph 5 of the Summons should also be dismissed. Mr 24 Murphy invited me to make no orders in respect of paragraphs 2, 3 and 4 of the Summons. 25 26
As for the costs of this Summons, I shall order that the Company and Mertal pay the Petitioners' 27 costs in any event and (as already provided for in paragraph 7 of the Order made on 3 28 September 2014) the Petitioners shall be at liberty to apply for an order that all or part of the 29 Petitioners' costs of and occasioned by this Summons be met jointly and severally by identified 30 third parties controlling the litigation on behalf of the Company. 31 32 33 34 35 36 37 The Hon. Mr. Justice Andrew J. Jones, QC 38 JUDGE OF THE GRAND COURT 3