In re SPhinX Group of Companies (In Official Liquidation) - Ruling

¶ IN THE GRAND COURT OF THE CAYMAN ISLANDS AND IN THE LIQUIDATION 6TH JUNE 2007 IN CHAMBERS, BEFORE THEI ON THE 24TH (ORIGINALLY OF THE COMPANIES LAW (2013 REVISION) MATTER OF THE SPHINX GROUP OF COMPANY AS CONSOLIDATED BY THE ORDER OF THE ION: CHIEF JUSTICE DAY OF JANUARY 2014 FSD 16 OF 2009 AUSE NO: 258 OF 2006) ) HES (IN OFFICIAL IS COURT DATED APPEARANCE Scheme of arra- creating reserve, include settlements from possible clas- Mr. Tom Lowe QC, instructed by Ms. Cherry Conolly for the Joint Official Liquidators (the “ Group of Companies. Mr. Mark Phillips QC, (from London via video Ms. Andrea Dunsby in London and Mr. Alan T Liquidation Committee (the “LC”). Mr. Guy Manning and Mr. Guy Cowan of Camp- LLC and DPM Mellon Limited (collectively: (“ Mr. Mare Kish of Maples and Calder for Refco F ngament to compromise investor claims and permit to recover contingent claims of indemnity claimants – with sums recovered from third party defendants to protect ims by those defendants for contributions. Bridges of Rich & OLs”) of the SPhinX (link) instructed by armer on behalf of the bells for DPM Mellon PM”). public (an investor). It is notions while either reserves should indemnity claimants

¶ [1] Claims be consolid- many fo Company the claim RULING brought by the JOLs in actions in New Jersey and suited into a single action in New York (the “NYAction armer providers of fiduciary and professional ser- vices, including DPM, were joined as defendants. If they es, they would, on the basis of contractual indemnity New York have been n”). In the NYAction ices to the SPhinX succeed in defending les, be entitled to be Page 1 of 5
indemnify contribute event su NYAction

¶ [2] Defenda least in settlement as provided by the JOLs for their costs and expenses and actions they may be required to make to the liability of each defendants, though not they themselves, are four n. entitled to indemnities (“indemnity claimants” or theory) be liable to make contributions to other defen- t payment in the NYAction and who may sue for recovery for recovery of any ther defendants in the d to be liable in the ICs”) could also, at its who have made a overy of contributions from the

¶ [3] As a prin- compro- indemnity

¶ [4] The con- sue DPM a defend- received

¶ [5] To the c n. o. requisition to the grant of sanction to the Scheme, if ease of investor claims in the Sphinx liquidation reserve to meet the claims of ICs has been set by the yern raised by DPM now, is that another defendant to for a contribution to any settlement sum or award pa- To meet such an eventuality, DPM contends that tient; however, that a settlement agreement with a contributio n claims, DPM acknowledges that such an Arrangement for the (“the Scheme”), an Court1. the NYAction could d to the JOLs by such in any such recoveries remedy. defendant contained a clause would preclude a contrib-

¶ [6] PriceWa- “PWC”) who cou- The subject of this delivered on 9th Jul- 18th October 2013 1 tion claim being brought by that defendant. HouseCoopers(Cayman) and PriceWaterhouseCo and Schulte Roth& Zabel (“Schulte”) are the only in- d sue for a contribution claim (having settled with the 2 e written judgments - see: 2010(2)( CILR 234; In re Sphinx Group, 2013, per Sir Andrew Morritt and In re Sphinx Group, unreported judgment, 3 CJ (reissued on November, 8th, 2013) 4 PersL.P. (“together identifiable defendants OLs without giving a unreported judgment adjudgment delivered on Page 2 of 5
release of to their n

¶ [7] PWC are York law released contribution (contibution claims), and who might therefore sue D respective settlement payments. as the former auditors of the Sphinx Group and Schulte, Both fall within the group of ICs but their in- ers. As a term of their settlements with the JOLs. An law would arise as a matter not of contract, but of New law. PM for a contribution

¶ [8] But for I made it distributi- in keepin-

¶ [9] In respo- remainin- either be- DPM, it that altho- contribuP-M’s objections, (citing the JOLs obligation to en- meet their proper claims for indemnities), the JOLs’ all assets of the Sphinx estate, including settlement re- g with time frames set by the Scheme. ding to DPM’s concern, it is important to note the defendant to the NYAction; all others, including those en discontinued against or have settled. If the action is not so tried unless earlier settled. It is also important though PWC and Schulte have not released any right either on neither has intimated an intention to do so. A pre- that provisions are would be obliged to recoveries, to investors at DPM is the only e who were ICs, have continued as against in this context to note, per might have to seek contribution claimant would be statutory.

¶ [10] There is, like PWC operation.

¶ [11] The ques- Federal well advised to act quickly, given the age of the NYA tion periods. moreover, a real issue, already mentioned above, over and Schulte who settled in the NYAction, would be if of law from bringing a claim for contribution against I nion is whether the New York General Law of Obligation Rules of Civil Procedure would govern the right of action and well known or whether defendants carried in any event by DPM. ons section 15-108 or defendants to bring Page 3 of 5
contribution there has

¶ [12] The ans- after an- defendant could arise. pay or claim in circumstances such as those involving PW- been a settlement precluding a trial to judgment. ever seems to depend on whether the settlement was judgment is recorded in the same action for or t. If before judgment, no liability to contribute to it, after, then a possibility of liability for a contri- se if after, then a possibility of liability for a contri- WC or Schulte, where bution payment could entered into before or against the particular the judgment payment bution payment could

¶ [13] There is Mr. Kane

¶ [14] However, issue in Indemnity the amount retained

¶ [15] That ques- to the ne- the competing expert evidence on this issue from the tnessy for DPM and Mr. Barron for the LC. for the reasons which follow, I do not consider it ne- order to resolve the concern raised by DPM now; which ly Reserve may be reduced by the payment under the Si- to cover possible claims from them for contributions. tion of Mr. Manning rightly submits, depends on who ressary high degree of assurance, that the Indemnity Re- mum sums that might reasonably be incurred23 and I, New York lawyers necessary to resolve the again, is whether the cheme to investors of use amounts should be therein be satisfied, reserve has been set at so that there is no real risk that could be indemnify

¶ [16] In assess-

¶ [17] respectiv- reflect the

¶ [18] See cases cited at foot of this document. PWC or Schulte (or any other as yet unidentified or being a successful contribution claim against DPM, ing that risk, I must, of course, have regard to the an- settlement sums. And I must consider not only how e at no expense. contribution claimant) that could not be amounts involved in the those amounts might in PWC and Schulte, Page 4 of 5
including contribution million Morritt

¶ [17] I am sat claims of

¶ [18] As to ot the maximum sums that might reasonably be incurred contributions, but also how the settlements compare as again specifically directed to be added to the Indemnity Re- his judgment2 to meet any contribution claims to be his sified that even were PWC and Schulte to bring con- ulti not exceed the sum of $10 million reserved to me- ful their excess, other possible contribution claims by other as yet un- d as liability for such st the amount of $10 serve by Sir Andrew sought against ICs. ribution claims, their statutory claims4 identified claimants, I continue (although most like

¶ [19] This is a NYAction now set to cover

¶ [20] I conclu- Schulte available to share the view expressed by Sir Andrew Morritt5, to share the view expressed by Sir Andrew Morritt6, (not) so small as to be ignored7 and that “a supple of being more than is, in fact, required”. view which has only been bolstered by the devel- n. I also have in mind the already very large sum of opinions on this matter, but over $60 million to cover the ICs’ costs. A signifi- cant amount of money is needed to cover the costs of successful defences of contribution claims. The direct that the JOLs may treat the sums receiv-

¶ [18] I am sat settlements as released from the possibility of contri- bution claims, and as for distribution to investors under the Scheme. that the risk “is small at of $10 million is ... impments so far in the he Indemnity Reserve nt portion is reserved d are the PWC and bution claims and as Hon. Anthony S Chief Justice Dated the 24th Ja- * Foot note 1 above, “I note that I was s- that the claim again ” Also above, at pa- . op. cit at para 45 down the settlement sums during the hearing in DPM’s absence, but DPM is yet to be tried or settled. a $300,000 it. for the obvious reason Page 5 of 5