Eletson et Al v Lenova et Al

• Jurisdiction: British Virgin Islands
• Court: High Court (British Virgin Islands)
• Judge: Webster J
• Judgment Date: 11 October 2024
• Judgment citation (vLex): [2024] ECSC J1011-2
• Docket Number: CLAIM NO. BVIH (COM) 2024/0111

Between:

[1] Eletson Corporation

[2] Eletson Gas LLC

Claimants/Respondents

and

[1] Levona Holdings Ltd

[2] Tropical Island International Ltd

Defendants/Applicants

CLAIM NO. BVIH (COM) 2024/0111

EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

Application to commit for contempt — civil contempt — Contempt of Court Act — interpretation of undertaking regarding use of information disclosed under a worldwide freezing order — whether the Respondents breached the undertaking — dispensing with service of the undertaking endorsed with a penal notice — CPR part 53

Appearances:

David Allen KC with Ms. Marcia McFarlane and Mrs. Kimberly Crabbe-Adams for the Claimants/Respondents

Stephen Cogley KC with Mark Forte for the Defendants/Applicants

1 Webster J [Ag.] This is an application by the defendants/applicants, Levona Holdings Ltd and Tropical Island International Limited (“ the Applicants”), for declarations that the claimants/respondents, Eletson Corporation and Eletson Gas LLC (“ the Respondents”), are in contempt of court for breaches of an undertaking that they gave to the court on 14 March 2024, and orders that they be committed to pay a fine or their assets be sequestrated or such other punishment as the Court sees fit for their contempt (“ the Contempt Application”).

Procedural background

2 The parties have been involved in heavily contested disputes in New York and elsewhere, including arbitration between Eletson Holdings Inc (“ Holdings Inc”), the parent company of the Respondents, and Eletson Corporation (“ EC”), as claimants, and the first applicant, Levona Holdings Ltd. (“ Levona”) as defendant. The arbitration was conducted in New York by the Judicial Arbitration and Mediation Services Inc. On 29 September 2023, the arbitrator awarded over US$36 million to the Respondents payable jointly and severally by Levona and two of its affiliates (“ the JAMS Award”). The JAMS Award was substantially confirmed by the District Court for the Southern District of New York (“ SDNY Court”) by an opinion dated 9 February 2024. The Honourable Judge Lewis J. Liman presides over the proceedings in the SDNY Court.

3 In September 2023 three creditors of Holdings Inc filed involuntary bankruptcy proceedings against Holdings Inc and two of its affiliates in the Bankruptcy Court for the Southern District of New York (“ the Bankruptcy Proceedings”). The Honourable Judge John P. Mastando III presides over the Bankruptcy Proceedings. Judge Mastando made an order staying the enforcement of the JAMS Award and restrained the parties in the JAMS arbitration proceedings from dealing with the JAMS Award or any other property relating to the Award without the Bankruptcy Court's permission (“ the Lift-Stay Order”).

4 The Bankruptcy Court also appointed a creditors committee in the Bankruptcy Proceedings (“ the Creditors Committee”). The Creditors Committee is a statutory body usually appointed by the Bankruptcy Court to represent the interests of the unsecured creditors. The Bankruptcy Proceedings are ongoing. The firm Dechert LLP represents the Creditors Committee.

5 The JAMS Award was not paid and on 11 March 2024, the Respondents applied ex parte to this Court for interim relief against the Applicants. On 14 March 2024 the Court granted a worldwide freezing order and other interim relief against the Applicants (“ the WFO”). The WFO contained undertakings by the Respondents including undertaking No. 8 that –

“The [Respondents] will not without the permission of the Court use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in the BVI or in any other jurisdiction, other than this claim.” (“the Undertaking”).

6 The WFO was served on the Respondents by uploading it to the Electronic Litigation Portal. The WFO (with the Undertaking) was not endorsed with a penal notice as required by parts 53.3 and 53.6 of the Civil Procedure Rules (Revised Edition) 2023. I will deal with this issue below. 1 The Respondents have not challenged the service of the Contempt Application and the WFO and have appeared and contested the Contempt Application on other grounds.

7 The WFO was continued at an inter partes hearing on 10 April 2024 when all the parties were represented by counsel.

8 On 22 April 2024, following a contested hearing, the Court granted an injunction restraining the Respondents from publicising the WFO except in the SDNY Proceedings, LCIA and the Bankruptcy Proceedings. I will deal with this order below. 2

9 There was another contested hearing on 29 May, 3 and 4 June 2024. It resulted in a variation of the WFO allowing the Applicants to borrow an additional $5 million to meet their ongoing legal expenses. The variation reads—

“Paragraph 17A be added to the WFO so as to read: “The [Applicants] are permitted to increase the amount borrowed under the loan facility agreement between Levona (as a borrower) and Nomis Bay Ltd and BPY Limited (as lenders), secured over the shares held by Levona in Tropical, from USD 5 million to USD 10 million for the purpose of spending on legal advice and representation in relation to the BVI proceedings and any other proceedings” (“ the Validation Order”).

The Contempt Application

10 The Contempt Application alleges that the Respondents breached the Undertaking by disclosing to Holdings Inc information obtained as a result of the WFO. Reed Smith LLP (“ Reed Smith”), the Respondents' attorneys in New York, then disclosed the information in the New York proceedings. There is no allegation in the Application about how and by whom the information was provided to Holdings Inc. Adam Spears asserted in his evidence in support of the Contempt Application that the same person, Vassilis Kertsikoff, controls the Respondents and Holdings Inc, and “[T]here is no other explanation how the information came into the hands of Eletson Holdings Inc.” 3 The Court was not addressed on the adequacy or otherwise of the pleading and evidence of the manner of disclosure, and the disclosure to Holdings Inc was not denied. The substance of the Respondents' defence is that the information that was disclosed was not confidential information involuntarily disclosed by the Applicants; the disclosure did not breach the Undertaking; and even if it did, the Court impliedly permitted the disclosure to the New York Courts by its order on 22 April 2024.

11 Reed Smith is an international firm of lawyers with offices in New York, London, and elsewhere. They represent Holdings Inc in the SDNY and Bankruptcy proceedings in New York. Immediately following the Validation Order they sent letters to the Creditors Committee, Judge Liman and Judge Mastando concerning matters in the BVI proceedings on 4, 5 and 6 June 2024 respectively. Dechert LLP sent a similar letter to Judge Mastando on 6 June 2024 (together “the Letters”). The Applicants say the Letters are an attempt by the Respondents to use the information in the BVI proceedings to their advantage in the New York proceedings and that this breached the Undertaking. This formed the basis of the Contempt Application. The material parts of the Letters are:

• (a) Email from Reed Smith to the Creditors Committee dated 4 June 2024:

  “We ask that the Committee immediately determine of Pach Shemen and Levona as to whether Levona is taking steps in the BVI proceeding to permit it to encumber the Symi and/or Telendos by $5mm, directly or indirectly, in addition to a prior $5mm encumbrance that Levona effectuated since the Lift Stay Order was imposed.”

• (b) Letter from Reed Smith to Judge Liman dated 5 June 2024:

  “While Levona remains subject to the worldwide freezing injunction in the BVI, Levona fails to disclose that Levona is challenging that injunction, seeking to modify its terms, and in fact is actually and materially encumbering those assets”

• (c) Letter from Reed Smith to Judge Mastando dated 6 June 2024:

  “Our information concerning Levona's knowing and ongoing violations of this Court's Lift Stay Order derives in part from the proceeding in the BVI. We intend to honor the confidentiality of those proceedings. Nonetheless, Levona knows the answer to the straightforward question whether it obtained and is using a loan facility that directly or indirectly is encumbering any asset related to the Symi and/or Telendos.” 4

• (d) Letter from Dechert LLP to Judge Mastando dated 6 June 2024, exhibiting the following email addressed to the Creditors' Committee:

  “We ask that the Committee immediately determine of Pach Shemen and Levona as to whether Levona is taking steps in the BVI proceeding to permit it to encumber the Symi and/or Telendos by $5mm, directly or indirectly, in addition to a prior $5mm encumbrance that Levona effectuated since the Lift Stay Order was imposed.”

  It was further stated in the letter from Dechert LLP that “…counsel for the Debtors called counsel for the Committee and stated that allowing the Committee access to the BVI proceedings was not relevant and instead asked that the Committee make inquiries of Levona concerning any efforts to encumber vessels generally.”

12 There is no allegation in the Contempt Application or evidence that the Respondents issued the Letters or caused Holdings Inc, Reed Smith, or Dechert LLP to issue the Letters.

13 The substance of the information that was disclosed to Holdings Inc can be gleaned from the Letters. It is also summarised by the Applicants in paragraph 7 of the Contempt Application –

“The information concerns the intended increase of the loan facility between Levona (as a borrower) and third party lenders against security over the shares that Levona holds in Tropical. The said information was disclosed by the Applicants in the BVI proceedings as part of the application filed on 27 May 2024 (the “ Validation Application”) seeking variation of the WFO to allow the...