Phoenix Group Foundation v Carl Stuart Jackson
| Jurisdiction | British Virgin Islands |
| Judge | Farara JA |
| Judgment Date | 17 November 2020 |
| Neutral Citation | VG 2020 CA 19 |
| Court | Court of Appeal (British Virgin Islands) |
| Docket Number | BVIHCMAP2020/0019 |
| Date | 17 November 2020 |
EASTERN CARIBBEAN COURT OF APPEAL
IN THE COURT OF APPEAL
The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal
The Hon. Mr. Mario Michel Justice of Appeal
The Hon. Mr. Gerard St. C Farara, QC Justice of Appeal [Ag.]
BVIHCMAP2020/0019
(Formerly BVIHCMAP2020/0012)
(as Joint Liquidators of Unicorn Worldwide Holdings Limited, Ballaugh Holdings Limited, Glen Moar Properties Limited and Sulby Investment Holdings Limited)
Mr. David Lord, QC with Mr. Sebastian Kokelaar and Mr. Iain Tucker for the Appellants
Mr. Martin Pascoe, QC and Ms. Blair Leahy, QC with Mr. Andrew Willins for the Respondents
Commercial appeal — Application by joint liquidators to court for directions in relation to matter arising in liquidation — Application for court sanction to enter into settlement agreement — Section 186(5) of Insolvency Act, 2003 — Application of principles in Re Nortel Networks UK Ltd and Other Companies [2016] EWHC 2769 (Ch)
Interpretation of contractual document — Intention of parties to contract — Whether distribution of surplus provisions in clauses 5 and 47 of the Settlement Agreement contrary to sections 185(1)(c) and 207(3) of Insolvency Act, 2003 — Whether learned judge erred in interpretation of clauses 5 and 47 and consequently in his decision to sanction the Settlement Agreement
Whether joint liquidators breached express written assurances given to appellants prior to entering into the Settlement Agreement — Whether learned judge should have found that joint liquidators could not have formed the view that the Settlement Agreement was in best interest of liquidations — Whether evidence before the judge was sufficient to ground judge's conclusions on the application of Nortel test
Whether joint liquidators had a duty to place before judge contents of legal advice received in support of section 186(5) application — Whether learned judge erred in attaching too much weight to the possibility of costs savings or reductions if parties were to enter into the Settlement Agreement
Whether learned judge erred in failing to take into account that no creditor was supporting the section 186(5) application — Whether learned judge applied the correct test in determining sanction application — Whether learned judge erred in granting a stay and releasing the joint liquidators from liability arising from their entry into and performance of the Settlement Agreement pending the determination of an appeal
On 10 th September 2019, the respondents, the joint liquidators (or “JLs”) of four holding companies in liquidation in the Territory of the Virgin Islands (“the BVI Companies”), applied to the Commercial Court in the Territory of the Virgin Islands pursuant to section 186(5) of the Insolvency Act, 2003 for the sanction of the court to enter into and implement the terms of a written settlement agreement and to be released from any liability arising out of their entry into and performance of the Settlement Agreement (“the Sanction Application”). The written settlement agreement was entered into on 5 th September 2019 (“the Settlement Agreement”) between the respondents and five other parties (“the Settlement Parties”) who are parties to certain ongoing, very complex and highly contentious legal proceedings in England (“the English Proceedings”). Also, in July 2016, the JLs on behalf of the BVI Companies (in liquidation) and two subsidiary companies, commenced against Gail Anderson Cochrane before the Commercial Court, certain tracing claims in relation to assets of the BVI Companies and subsidiaries (“the BVI Claim”).
The Settlement Agreement, which is not a global settlement of the ongoing litigations, purports to finally settle, as between the Settlement Parties only, certain proprietary claims to assets and property in the ongoing proceedings in the BVI and in England, and for one of the Settlement Parties, Harbour Fund II, L.P., take the lead on behalf of itself and the other Settlement Parties in their representation in the English Proceedings, in which proceedings the first directed trial is scheduled to commence in January 2021. The implementation of the Settlement Agreement is made expressly conditional upon the sanction of the courts in Jersey and in the BVI being obtained.
The appellants, Phoenix Group Foundation and Minardi Investments Limited, who claim to be entitled to any surplus in the liquidations of the BVI Companies and their subsidiaries, objected to the Sanction Application along with four other persons/entities.
By an oral judgment and subsequent written order (“the Sanction Order”), the learned judge granted the Sanction Application and sanctioned the JLs' entering into and implementing the terms of the Settlement Agreement. At paragraph 5 of the Sanction Order, the learned judge granted a short stay of the order to permit the appellants to file an appeal and to seek a stay from the Court of Appeal, and released the JLs from any liability arising from or out of their entry into and performance of the terms of the Settlement Agreement during that period.
The appellants, being dissatisfied with the judge's decision and order, appealed. The JLs counter-appealed on several additional grounds upon which they say the judge's decision ought to be upheld.
The issues considered by the Court of Appeal were: (i) whether the terms of clauses 5 and 47 of the Settlement Agreement relating to the distribution of any surplus in the liquidations were contrary to and would result in breaches of sections 185(1)(c) and 207(3) of the Insolvency Act; (ii) whether the learned judge ought to have found that the JLs entered into the Settlement Agreement in breach of express written assurances given by them to the appellants; (iii) whether the learned judge ought to have found that the JLs could not rationally have formed the view that the Settlement Agreement was in the best interest of those interested in the liquidations, or alternatively, that there was real doubt as to the propriety of the Settlement Agreement; (iv) whether the learned judge was wrong to attach the weight he did to the costs savings or reductions under the Settlement Agreement in relation to the BVI Companies' continued participation in and prosecution of their claims in ongoing proceedings brought by the Serious Fraud Office in the UK (“the SFO Proceedings”); (v) whether the learned judge failed to take into account that no creditor was supporting the Sanction Application; (vi) whether the learned judge in granting the Sanction Application asked himself the wrong question, that is, whether the Settlement Agreement represented the ‘best deal’; and (vii) whether the learned judge, at paragraph 5 of the Sanction Order, was wrong to absolve the JLs from any liability for taking steps to implement the Settlement Agreement pending final determination of an appeal.
Held: dismissing the appeal, awarding costs in the appeal to the respondents/joint liquidators to be assessed by a judge of the Commercial Court if not agreed within 21 days; dismissing (consequentially) the counterappeal with no order as to costs, that:
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1. The principles applicable to an application by liquidators to obtain the court's approval or sanction of a course of action in the liquidation of a company, which course of action they have, in the exercise of their statutory powers and discretion, decided to embark upon (“second category sanction applications”) were set out by Snowden J in Re Nortel Networks UK Ltd and related companies [2016] EWHC 2769 (Ch). The court must be concerned to ensure that the proposed course of action is within the liquidator's power, that the liquidator genuinely holds the view that what he proposes to do will be for the benefit of the company, its creditors and contributories, and that he is acting rationally and without being affected by a conflict of interest in reaching that view. However, the court should not withhold its approval merely because it would not itself have exercised the power in the way proposed by the liquidator. Moreover, because the effect of the court's approval will be to prevent any subsequent challenge to the liquidator's decision, the applicant-liquidator must put before the court all relevant material, including a statement of his reasons for entering upon the proposed course of action, be it a compromise or a settlement; and the court will withhold its approval if it is left in any doubt as to the propriety of the proposed course of action. In this matter, the learned judge correctly identified and relied on the test in Nortel when determining whether the JLs had satisfied the requirements necessary for the court to sanction them entering into and implementing the Settlement Agreement.
Re Nortel Networks UK Ltd and related companies [2016] EWHC 2769 (Ch) applied; Paragraph 2–299 of Lewin on Trusts, 18 th Edn., Sweet and Maxwell (2008) considered; Re Greenhaven Motors Ltd (in liquidation) [1999] 1 BCLC 635 applied.
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2. In considering whether to grant the Sanction Application, the learned judge was required to determine whether each limb of the Nortel test had been satisfied on the evidence. In the true sense, therefore, this was not an appeal from the exercise of the judge's discretion, and the principles applicable to such an appeal do not apply in this case. However, given the nature of the Sanction Application and the qualitative assessment of the evidence which the judge was required to make under the second and third limbs of the Nortel test, this Court ought to be slow to disturb the assessments and conclusions reached by the judge on those limbs, and ought to do so only where it can be shown that the judge committed an error of law or principle or his decision on the Sanction Application...
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