Sian Participation Corporation ((in Liquidation)) v Halimeda International Ltd

• Jurisdiction: British Virgin Islands
• Judge: Henry JA
• Judgment Date: 11 November 2022
• Judgment citation (vLex): [2022] ECSC J1111-3
• Docket Number: BVIHCMAP2021/0017
• Court: Court of Appeal (British Virgin Islands)

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Dame Janice M. Pereira, DBE Chief Justice

The Hon. Mr. Paul Webster Justice of Appeal [Ag.]

The Hon. Mde. Esco L. Henry Justice of Appeal [Ag.]

BVIHCMAP2021/0017

Between:

Sian Participation Corp. (In Liquidation)

Appellant

and

Halimeda International Limited

Respondent

Appearances:

Mr. Tom Smith KC with him, Mr. Paul Fradley, Mr. Phillip Kite and Ms. Francesca Gibbons for the appellant

Mr. Paul Lowenstein KC with him, Mr. Rupert Hamilton, Mr. Andrew Willins and Ms. Tamara Cameron for the respondent

Mr. Stuart Cribb and Ms. Sara Malik for the liquidators (holding a watching brief)

Commercial appeal — Insolvency — Winding up application — Appeal against grant of a winding up application — Whether judge applied the incorrect test for the appointment of liquidators — Arbitration clause — Whether judge erred in law and in the exercise of discretion in finding that the arbitration point was raised too late — Appellate interference with judicial discretion — Cross-claim in an amount equal to or greater than the debt — Abuse of process — Unlawful means conspiracy — Whether judge erred in failing to conclude that the liquidation application was made for an improper purpose — Application to adduce fresh evidence — Principles in Ladd v Marshall

The appellant, Sian Participation Corp. (in Liquidation) (“Sian”) is indebted to Halimeda International Limited (“Halimeda”) for over US$150 million, with interest, under a loan agreement made between them on 7 ^th December 2012. The agreement stipulated that Sian would repay the loan by 31 ^st December 2018. Sian did not repay the debt on the termination date.

Halimeda wrote to Sian demanding payment of the debt but Sian did not reply. By 15 ^th September 2020, the outstanding debt had risen to US$226,365,598.31. Halimeda applied to have liquidators appointed in respect of Sian. Sian filed a Notice of Opposition (“NOO”) denying that the debt was currently due and payable. Sian subsequently applied to the Court to strike out the winding up application and sought leave retrospectively to adduce further evidence in the form of a witness statement and an affidavit.

In the court below, Sian contended that it is not insolvent; that the debt is not currently due and owing; that the debt is an intra-company debt which neither party intended ought to be enforced by the appointment of liquidators; that there is a substantial dispute as to whether the debt is due and owing; that Halimeda has made no unqualified demand for repayment of the debt and failed to issue a statutory demand under section 155 of the Insolvency Act, 2003 (“the Insolvency Act”); and that Halimeda, along with certain hostile parties, are engaged in an unlawful means conspiracy (“UMC”) against Sian and its affiliates, aimed at preventing a planned restructuring of the disputed debt with the objective of depriving Sian of its substantial indirect shareholding in Far-Eastern Shipping Co PJSC (“FESCO”), Halimeda's parent company; and ultimately wresting control of Sian's operations.

Sian asserted that (a) consequent on the UMC, it has a cross-claim against Halimeda and others for a sum in excess of or equivalent to the debt which entitles it to a set-off against the debt; and (b) that Halimeda initiated the liquidation application for an improper purpose and therefore it is an abuse of the process of the court. In its strikeout application, Sian averred that Halimeda did not authorize the winding up application and that the loan agreement contains an arbitration clause which mandates that any dispute arising from the loan agreement be resolved through arbitration.

The learned judge concluded, among other things, that Sian ‘has failed to show that the debt is disputed on genuine and substantial grounds or that there are other reasons why the liquidation application ought to be dismissed or stayed.’ He appointed liquidators and ordered that Sian be put into liquidation. Sian's strike-out application was dismissed and its application to present further evidence was refused. Costs were awarded to Halimeda.

Being dissatisfied with the decision of the learned judge, Sian appealed to this Court. The 5 main issues which fell for determination were: (i) whether the judge erred in law in applying the wrong test – the Sparkasse test – in assessing the liquidation application, in the face of an arbitration agreement; and erred in law and in the exercise of his discretion by concluding that the arbitration point was raised too late and was not available as a defence because Sian had not commenced an arbitration; (ii) whether the judge erred in law and in the exercise of his discretion by finding that Sian had failed, by its allegations of a UMC, to make out a genuine and substantial prima facie claim with a real belief in its substance, based on which it was entitled to a set-off of the debt; (iii) whether the judge erred in law or in the exercise of his discretion by failing to address the dispute in relation to the Intercreditor Agreement dated 7 ^th December 2012; (iv) whether the learned judge erred in law in holding that Halimeda's liquidation application was authorized; and (v) whether the learned judge erred in the exercise of his discretion or in law in dismissing the application to adduce further evidence.

On 17 ^th December 2021 and 5 ^th May 2022 respectively, Sian also filed two applications to adduce additional evidence on the appeal. The proposed evidence consisted of: the FESCO Report, the Maersk Report and the Hapag-Lloyd Report (together “the first application”) and the outcome of a confidential LCIA Arbitration (“the Arbitration Award”) and the decision of Wallbank J [Ag.] made at an in-camera hearing on 31 ^st March 2022 (“the Judgment”) (together “the second application”).

Held: dismissing the appeal, affirming the decision of the learned judge and awarding costs of the appeal to Halimeda, to be assessed by the court below if not agreed within 21 days, that:

• 1. Sian having conceded that the material contained in the FESCO report, the Maersk report and the Hapag-Lloyd report would not be determinative of the appeal, the first application to adduce fresh evidence was dismissed. Sian having conceded further that the lower court's order dated 31 ^st March 2022 would neither be determinative of the appeal nor have a significant bearing on the outcome, leave to adduce the decision as fresh evidence was refused.

• 2. The second and third limbs of the Ladd v Marshall test for admitting fresh evidence presuppose that the proposed new evidence is available to the court considering the application. The Arbitration Award was not available to the Court for consideration due to the confidentiality restrictions governing LCIA arbitration. As Sian and Halimeda were not parties to those arbitration proceedings, neither of them could have legitimately secured the removal of the confidentiality constraints. Without sight of the Award, the Court was not in a position to determine whether its contents would have an important bearing on the outcome of the appeal. Sian therefore failed to satisfy that requirement for the admission of fresh evidence and the application was refused.

  Ladd v Marshall [1954] 3 All ER 745 applied; Article 30 of the LCIA Rules applied.

• 3. A company faced with an application to wind it up, in a matter that is the subject of a valid and operative arbitration agreement, must file and serve a request for referral to arbitration, not later than when submitting its first statement on the substance of the dispute, in order to secure an automatic arbitration referral order from the court, provided that the agreement is capable of performance. It must, not later than 7 days before the date fixed for the hearing of the application, file and serve a notice setting out the grounds on which it opposes that application. Sian's first substantial statement to the court regarding the dispute (the NOO) was filed after the time limit and did not raise the issue of arbitration. Neither party expressly invoked section 18(1) of the Arbitration Act by requesting the court to refer the matter to arbitration. In those circumstances, the judge's determination that the issue of arbitration was raised late and was thereby invalidated, is eminently reasonable. Furthermore, Sian neither identified any relevant factors to which the judge attributed either too much or too little weight, nor any irrelevant factors he took into account, which constituted an error in principle with the result that he made a blatantly wrong decision outside the ambit of reasonable disagreement. Accordingly, the learned judge did not err in law or in the exercise of his discretion in concluding that the arbitration issue was raised too late and was not available as a defence.

  Section 18(1) of the Arbitration Act, 2013, Act No. 13 of 2013, Laws of the Virgin Islands applied; Rule 164 of the Insolvency Rules S.I. No. 45 of 2005, Laws of the Virgin Islands applied; Dufour and Others v Helenair Corporation Ltd and Others (1996) 52 WIR 188 followed.

• 4. For a company advancing a cross-claim to succeed in opposing a winding up application, it must put forward a prima facie genuine and substantial case, supported by evidence. The onus remains on that company to satisfy the court of the substantive nature of the dispute including presenting adequate evidentiary material in support of the contention that the value of the cross-claim is at least equivalent to the debt and capable of set-off against it. If there is any doubt regarding the cross-claim, the Court is required to proceed cautiously and would dismiss the winding up application. If there is no dispute about the debt and there is a failure to pay it, even in the absence of proof of insolvency the Court will make a winding up order. It is a question of fact whether a debt is disputed on...