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Court of Appeal overrules unprecedented attempt to introduce non-party extra territorial discovery

November 2016 Ben Hobden Paul Smith

In a Judgment handed down on 18 November 2016, the Cayman Islands Court of Appeal ruled that using liquidators’ powers to obtain extra territorial non-party disclosure was outside the reach of the Cayman Islands Companies Law (2013 Revision) (the “Companies Law”). Specifically, that the official liquidators (“JOLs”) could not use the machinery of a letter of request based on Section 103 and/or 138(1) of the Companies Law to compel a foreign bank and several of its employees to deliver up documents situated out of the jurisdiction for the purpose of providing discovery in Cayman litigation to which none of them are parties, as liquidators’ statutory powers are not available for the benefit of a party to an action where the purpose of the liquidation will not be served.

Background

Primeo entered into official liquidation in 2009 following the discovery of the Madoff fraud. Thereafter, Primeo commenced proceedings in the Grand Court in order to recover damages arising out of the fraud against Pioneer Alternative Investment Management Ltd, Bank Austria and the ‘Austrian Directors’ (being employees of the Bank and directors of Primeo) (together the “Austrian Parties”), a claim that was ultimately settled. Primeo also commenced proceedings to recover damages against Bank of Bermuda (Cayman) Limited and HSBC Securities Services (Luxembourg) SA (the “Defendants”). In the course of these proceedings, as part of an extensive application for discovery, the Defendants applied for a Letter of Request to be issued by the JOLs against a number of parties, including the Austrian Parties, in order to obtain documents the Defendants believed were being held by the Austrian Parties.

Grand Court Ruling

At the first of two hearings on this issue, in May 2015, the JOLs submitted that the exercise was speculative and likely to be a disproportionately expensive exercise. Jones J accepted that the JOLs had no reason to apply to obtain the documents prior to the issue being raised by the defendants, as in the JOLs’ judgment the documents were not needed for the purposes of liquidation. He remarked that the JOLs did not appear to have “tried particularly hard to obtain information”, but stated that he was not criticising the JOLs. The Court of Appeal concluded that this lack of criticism is significant, as it is well established that the relevant test to be applied before interfering with the conduct of a liquidator is to ask whether he has “done something so utterly unreasonable and absurd that no reasonable man would have done it” (Edennote Ltd. (1996) 2 BCLC 389). However, minded to conclude that Bank Austria were in possession of relevant documents, Jones J adjourned consideration of the issue to allow the Defendants ‘a second bite of the cherry’ with regard to the Letter of Request.

 

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Court of Appeal overrules unprecedented attempt to introduce non-party extra territorial discovery

 


Ben Hobden
Partner

Cayman Islands   +1 345 814 7366


Paul Smith
Partner, Head of Cayman Islands Litigation & Restructuring Practice

Cayman Islands   +1 345 814 7777


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Alerts

Court of Appeal overrules unprecedented attempt to introduce non-party extra territorial discovery

18 November 2016 Ben Hobden Paul Smith

In a Judgment handed down on 18 November 2016, the Cayman Islands Court of Appeal ruled that using liquidators’ powers to obtain extra territorial non-party disclosure was outside the reach of the Cayman Islands Companies Law (2013 Revision) (the “Companies Law”). Specifically, that the official liquidators (“JOLs”) could not use the machinery of a letter of request based on Section 103 and/or 138(1) of the Companies Law to compel a foreign bank and several of its employees to deliver up documents situated out of the jurisdiction for the purpose of providing discovery in Cayman litigation to which none of them are parties, as liquidators’ statutory powers are not available for the benefit of a party to an action where the purpose of the liquidation will not be served.

Background

Primeo entered into official liquidation in 2009 following the discovery of the Madoff fraud. Thereafter, Primeo commenced proceedings in the Grand Court in order to recover damages arising out of the fraud against Pioneer Alternative Investment Management Ltd, Bank Austria and the ‘Austrian Directors’ (being employees of the Bank and directors of Primeo) (together the “Austrian Parties”), a claim that was ultimately settled. Primeo also commenced proceedings to recover damages against Bank of Bermuda (Cayman) Limited and HSBC Securities Services (Luxembourg) SA (the “Defendants”). In the course of these proceedings, as part of an extensive application for discovery, the Defendants applied for a Letter of Request to be issued by the JOLs against a number of parties, including the Austrian Parties, in order to obtain documents the Defendants believed were being held by the Austrian Parties.

Grand Court Ruling

At the first of two hearings on this issue, in May 2015, the JOLs submitted that the exercise was speculative and likely to be a disproportionately expensive exercise. Jones J accepted that the JOLs had no reason to apply to obtain the documents prior to the issue being raised by the defendants, as in the JOLs’ judgment the documents were not needed for the purposes of liquidation. He remarked that the JOLs did not appear to have “tried particularly hard to obtain information”, but stated that he was not criticising the JOLs. The Court of Appeal concluded that this lack of criticism is significant, as it is well established that the relevant test to be applied before interfering with the conduct of a liquidator is to ask whether he has “done something so utterly unreasonable and absurd that no reasonable man would have done it” (Edennote Ltd. (1996) 2 BCLC 389). However, minded to conclude that Bank Austria were in possession of relevant documents, Jones J adjourned consideration of the issue to allow the Defendants ‘a second bite of the cherry’ with regard to the Letter of Request.

 

To continue reading full articles in PDF format:
Court of Appeal overrules unprecedented attempt to introduce non-party extra territorial discovery

 


Ben Hobden
Partner

Cayman Islands   +1 345 814 7366


Paul Smith
Partner, Head of Cayman Islands Litigation & Restructuring Practice

Cayman Islands   +1 345 814 7777