OFFSHORE CASE DIGEST: - Conyers Dill & Pearman

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CAYMAN ISLANDSCONTRACT – CONSTRUCTION – CLAWBACKAGREEMENTEnnismore Fund Management Limited v. Fenris ConsultingLimited, Grand Court of the Cayman Islands FinancialServices Division, Cause No FSD 65 of 2009, per Foster, J.(7 February 2012)The Plaintiff is an investment management company and theDefendant is a consultancy company set up to provide fundmanagement services to the Plaintiff. The compensationagreement between the two parties was based on a systemof bonuses which would be subject to claw back in respectof losses attributable to the relevant portfolios, a system thatwas memorialized in a badly drafted claw back agreementprepared by a non-lawyer. After catastrophic losses in thefinancial crisis, the Plaintiff brought an action on the clawback agreement which required the Court to determine itstrue meaning and construction and in particular whether, as amatter of interpretation, claw back was based upon and limitedto the amount of reduction in the overall performance fee or onthe individual performance of the portfolios managed by theDefendant. Further, the Court was required to determine themeaning of the words, ‘attributable to’ in the context of the clawback agreement.The Court held that an agreement must be interpreted in lightof all the background circumstances reasonably known by oravailable to the parties, which includes absolutely anythingwhich would affect the way in which the language of thedocument would have been understood by the reasonableperson having all such background knowledge. It is alsoappropriate in interpreting such an agreement that the Courtshould know and take account of the commercial purpose ofthe agreement, which itself presupposes knowledge of thegenesis of the transaction, the background, the context, andthe market in which the parties were operating. The poorerthe quality of the drafting, the less weight should be given tosemantic niceties that attribute to the parties an improbable andunbusinesslike intention. Having regard to these principles, theoperation of claw back under the agreement was based uponand related to the individual performance of the Defendant inthe management of the particular portfolios for which it wasresponsible and the profits and losses on those portfolios.Furthermore, while in some circumstances, “attributable to”may well require that the Court consider the notion of blameor fault, in this case, based on the overall construction of thecontract, there is no inference to that effect to be drawn fromthe agreement. Here, “attributable to” means only that theinvestments in question were part of the Defendant’s portfolio.Judgment was given for the Plaintiff.COMPANIES – WINDING UP – LOSS OF SUBSTRATUM –INJUNCTION TO RESTRAIN DISPOSAL OF SHARESIn the Matter of the Companies Law (2011 Revision) and Inthe Matter of Merchantbridge Managers Inc. Grand Courtof the Cayman Islands Financial Services Division, CauseNo. FSD 5 of 12, per Smellie C.J. (9 February 2012)The respondent company, which is the management ofcompany of an investment consortium, was characterizedas a quasi-partnership between four persons. Two of thefounders were killed in an air accident and one of them wassubsequently bought out by the other. The family members ofone of the deceased participants were appointed to the boardof the company by the sole surviving shareholder, directorand partner of the group, and they promptly removed himfrom the board. With the removal of the last remaining activeparticipant in the management company, it is alleged that thecompany had been effectively paralyzed, as there was no oneleft with the capacity to carry on its functions and as a resultthe substratum of the company has failed. The Applicant filed(but has not yet served) a petition to wind up the company. TheApplicant immediately brought an ex parte application for aninjunction to prevent the board of the company from removinghim as a director of nine special purpose vehicles which arethe investment holding companies of the consortium. He alsosought an injunction to restrain the management company fromdisposing of its shares in the holding company through whichconyersdill.com • 22
CAYMAN ISLANDSthe investment consortium was constituted and through whichtheir shares are held. The injunctions were intended to retainthe status quo until the petition for winding up can be heard oruntil further order of the Court. Considering the tests laid outin American Cyanamid Co. v. Ethicom Ltd., the Court foundthat there is a serious issue to be tried. There was materialto support the contention that a quasi-partnership existed(notwithstanding the fact that the legal structure employed bythe founders was, in form, a company). The removal of theApplicant from the board could be found to justify his loss ofconfidence and trust, such that a petition to wind up on thejust and equitable ground may be sustainable. The just andequitable ground is wide enough to found relief where thereis a good reason for loss of confidence and trust leading to abreakdown of relationships underpinning a company formedand operated in the nature of a quasi-partnership. The balanceof convenience lies with granting the injunctions to preservethe status quo until the petition can be heard. Relief grantedand directions for service issued.PROCEDURE – STRIKE OUT – DELAY – STANDSTILLAGREEMENTTempo Group Limited v. Fortuna DevelopmentCorporation, Grand Court of the Cayman Islands FinancialServices Division, FSD 82 of 2011, per Henderson, J.(20 February 2012)The Plaintiff holds a minority interest in the Defendant Company.The action was commenced in June 2004 alleging a causeof action which arose at various times between September2002 and April 2004. A related proceeding was brought whichinvolved various interlocutory orders and appeals, including anapplication for leave to appeal to the Privy Council, which wasnot finally dealt with until February 2011, at which time thisaction was revived. The Defendant has brought an applicationto strike out the claim for delay. While the overall time periodinvolved was at first glance excessive, there was in place astand still agreement for a significant span of that time. Noauthority was cited in which a court has treated a delay whichoccurred during the currency of a stand still agreement as areason for striking a claim. The Court found that it is an impliedterm of the stand still agreement that any delay which occursduring the currency of the agreement cannot be relied uponin any application for want of prosecution. The Court went onto find that if it was mistaken, and the period of the stand stillagreement ought to count, the delay was excusable basedon the conduct of the parties and all the circumstances of thecase.COMPANIES – DIVIDENDS – PRE-JUDGMENT INTERESTON UNPAID DIVIDENDTempo Group Ltd. v Fortuna Development Corporation,Grand Court of the Cayman Islands Financial ServicesDivision, Cause No. FSD 82 of 2011, per Henderson, J. (24February 2012) (For a summary of the background facts, seethe digest above.)Application was brought to determine whether the Court wasable to award pre-judgment interest when it grants judgmentto a shareholder for unpaid dividends, notwithstanding that thearticles of association of the company state that no dividendshall bear interest against the company. While there is nonbindingauthority for the proposition that the court is notempowered to award interest on a dividend debt where thearticles contain the usual provision that dividends do not bearinterest, the better view is that the court retains the discretion toaward interest but it should be exercised so as to give effect tothe agreement of the shareholders, which is evidenced by thearticles. Looking to the intention of the parties as memorializedin the articles, the shareholders clearly surrendered any right tointerest on a dividend during the period between its declarationand the date set for its payment. There is nothing in the articlesto suggest that the shareholders were giving up the right toclaim interest on dividend debt litigation against the company.Such litigation was entirely outside the contemplation of theparties when they reached their agreement. As such, the Courtexercised its discretion to award pre-judgment interest on theamount of the judgment from the date that litigation to forcepayment of the dividend was commenced.conyersdill.com • 23
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OFFSHORE CASE DIGEST: - Conyers Dill & Pearman

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