IN THE COURT OF APPEAL
TURKS & CAICOS ISLANDS
CIVIL APPEAL NO. CL-AP-5/2005
BETWEEN:
MAGELLAN REINSURANCE COMPANY LIMITED
Appellant
- and -
NEW HAMPSHIRE INSURANCE COMPANY
Respondent
Date of hearing: 10th August 2005
Date of Judgment: 19th August 2005
Mr. Carlos Simons OBE for the appellant; and
Mr. Martin Green for the respondent.
JUDGMENT
INTRODUCTION
1. This matter came before us on an appeal from following orders of Gardner CJ, made on 2nd March 2005:
“(ii) That the summons of the [Appellant] dated 5th January 2005 for the said stay is dismissed;
(iii) That the [Appellant’s] application to adjourn the hearing of the petition is dismissed;
(iv) That the [Appellant] company be wound up;
(v) That Andrew James Newlands by appointed liquidator of the [Appellant] company;
(vi) That the [Respondent] have its costs herein.”
2. At the conclusion of the hearing on 10th August 2005 we allowed the appeal in part, and set aside paragraphs (iii), (iv), (v) and (vi) of the Order of 2nd March 2005, and remitted the matter to the Supreme Court for rehearing. We promised to give written reasons, which we now do.
3. The winding up order was made on the respondent company’s Petition, which itself was based upon a statutory demand of 30th September 2003. The statutory demand was based upon a reinsurance contract of 17th January 1997, under which the respondent ceded all of its obligations in respect of certain business to the appellant company, in return for 100% of the premiums received for the said business, less returns and cancellations and an 11.75% ceding commission. By the contract the appellant was obliged to establish a trust account into which it was required to deposit an amount equal to 100% of the total unearned premium reserve plus the outstanding loss reserve as determined by the company at the end of each calendar year. The statutory demand was based upon an alleged failure to comply with that requirement, and it claimed that the appellant company owed the sum of $1,400,459.45, which was described as ‘'shortfall in payment to trust account required pursuant to reinsurance agreement of 17th January 1997.”
4. The Petition was presented on 16th August 2004. There is no real explanation for the delay which occurred between the service of the statutory demand and the presentation of the Petition. Once presented, it was not served until 18th December 2004, apparently, we are told, because the documents were mislaid in the Registry. Once served, it was set down for hearing on 10th January 2005, although for administrative reasons it did not come on for hearing until the 28th February.
5. In the meantime, by a summons dated 5th January 2005 the appellant applied for the following relief, namely-
‘1. THAT the proceedings on the Petition herein be stayed on the ground that the dispute between the parties arises from an agreement containing a submission to arbitration under a foreign (State of New York) governing law clause; and
2. THAT the Petitioner be restrained from advertising the Petition.”
6. However, the summons itself also contained, in the alternative, an application for an adjournment of the Petition, as set out in the affidavit in support, which asked for 21 days to enable the taking of instructions, due inter alia to the intervening Christmas period. It went on to state:
“In the event the Court declines to grant a stay of proceedings pending reference to arbitration, the Respondent will apply to have the Petition struck out on the grounds that the Respondent genuinely disputes the Petitioner’s claim on substantial grounds and that Petitioner is attempting to use these winding up proceedings for the purpose of deciding a substantial dispute raised on bona fide grounds.”
7. That summons was eventually listed for hearing at the same day as the Petition, being 28th February 2005, when, according to the judgment of the Chief Justice:
“It was agreed that the summons should be argued first, and that an application by the Respondent for an adjournment of the hearing of the Petition should also be argued contingent on the summons failing.”
8. It also seems that at the hearing the learned Chief Justice, after expressing surprise that nothing had been paid under the agreement for some three years, and that the appellant had not put forward its own figure as to the sum due or given any information to establish its financial viability, gave the following indication:
“Accordingly I indicated that if there was to be any adjournment of the hearing of the Petition, I would expect an undertaking to be given that a substantial sum in the region of $1M would be brought into Court, pending its determination, or determination by arbitration, if his argument as to that succeeded.”
9. The summons for a stay failed, the Chief Justice holding on the 2nd March that it did so on three grounds, which, in summary, were -
(i) that the dispute was not within the strict meaning of the submission:
(ii) that there was no bona fide dispute between the parties, and hence no sufficient reason for referral to arbitration; and
(iii) that he was not satisfied that the appellant was ready and willing to do all things necessary for the proper conduct of the arbitration.
10. Having refused the stay, and having already heard argument on the question of an adjournment the previous day, the Chief Justice then went on in his written reasons to refuse an adjournment. Having so ruled, it seems that he then, and without more, treated the winding up Petition as coming on for hearing, and made the order forthwith.
11. Now, at that time, the respondent was enjoined from further moving the Petition by reason of a Temporary Restraining Order (The TRO’) issued the day before, on the appellant’s application, by the Supreme Court of the State of New York, sitting in New York city, in the following terms:
“ORDERED, that pending the hearing of the relief requested by Magellan by Order to Show Cause dated February 9, 2005 currently scheduled for March 8, 2005, the Respondent New' Hampshire Insurance, their attorneys, agents, officers, directors or any party acting in concert with them or under their direction, are hereby enjoined from continuing with the prosecution, proceedings, hearings or any cause now pending in the Supreme Court of the Turks & Caicos Islands entitled [and the title of the winding up proceedings followed].”
12. Counsel for the respondent, Mr. Green, was aware of this and as a result he did not do or say anything to further move the Petition, but sat by and let the Chief Justice move ahead, apparently of his own motion. Meanwhile Mr. Simons did nothing further to oppose it, having been instructed not to do so by his clients, who by that time were putting their faith in the New York proceedings, and did not wish to do anything to conflict with them. Indeed Mr. Simons attempted to withdraw his stay application, taking the view that all of the proceedings were in breach of the New York order, but the learned Chief Justice refused to give him leave to do that.
13. When the New York matter eventually came on for hearing, it was dismissed and the TRO lifted. This was done on the grounds that the dispute was not within the strict wording of the submission, although the New York Court, perhaps surprisingly, also took into account that the matter had by then been decided in TCI Court, to which it felt obliged to extend comity, notwithstanding that that had not been reciprocated and notwithstanding that it was at least arguable that the respondent had proceeded to obtain that determination in breach of the TRO.
THE ISSUES ON THE APPEAL
14. The appellant’s grounds of appeal are, in summary, that:
(i) the respondent has no locus standi to present a winding up petition under section 94 of the Companies Ordinance, not being a creditor, and the chief Justice had, therefore, no jurisdiction to make the winding up order.
(ii) the Chief Justice erred in law in refusing to order a stay under section 5 of the Arbitration Ordinance.
(iii) the Chief Justice erred in law in refusing an adjournment.
(iv) the Chief Justice erred in law and in fact in considering that the alleged petition debt was not the subject of a bona fide challenge.
We now turn to deal with those grounds in that order.
(i) No locus standi
15. Mr. Simons sought to contend that the respondent had no locus standi to present the Petition, the argument being that the appellant's liability to pay into the trust account was not, on its true construction, a debt due to the respondent. If correct, that would dispose of the Petition at a stroke. However, the point was not taken or argued before the Judge below, and in those circumstances we thought it proper not to consider it further, but to leave it in the first instance to the judge on the rehearing of the Petition.
(ii) Refusal of a Stay
16. Insofar as the appellant sought to appeal against the dismissal of the summons for a stay under section 5 of the Arbitration Ordinance, we took the view that that would require leave, and as such leave was not sought from the court below, we were unable to entertain the appeal, and to that extent, therefore, dismissed it.
(iii) Refusal of an Adjournment
17. Insofar as the appeal was against the refusal of an adjournment, we considered that that refusal was so closely intertwined with the making of the final winding up order as to have, in effect, merged with it, and not therefore to require leave. We considered that the following short judgment of Jessel MR in Laird v Briggs (1881) 16 Ch D 663 @ 664, applied mutatis mutandis:
“The refusal of leave to amend is simply part of the trial. As you have appealed from the whole judgment the whole case will be open on appeal, and if the Court of Appeal shall be of opinion that you ought to have had leave to amend it will have power to give you leave then. There is no necessity for a separate appeal.”
18. On the question of an adjournment Mr. Simons argues that he should have been allowed a further adjournment, once the stay was refused, to address the substantive issues in the winding up. He says that he had not been able to do so before that, because section 5 of the Arbitration Ordinance prohibited him taking any steps in the action. The material parts of section 5 read:
"5. If any party to a submission . . . commences any proceedings in any court against any other party to the submission ... in respect of any matter agreed to be referred, any party to such proceedings may at any time after appearance, and before delivering any pleadings or taking any other step in the proceedings, apply to the court to stay the proceeding and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was, at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration, may make an order staying the proceedings.” (Emphasis added)
19. Whether or not that in fact prohibited Mr. Simons addressing the merits of the substantive Petition once he had filed his application for a stay, is not something we think it necessary to decide. He says that he felt constrained by the prohibition until the disposal of the slay application, and that is not seriously disputed. Moreover, it is plain that he drew his scruples to the attention of the Chief Justice during the argument on the application for an adjournment, for the written judgment records that:
“30. Mr. Simons, who I believe has argued everything that could be argued within his instructions, yesterday urged me that natural justice should afford his client time to meet the Petition, and to have a full hearing and the opportunity to argue that this is an inappropriate procedure by which to satisfy any indebtedness of his client. Until the arbitration point was determined he states that, by reason of s. 5, he was unable to take any such steps in the proceedings. He argues that as no new business is being written, such an adjournment cannot prejudice the Petitioner.”
20. In our view an unconditional adjournment should have been granted once the stay was refused. We appreciate that the matter was one of discretion and that this court should be slow to interfere with the exercise of its discretion by a lower court. However, the circumstances when it is proper to do so are set out in the case of Maxwell v Keun [1928] 1 KB 645 at 653:
“The other point that was made by the defendants was that this was a discretionary order, and that the Court of Appeal ought not to interfere with the discretion of the learned judge. I quite agree that the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does so: but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the Court has power to review such an order, and it is, to my mind, its duty to do so.”
21. In our judgment this is such a case. We consider that the substantive hearing of the Petition should not have followed hard on the heels of the stay application, for the reasons advanced by Mr. Simons. He should have been given an opportunity to consider his position and file further evidence on the Petition. Moreover, it was wrong to impose a condition requiring the payment of a substantial sum of money by way of security without any consideration of the appellant’s ability to pay such a sum, and without allowing it time to find it. Nor was there any real urgency at all. This was plainly demonstrated by the history of the matter, with nearly a year passing between the service of the statutory demand and the presentation of the Petition, and a further four months before service. It may be that the latter delay was not entirely the respondent’s fault, but it seems to have done little to hurry the matter along. Nor have events since the making of the Order demonstrated any urgency, as we are told that the liquidator has taken no steps to take control of the business and assets of the appellant. We appreciate, of course, that the liquidator is distinct from a petitioning creditor, and is not subject to its control, but the respondent nevertheless seems to have acquiesced in this delay in a way which is incompatible with their earlier protestations of urgency. Moreover, we think it irregular that the winding up Order was made at a time when the Petitioner (because of it was bound by the TRO) did not appear to move it.
(iv) Whether a disputed debt
22. The appellant sought leave to adduce fresh evidence at the hearing of the appeal on the question whether the alleged debt was the subject of a bona fide dispute. As the matter is to be remitted for rehearing, we refused that application, taking the view that that is now a matter for the court below on the rehearing. We ordered that directions were to be sought from the Judge on the further conduct of the matter, including the filing of further affidavit evidence. We therefore refrained from any consideration of whether or not the debt was the subject of a bona fide dispute until the matter had been considered further by the trial judge in the light of any new evidence filed.
SUMMARY
23. In summary, we allowed the appeal in part, and set aside paragraphs (iii). (iv), (v) and (vi) of the Order of 2nd March 2005. and remitted the matter to the Supreme Court for rehearing. We ordered that directions were to be sought from the Judge below on the further conduct of the matter, including the filing of further affidavit evidence. We heard the parties on costs, and awarded the appellants two thirds of its costs of the appeal, and the respondent one third of its costs, representing the work attributable to the argument on the appeal against the refusal of a stay, which we dismissed. Those costs are to be taxed if not agreed.
Dated this 19th day of August 2005
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Edward Zacca P
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Elliott Mottley JA
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Richard Ground JA
