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Freezing orders in the Cayman Islands pursuant to the Fraudulent Dispositions Law and a tortious conspiracy: Raiffeisen International Bank AG v Scully Royalty Ltd

Published: Tuesday 4 August 2020

On 7 July 2020 Parker J, sitting in the Grand Court of the Cayman Islands, handed down his written reasons for orders that he had made earlier this year in favour of Raiffeisen International Bank AG (‘RBI’), which amongst other things continued a worldwide freezing order (“WFO”) and notification injunction against the NYSE-listed Cayman parent company, Scully Royalty Limited (“SRL”), of the MFC Group.  RBI had obtained ex parte relief against SRL in September 2019 and following a hearing in January 2020, Parker J continued that relief in addition to, amongst other things, granting similar injunctions against a further Cayman company, and rejecting a jurisdiction challenge brought by a further Canadian defendant.

By way of background, RBI alleges that it is the victim of a fraudulent conspiracy intended to asset-strip the former parent company of the MFC Group against which (the former parent) RBI has the benefit of a number of guarantees.  RBI claims €43.7m under one such guarantee in the underlying Cayman proceedings in which RBI seeks that a number of transfers, including of a Canadian mine, a Maltese merchant bank, and the transfer of a number of further companies by way of a dividend, are reversed to restore those assets from the new parent (SRL) to the former parent, so as to enable the debt under the guarantee to be satisfied.

The judgment provides Cayman law guidance (in some instances to the relevant threshold for this stage of the proceedings) as to (a) claims pursuant to the Cayman Fraudulent Dispositions Law (“FDL”), (b) claims pursuant to the tort of unlawful means conspiracy, including as to the availability of mandatory injunctive relief, declaratory relief, and damages payable to a party other than the claimant, (c) the governing law and proper jurisdiction of both such claims, including in particular under the ‘necessary and proper party’ gateway for service out, (d) the scope of the rule against the recovery of reflective loss, (e) the threshold standard for establishing a good arguable case , (f) the test to establish a real risk of dissipation for a WFO, and (g) the terms and scope of WFO’s, including that in the circumstances there should be no maximum sum ‘cap’ on the WFOs.

Two of the more notable features of the judgment include:

  • First, guidance on a number of aspects of claims pursuant to the FDL, on which there is little prior authority. The FDL was held in a number of respects to be analogous to the Insolvency Act 1986, s423, including (a) that it has extra-territorial effect, and as to the proper approach to the exercise of the court’s discretion in this regard, (b) that it can apply to set aside a dividend, and (c) that the claimant need only show that a purpose of the transfer was to defeat creditors and not that this was the sole or dominant purpose.  Further, (d) setting transfers aside “to the extent necessary” pursuant to FDL, s6 may require a sum greater than that claimed by the particular creditor-claimant to be set aside, in light of the company’s insolvency and the total debts owed to the company’s creditors.
  • Second, guidance as to the scope of the rule against reflective loss. This has been overtaken to some degree by the recent decision of the UKSC in Marex, assuming that is followed in Cayman as the decision of the EWCA had been (Elizabeth Houghton’s article on the UKSC decision in Marex can be found here).  Prior to the UKSC decision in Marex having been handed down, Parker J found there was a good arguable case that the rule did not apply to (a) a claim that was not based on alleged breaches of duty by the company in question’s directors and was instead based on alleged corporate acts of the company in question, or (b) a claim that sought the assets in question be restored to the company, rather than damages payable to the claimant, whether by way of (i) the FDL, (ii) a mandatory injunction, or (iii) damages payable to the company.  Nor did it apply to the declaratory relief sought against the eighth defendant.

The judgment of Parker J can be found here.

Tim Penny QC (appearing in the Cayman Islands) and Jamie Holmes acted with Ogier and Mishcon de Reya for RBI, the successful claimant/applicant before the Cayman Court.