[2010] SC (Bda) 47 Com (20 August 2010) In The Supreme Court of Bermuda

COMMERCIAL COURT

2009: Nos 270 and 271

IN THE MATTER OF KINGATE GLOBAL FUND, LTD (IN LIQUIDATION)

AND

IN THE MATTER OF KINGATE EURO FUND, LTD (IN LIQUIDATION)

AND

IN THE MATTER OF SECTION 195 OF THE COMPANIES ACT 1981

RULING

(in Chambers) Date of Hearing: July 12-13, 2010 Date of Ruling: August 20, 2010 Mr. Cameron Hill and Mr. Chen Foley, Sedgwick Chudleigh, for the Joint Liquidators Mr. John Riihiluoma, Appleby, for PricewaterhouseCoopers (“PwC Bermuda”)

A. INTRODUCTORY

1. Kingate Global Fund Ltd. and Kingate Euro Fund Ltd (“the Companies”) were incorporated in the British Virgin Islands (“BVI”) on February 11, 1994 and April 19, 2000, respectively. The Companies’ primary business activity entailed the investment of monies raised by share subscriptions with Bernard L. Madoff Investment Securities LLC (“BLMIS”) in New York.

2. 3. 4. On June 4, 2009, the Companies were wound-up on their own petitions in BVI and William Tacon and Richard Fogerty, who had earlier (on May 8, 2008) been appointed as Joint Provisional Liquidators, were appointed as Joint Liquidators. On August 7, 2009, the Companies petitioned this Court to be wound-up under the Companies Act 1981. The petitions alleged that the only readily realizable assets of the Companies were located in Bermuda, as were service providers (who were actual or contingent creditors) and potentially significant documents and information (paragraphs 18, 20). The links with BVI were said to be “of a formal nature only” (paragraph 20). Paragraph 19 of the Petitions also averred as follows: “By virtue of the Orders of 4 June and 31 July 2009 of the BVI Court, the Joint Liquidators (in the BVI) were given the power to seek the winding-up of the Company in Bermuda. A draft of this Petition has been placed before and sanctioned by the BVI Court….” Prior to the filing of the Companies’ Bermuda petitions, in correspondence which became germane in the context of the present application, PwC Bermuda had suggested (in a letter written by their Bermuda attorneys and dated June 19, 2009) that any application to the BVI Court to compel the production of documents under section 284 of the BVI Insolvency Act 2003 “would, inter alia, be subject to objection on jurisdictional grounds.” It was against this back-drop that the Bermuda petitions justified their utility by reference to not just the location of assets but also information and documents here. The Petitions were advertised in the Bermuda Sun dated August 21, 2009. As is customary, creditors and contributories were invited to appear at the hearing scheduled to take place on September 4, 2009 at 9.30am. One creditor of Kingate Global only is recorded as having formally appeared before Bell J. At the same hearing, Mr. Hill tendered written ‘Submissions’, six pages of which dealt with the jurisdiction of this Court to wind-up the Companies as overseas companies which were not permit companies. Bell J granted the winding-up orders sought and appointed John McKenna, William Tacon and Richard Fogerty as Joint Provisional Liquidators on September 4, 2009. On October 5, 2009, I appointed the same triumvirate as Joint Liquidators without a Committee of Inspection and dispensed with the need to convene the first meetings of creditors and contributories. 2

5. The BVI Joint Liquidators passed the PwC document and information collection baton to John McKenna as Bermuda Joint Liquidator of the Companies. By letter dated November 13, 2009, McKenna sought further documents from PwC noting that the September 4, 2009 Order of this Court removed any objections pertaining to the BVI Joint Liquidators’ power to carry out investigations in Bermuda. By chasing letter dated November 30, 2009, the Joint Liquidator foreshadowed an application to court if the requested documents were not supplied. By letter dated December 14, 2009, Appleby responded in salient part as follows: “We are firmly of the opinion, and have so advised our client, that the Bermuda court has no jurisdiction to wind-up an Overseas Company or to appoint a liquidator in respect of an Overseas Company. We accept, however, that there are first instance decisions of the Bermuda court to the contrary. We believe these decisions are wrongly decided, and would, inevitably, be overturned on appeal if not distinguished or not followed at first instance. If you follow through with the threat contained in your letter of 30 November 2009 to apply to the court to obtain the requested information by compulsion, our client shall apply to set aside any order that you might obtain on the grounds that your appointment as liquidator is invalid.”

6. On January 29, 2010, a Protective Writ was filed by the Companies against PwC Bermuda to preserve a cause of action which may have expired on January 30, 2010. This Court retrospectively approved the joint Liquidators actions in this regard on March 4, 2010.

7. It was against this background that: (a) the Joint Liquidators applied by Summons dated April 12, 2010 for an Order compelling PwC Bermuda to produce copies of various documents relating to their audit work in respect of the Companies; and (b) PWC Bermuda opposed the application both on jurisdictional and merits grounds.

8. At the conclusion of the hearing, it seemed clear that the Joint Liquidators were substantially entitled to the relief they sought under section 195 of the Companies Act 1981 on straightforward grounds. However, in the face of Mr. Riihiluoma’s full-blooded assault on the legal foundations of first instance un-opposed judgments and academic writings upon which the conventional wisdom on this Court’s winding-up jurisdiction in respect of overseas companies is based, it was necessary to reserve judgment on the entirety of the application. 3

B. 9. LEGAL FINDINGS: APPLICATIONS BY LIQUIDATORS TO OBTAIN

EVIDENCE FOR THE PURPOSES OF INVESTIGATING AN

INSOLVENT COMPANY’S FINANCIAL POSITION AND RECOVERING

ANY PROPERTY BELONGING TO THE COMPANY

Section 195 of the Companies Act 1981 is derived from section 268 of the Companies Act 1948 (UK). The modern British version of this provision appears to be section 236 of the Insolvency Act 1986, which according to the contents index to the 1986 Act deals with “Getting in the company’s property”. Section 195, so far as is relevant to the present application, provides as follows: “(1)The Court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in its possession any property of the company or supposed to be indebted to the company, or any person whom the Court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs or property of the company. … (3) The Court may require such person to produce any books and papers in his custody or power relating to the company …”

10. The legal principles concerning the purpose of section 195 and its application were not in dispute. Controversy centred on whether the facts of the present case fell within or without the legally permitted sphere of inquiry. This controversy cannot be fairly resolved without directing one’s attention to what the relevant legal principles are. As far as the purpose of section 195 is concerned, I can do no better than to reproduce the following submissions set out in the Applicants’ Skeleton Argument: “The purpose of section 195 53.The essential purpose of an order under section 195 (like section 236) is to assist the beneficial winding up of the company. There are no express limitations on the purpose of the section, and the only implicit limitation is that the power may be invoked only for the purpose of enabling the office holder to exercise his statutory functions in relation to the insolvent company. 54.In particular, cases on section 236 make clear that the purpose of an order under the section includes enabling the office holder to investigate 4

and decide whether to pursue, and generally to facilitate, proceedings against the respondent or others. For example: 54.1In In re Gold Co, Sir George Jessel MR stated that the object of (a predecessor to) section 236 was to ‘…enable [the office holder] to find out facts before they brought an action, so as to avoid incurring the expense of some hundreds of pounds in bringing an unsuccessful action, when they might, by examining a witness or two, have discovered at a trifling expense that an action could not succeed’. 54.2In In re Rolls Razor, Buckley J said that the purpose of the section was to assist the office holder to: ‘discover the truth of the circumstances in connection with the affairs of the company, information of trading, dealings, and so forth, in order that [the office holder] may be able, as effectively as possible, and, I think, with as little expense as possible … to complete his function as [office holder], to put the affairs of the company in order and to carry out the liquidation in all its various aspects …’. Accordingly, it was ‘appropriate for [the office holder] … to be able to discover, with as little expense as possible and with as much ease as possible, the facts surrounding any such possible claim’. 54.3In In re Spiraflite, Megarry J stated that the purpose of (a predecessor to) section 236 was to allow the office holder to investigate suspected misfeasance and other breaches of duty by officers of the company and to decide whether or not to pursue litigation which the office holder was minded to bring against the respondent, or others. 5

54.4In Re Arrows (No. 2), 54.5 the court said that the purpose of the section included facilitating the bringing of claims against other persons and companies. 54.6In British & Commonwealth in the Court of Appeal,. Ralph Gibson J said that the purpose of the power was: ‘not confined to obtaining general information about the company’s affairs but may be used to discover facts and documents relating to specific claims against specific persons which the office-holder has in contemplation and it is in itself no bar that the office-holder may have commenced or may be about to commence proceedings against the proposed witness or someone connected with him’. Further: ‘it is neither easy nor cheap nor expeditious to require the office-holder in all cases to proceed on such information as the company had, or could lawfully demand, in order to determine by legal proceedings whether the company has a valid claim against one or more third parties if the information which would enable the office-holder to discover what apparent claims exist, and the prospects of success upon them, could be fairly obtained by an order for production of documents or for examination of a witness’. 55.Accordingly, it is established that an office holder may obtain an order under section 236 even if the sole or principal reason for doing so is to obtain evidence for use in possible proceedings against the respondent under the Company Directors Disqualification Act 1986 (UK).” 6

11. As far as how section 195 is applied in practice, I again adopt the submissions set out in this regard in the Applicants’ Skeleton Argument: “The correct approach to section 195 56.It was once considered that the court could not make an order under section 195 (section 236) after the office holder had issued or served a writ on the respondent. However, in Cloverbay Ltd v Bank of Credit and Commerce International SA, the Court of Appeal made clear that the mere fact that the office holder has commenced, or is about to commence proceedings against the respondent is not an absolute bar to an order under the section. Further, whether or not the office holder has made a firm decision to pursue proceedings against the respondent is not the test. As will be seen, it is merely a factor to be weighed in the balance in the exercise of the Court’s discretion under section 195. 57.It was also once considered that the purpose of section 195 (section 236) was confined to enabling the office holder to obtain sufficient information to reconstitute the knowledge the company should possess, and did not extend to putting the company in a better position than it would have enjoyed had insolvency not supervened. However, in British & Commonwealth, both the Court of Appeal and the House of Lords made clear that there is no such limitation. Under section 195, the Court has a general, unfettered discretion and the exercise of that discretion is not limited to reconstituting the company’s knowledge. Reconstituting the company’s knowledge is not the test. Accordingly, an order under section 195 can extend to all documents and information which the office holder reasonably requires to carry out his functions. 58.Instead, it is now established that the correct approach to the exercise of the Court’s general, unfettered discretion under section 195 is to balance, on the one hand, the reasonable requirements of the office holder 7

to carry out his functions against, on the other, the need to avoid making an order which is oppressive to the respondent. There must be a proper case for an order, and there will be a proper case where (in the case of an order for the production of documents) the office holder reasonably requires to see the documents requested to carry out his functions, and production of those documents will not impose an unnecessary or unreasonable burden on the respondent, in the light of the office holder’s requirements. For example: 58.1In Cloverbay, Sir Nicolas Browne-Wilkinson VC said: “The words of the Insolvency Act 1986 do not fetter the court’s discretion in any way. Circumstances may vary infinitely. It is clear that in exercising the discretion the court has to balance the requirements of the liquidator against any possible oppression to the person to be examined. Such balancing depends on the relationship between the importance to the liquidator of obtaining the information on the one hand and the degree of oppression to the person sought to be examined on the other”. 58.2In British & Commonwealth in the Court of Appeal, Ralph Gibson J said: “(i) Section 236(2) of the Insolvency Act 1986 confers a general discretion on the court … [N]o … simple test has been or can be substituted because the words of the section do not fetter the court’s discretion in any way. (ii) Nevertheless guidance given by the courts as to the proper basis for the exercise of the discretion involves the balancing of the requirements of the office-holder to obtain information against the possible oppression to the person from whom the information is sought”. 8

58.3In British & Commonwealth in the House of Lords, Lord Slynn said: “… the discretion must be exercised after a careful balancing of the factors involved – on the one hand the reasonable requirements of [the office holder] to carry out his task, on the other the need to avoid making an order which is wholly unreasonable, unnecessary or “oppressive” to the person concerned … The protection for the person called upon to produce documents lies, thus, not in a limitation by category of documents (“reconstituting the company’s state of knowledge”) but in the fact that the applicant must satisfy the court that, after balancing all the relevant factors, there is a proper case for such an order to be made. The proper case is one where [the office holder] reasonably requires to see the documents to carry out his functions and the production does not impose an unnecessary and unreasonable burden on the person required to produce them in the light of [the office holder’s requirements”. 59.In applying this approach, the Court should consider, first, whether the office holder has made out a reasonable requirement for an order under section 195. If a reasonable requirement is made out, the court must then carry out a balancing exercise, weighing the office holder’s reasonable requirements against the risk of oppression to the respondent.” Findings: have the Joint Liquidators made out a reasonable requirement for an Order under section 195?

12. In my judgment the Joint Liquidators have clearly established a reasonable requirement for an order. The requests for information about how the audit was conducted were made against a background of a notorious and large-scale fraud which was admittedly not detected and the issue of proceedings against other PwC entities in other jurisdictions for breach of duty in failing to protect investors 9

from the Madoff Ponzi scheme. The present application was made in response to a distinctly cagey and adversarial stance adopted by PwC Bermuda which has made limited voluntary disclosure and raised jurisdictional objections to the Joint Liquidators’ standing under both BVI and Bermuda law. The material sought is described in the Summons as follows: “ 1.1. 1.2. 1.3 1.4. 1.5. Audit planning memoranda in respect of the Company for each year in which PwC Bermuda conduct an audit of the Company. Full audit files, including all working papers and documents relating to the identity, grade and hours charged by each of the individuals who conducted this work, in respect of the Company for each year in which PwC Bermuda conducted an audit of the Company. Any documents relating to audit work undertaken for or on behalf of the Company in New York and/or in respect of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and/or in respect of Mr. Bernard Madoff, including any documents relating to meetings in New York with BLMIS and/or Mr. Madoff during the course of or for the purpose of an audit of the Company. In particular, any documents relating to: 1.3.1. the PwC office, identity, grade and hours charged by each of the individuals who conduct this work; the specific audit work undertaken by individuals and PwC 1.3.2. office; 1.3.3. the findings drawn from this work 1.3.4 any review notes arising the review of audit work undertaken, and 1.3.5 any briefing materials arising out of these meetings or this work. All documents relating to the Company sent to or received from: 1.4.1. FIM Advisors LLP or FIM Limited; 1.4.2. Kingate Management Limited;

1.4.3. BLMIS; 1.4.4. Any other PwC office or any other audit firm 1.4.5. Tannenbaum Helpern;or 1.4.6 O’Neill [sic] Webster. All invoices from PwC Bermuda to the Company. 10

1.6. Any audit guidance notes issued and/or held by PwC Bermuda relating to the level of audit work required when a fund being audited uses the services of BLMIS or uses one investment adviser with sole control over all of the fund’s assets. 1.7. All other documents sent to or received from the Company relating to the audits of the Company.”

13. The application is supported by the McKenna Affidavit of April 7, 2010 which acknowledges receipt of “documents generated externally to the audits…[which]… do not advance the investigation of what PwC actually did or the basis upon which they reached their conclusions” (paragraph 20.5). The deponent avers that: “24. I believe that the documents generally are likely to reveal: 24.1 exactly what PwC Bermuda did to audit the Funds’ financial statements in each of the relevant years , and in particular what work and they conducted and the audit evidence they relied upon; 24.2 conversely, what PwC Bermuda did not do in auditing the Funds; 24.3 whether PwC Bermuda were or should have been alerted to the ‘red flags’ surrounding the operation of BMLIS and whether (and if so, how) they failed to heed them; 24.4 why PwC Bermuda failed to discover and report Mr. Madoff’s fraud; and 24.5 how PwC Bermuda were able to satisfy themselves that it was appropriate to issue unqualified audit opinions on the financial statements for each audit year.”

14. Why documents relating to meetings between the auditors and Mr. Madoff and/or BMLIS in New York are likely to be relevant is also explained. Without simply accepting these assertions uncritically at face value, it requires little analysis to readily conclude that the information sought is reasonably required within the statutory purposes of section 195(1). A contractual agreement, evidenced by the letter of engagement dated November 6, 2007 that the audit working papers are the property of PwC Bermuda, was not suggested to and could not in any event limit the statutory obligation to produce documents reasonably required by the Joint Liquidators. Nor was it possible to accept the suggestion the Joint Liquidators had sufficient information to plead a case of negligence. As the same letter of engagement shows, PwC Bermuda have a contractual right to be indemnified and held harmless for any claims “except to the extent finally 11

determined to have resulted from the wilful misconduct or fraudulent behaviour of PricewaterhouseCoopers relating to such services.”

15. This indemnity means that any statement of claim which fails to particularize allegations of wilful default or fraud would be liable to be struck-out : Focus Insurance Co Ltd (In Liquidation) –v- Hardy [1992] Bda LR 25 (CA); Intercontinental Natural Resources-v-Dill et al, Court of Appeal for Bermuda, Civil Appeal 1981: No.14, July 5, 1982. Accordingly, the mere fact that the Joint Liquidators can presently identify potential allegations of negligence is not sufficient to require them to actively pursue the litigation they have formally commenced and await ordinary discovery to obtain the information they now seek.

16. PwC Bermuda relied upon the Affidavit of Neville Conyers sworn on May 20, 2010 in opposition to the section 195 application. This essentially rehearses the jurisdiction argument and the quasi-legal contention that the information requested falls outside of section 195. It does little to undermine the opposing assertions that the requested information is reasonably required for section 195 purposes.

C. FINDINGS: DOES THE RISK OF OPPRESSION OUTWEIGH THE

JOINT LIQUIDATORS’ REASONABLE REQUIREMENTS?

17. The Conyers Affidavit characterises the Joint Liquidators’ application as oppressive because the documents are sought: (a) “in connection with their efforts to pursue claims against PwC Bermuda” (paragraph 25); and (b) “to give the Bermuda JLs as advantage in litigation which would not exist but for the Funds [‘] insolvency namely to plead their Statement of Claim around the private internal documents and work papers of PwC Bermuda” (paragraph 27). I reject these assertions on legal and factual grounds.

18. Firstly, there is as a matter of law no objection to liquidators seeking to ascertain whether they have a viable claim before expending the resources of the estate on potentially costly litigation. It cannot be oppressive for the Joint Liquidators to invoke a statutory power which is designed to give them a “leg up” because they are acting for an insolvent estate. It would only be oppressive and a misuse of their investigative powers if the Liquidators do not objectively require the information sought to determine whether or not they can and should actively pursue the claims preserved by a merely protective writ. The Affidavit of Mark Chudleigh sworn on February 25, 2010 in support of the application for retrospective leave to file the Protective Writ makes it clear that the further evidence is not sought to bolster a claim which the Joint Liquidators have already decided to bring. Rather it is to determine whether or not such a claim can be viably pleaded. 12

19. Secondly, the acquisition of information about a potential claim against the contingent debtor of an insolvent company is clearly information “concerning the promotion, formation, trade, dealings, affairs or property of the company”. This is because the claim of the Companies is a chose-in-action, a species of property belonging to them.

20. I find that there are no sufficient grounds made out for refusing the application on discretionary grounds.

D. THE JURISDICTION OF THE COURT TO GRANT THE JOINT

LIQUIDATORS RELIEF UNDER SECTION 195

21. The challenge to the jurisdiction of the Court to grant relief under section 195 of the Companies Act 1981 to the Joint Liquidators has two elements to it. Firstly, one is bound to consider whether it is open to PwC Bermuda to contend that (a) the winding-up order could not validly have been made, and accordingly (b) the Joint Liquidators were not validly appointed as such by this Court when neither order has been or is sought to be formally set aside.

22. Secondly, assuming the winding-up order and the liquidators’ appointment order can be challenged at this stage and in the unusual manner contended for, the substantive question of whether a non-permit overseas company is amenable to the statutory winding-up jurisdiction of this Court falls to be considered. This question has never received the benefit of full argument before this Court; however the established view for a decade has been such jurisdiction does exist, and the impugned orders were based on this conventional wisdom. Mr. Riihiluoma submitted that the case of Informission Group Inc v Convertix Corporation [2000] Bda LR 75 was wrongly decided. I. Does PwC Bermuda possess the standing to challenge the jurisdiction of this Court to wind-up an unregistered overseas company after a winding-up order has been made otherwise than by way of appeal?

23. PwC Bermuda’s Counsel’s Skeleton Argument did not address the inconvenient but fundamental question of whether it is permissible to launch a collateral attack on a winding-up order in the manner contended for. The Joint Liquidators’ Skeleton Argument made the following initial response to the jurisdiction argument: “12. The Applicants’ first response to this contention is that it is simply not open to the Respondent on this application. The Applicants have in fact been appointed under the Winding Up Orders and, given those orders, the jurisdiction under section 195 is necessarily engaged. The 13

Respondent cannot advance by way of defence on this application a collateral attack on extant orders of this Court. Particularly in the case of a winding up, which potentially affects the rights and obligations of a range of creditors and other interested parties, it is an abuse of process to mount an indirect challenge in the course of separate proceedings. Absent any application to appeal or set aside or review the Winding Up Orders, it is inappropriate for this Court to consider the correctness of its earlier orders on this application.

24. Absent authority, this submission accords with common sense and established principles of insolvency law. Because of the great ramifications of a winding-up order for all persons interested in a company and its affairs, winding-up petitions are advertised so that creditors, in particular, can appear in support or opposition of the petition. It is settled Bermuda law, as I put to Mr. Riihiluoma in the course of argument, that even debtors can appear in opposition to a winding-up petition: Re Electric Mutual Liability Insurance Co. Ltd [1996] Bda LR 62. In any event, PwC Bermuda is also clearly a contingent creditor, as Mr. Hill contended, having a potential claim against the Companies under the indemnity clause in the contract under which the firm was engaged as auditor. The Bermuda winding-up proceedings were commenced after the Respondent to the present application challenged the jurisdictional competence of the BVI Joint Liquidators to carry out investigations in Bermuda.

25. The Respondent had constructive notice of the hearing of the winding-up petition by virtue of the August 21, 2009 advertisement of the hearing and ought, had they wished to raise the jurisdictional point, to have appeared in opposition to the petition at the September 4, 2009 hearing. In addition, the rules require every appointment of liquidator to be advertised (rule 40(6)), so the appointment of the provisional and permanent liquidators on September 4 and October 5, 2009 ought to have been advertised. I have no reason to doubt that such further advertisements occurred; it was not suggested that this did not occur.

26. In my judgment it would be an abuse of the processes of this Court to permit the Respondent to an application under section 195 to effectively set aside the final winding-up order made by this Court in circumstances where: (a) the winding-up hearing was duly advertised and the Respondent had actual or constructive notice of the hearing and failed to appear to oppose the making of the order; and (b) the joint liquidators had been in office and carrying out their functions in reliance on the validity of their appointment and the winding-up order for over three months before the challenge was first raised. Mr. Riihiluoma submitted that it was always incumbent upon a Court asked to exercise a statutory power because “the court has no jurisdiction to exercise a statutory power except on the application of a 14

person qualified by the statute to make it.”: Deloitte & Touche AG-v-Johnson [2000] 1 BCLC 485 (at page 5 of the transcript). In the case counsel cited, an accounting firm involved in the preparation of the insolvent company’s accounts were sued by the liquidators. The accounting firm, like the Respondent to the present application, was a debtor of the company which applied to remove the liquidators on conflict of interest grounds. The relief sought in Deloitte & Touche AG was on its face surprising, but not as startling as the present submission which entails a collateral attack on a final winding-up order. The Judicial Committee of the Privy Council agreed with the Caymanian Court of Appeal that the firm lacked the standing to complain of the liquidators’ conduct. Lord Millett opined as follows: “The appellants are not merely strangers to the liquidation; their interests are adverse to the liquidation and the interests of the creditors. In their Lordships’ opinion, they have no legitimate interest in the identity of the liquidators, and are not proper persons to invoke the statutory jurisdiction of the court to remove the incumbent office- holders.”

27. Even though the Respondent is not (as a contingent creditor) wholly a stranger to the liquidations in this case, the cited analysis applies with even greater force to an application made in the capacity as a potential debtor of insolvent companies to refuse to assist the Joint Liquidators’ investigations of a potentially significant claim for the Companies’ estates on the grounds that the Companies were improperly wound-up and, as a result, the liquidators were invalidly appointed. PwC Bermuda clearly (a) has the standing to oppose a section 195 application on its merits, but (b) lacks the standing to challenge the jurisdiction of this Court to make a winding-up order which has already been finally made, otherwise than by way of appeal. In a case not referred to in argument, Strachan-v-Gleaner & Co. Ltd. [2005] UKPC 33, Lord Millett (giving the judgment of the Board), opined as follows: “32.The Supreme Court of Jamaica, like the High Court in England, is a superior court or court of unlimited jurisdiction, that is to say, it has jurisdiction to determine the limits of its own jurisdiction. From time to time a judge of the Supreme Court will make an error as to the extent of his jurisdiction. Occasionally (as in the present case) his jurisdiction will have been challenged and he will have decided after argument that he has jurisdiction; more often (as in the Padstow case ) he will have exceeded his jurisdiction inadvertently, its absence having passed unnoticed. But whenever a judge makes an order he must be taken implicitly to have decided that he has jurisdiction to make it. If he is wrong, he makes an error whether of law or fact which can be corrected by the Court of Appeal. But he does not exceed his jurisdiction by making the error; no[r] does a judge of co-ordinate jurisdiction have power to correct it.” 15

28. Because of the significance of the Strachan case, I afforded the Respondent’s counsel an opportunity to respond to the passages extracted from it above. Mr. Riihiluoma by way of response placed before the Court the English Court of Appeal decision in In re Dowling and Welby’s Contract [1895] 1 Ch 663. In this case, an order was made by the Leeds County Court winding-up an unregistered company and vesting all of its assets in the Official Receiver and Liquidator. When the Liquidator sought to sell the property of the company, the purchaser challenged the liquidator’s title on the grounds that no jurisdiction to wind-up existed. The Liquidator applied to the Court for directions, and the High Court and the Court of Appeal each found that the county court judge had no jurisdiction to make the winding-up order and that the purchaser was not bound by it so as to be able to get good title to the company’s property. I decline to follow this merely persuasive authority for three principal reasons.

29. Firstly, although this distinction was not apparently made by the English Court of Appeal when declining to follow its earlier decision in the Padstow case, In re Dowling and Welby’s Contract involved a superior court of record (the High Court, Chancery Division) reviewing a decision made by the County Court, which was neither (a) a superior court of record, nor (b) a court of coordinate jurisdiction with the High Court. The status of a winding-up order made by a superior court of record and the competence of a judge of coordinate jurisdiction to question its validity did not fall for consideration. Nothing in this decision persuasively undermines the reasoning in the Padstow case which was subsequently approved by the Privy Council in Strachan.

30. Secondly, a central factual underpinning of the decision in In re Dowling and Welby’s Contract [1895] 1 Ch 663 was the fact that the purchaser who challenged the Liquidator’s title to sell the company’s property (based on a title derived from the vesting effects of the winding-up order) was a “stranger” to the liquidation who could in no sense be said to be bound by the order. As A.L. Smith LJ put it (at page 673): “But then it is said that the winding-up order is a judgment against all the world. It may be that it is a judgment binding on those who were members of the company, and the company itself, but it is not a judgment binding on a person who is a stranger and who is now objecting to have title forced upon him through an order which the Court holds to be invalid and made without jurisdiction.”

31. In the present case the Respondent is not in the same sense a stranger to the liquidation. The Respondent is not only a contingent creditor. PwC Bermuda is also a contingent debtor whose challenge to the Companies’ BVI Liquidators’ jurisdiction to seek information from the Respondent about the audit services it had supplied prompted the commencement of the present winding-up 16

proceedings. PwC Bermuda had actual or constructive knowledge of the winding- up hearing which was advertised and possessed the standing as either a contingent creditor or a contingent debtor to appear at the hearing of the Petition and oppose the making of the order on jurisdictional grounds. In the present case I find that PwC Bermuda was bound by the winding-up order in any event. It would in this case and generally be an abuse of the process of the Court for contingent debtors of the company to allow a winding-up order to be made and then challenge the jurisdiction of this Court to make the relevant order when the liquidators are seeking to investigate the company’s affairs or recover assets for the insolvent estate.

32. Thirdly, Lord Halsbury and Lindley LJ both doubted that a winding-up order was a judgment in rem, as Brett LJ had supposedly assumed in Padstow. Without exploring this point more than superficially, I would respectfully disagree. If one were required to choose whether to place a winding-up order into one of two categorical boxes, one labelled ‘in rem” and the other labelled “in personam”, I would choose the former rather than the latter. The analysis in In re Dowling and Welby’s Contract may seem somewhat odd because in modern Bermudian and English insolvency law, the making of a winding-up order does not automatically vest all the company’s assets in the liquidator. The assets of the company remain the assets of the company, and when a liquidator sells an insolvent company’s assets, he acts as an agent on behalf of the company. So although questions might arise as to the validity of a liquidator’s appointment, no sensitive questions of title to the assets themselves, linked to the validity of the winding-up order, would ever arise. So even if it is correct to say that a winding-up order cannot determine issues of title to property in a way which binds third parties, the Applicants do not contend that the winding-up order in the present case had such an effect.

33. Accordingly, I adopt the Judicial Committee of the Privy Council’s reasoning in Strachan, which I consider in any event to be binding on this Court. In the present case Bell J explicitly determined that he had jurisdiction when he made the winding-up orders on September 4, 2009. While I could adopt a different view as a judge of coordinate jurisdiction in another case, it is not competent for me to effectively set aside Bell J’s final order in the same case. Moreover, as noted above,there is also direct and ancient persuasive authority (cited with approval by the Privy Council in Strachan-v-Gleaner & Co. Ltd.) for the following specific proposition. A winding-up order made by a superior court against an unregistered overseas company to which the winding-up statute did not apply is not a nullity and can only be set aside on appeal. In In re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch D 137 at page 145, Brett LJ observed as follows: “In this case an order has been made to wind up an association or company as such. That order was made by a superior Court, which superior Court has jurisdiction in a certain given state of facts to make a winding-up order, and if there has been a mistake made it is a mistake as 17

to the facts of the particular case and not the assumption of a jurisdiction which the Court had not. I am inclined, therefore, to say that this order could never so long as it existed be treated either by the Court that made it or by any other Court as a nullity, and that the only way of getting rid of it was by appeal.”

34. For the above reasons, I find that the Respondent lacks the standing to challenge the jurisdiction of this Court to wind-up the Companies and the competence of the Joint Liquidators to seek relief under their section 195 of the Companies act 1981 Summons.

35. In deference to the impressively cogent submissions of Mr. Riihiluoma on the substantive question of whether or not this Court has the statutory power to wind- up overseas companies which do not have a permit to operate in Bermuda, and having regard to the fact that this is the first occasion on which this important question has been fully argued, I will proceed to consider this issue. II. Does the Bermuda Court possess the statutory jurisdiction to wind-up the Companies despite the fact that they are incorporated abroad and have no permit to operate from Bermuda? The Applicants’ submissions

36. Mr. Hill relied upon what has been for more than a decade the conventional wisdom as regards this Court’s jurisdiction to wind-up unregistered overseas companies in Bermuda. It has been assumed based primarily on a judgment rendered by this Court following an ex parte hearing that the jurisdiction to wind- up an overseas company which has been carrying on business in Bermuda without a permit to do so does exist under the Companies Act 1981 as read with the External Companies (Jurisdiction in Actions) Act 1885. This is an argument with which I have been intimately involved, in various capacities, as the Applicants’ counsel did not hesitate to point out.

37. The argument was advanced by me as counsel in Informission-v-Convertix Corporation [2000] Bda LR 42; followed by me in Allen Walsh and Hans Taal-v- Horizon Bank International Ltd. (in liquidation) [2006] Bda LR 42 (at paragraphs 5)1; and supported by me in extra-judicial writings2. In the latter regard, however, I most recently opined in decidedly cautious terms as follows: 1 It was also cited by me with approval in Re Dickson Holdings Ltd. (in Hong Kong liquidation) [2008] Bda LR 34 (at paragraphs 20, 21). 2 Gabriel Moss et al (eds.), ‘Cross-Frontier Insolvency of Insurance Companies’ (Sweet & Maxwell: London, 2001), paragraph 3-07; Kawaley, Bolton & Mayor (eds.), ‘Judicial Cooperation in Civil and Commercial Litigation: the British Offshore World’ (Wildy, Simmonds & Hill: London, 2009) at 218. 18

“Both these first instance decisions were made effectively on an ex parte basis and were reached without the benefit of full argument, so the position cannot necessarily be regarded as conclusively settled under Bermuda law. Assuming them to be correct, there still remains open for future consideration the question of what jurisdiction the Bermuda court possesses to open ancillary winding-up proceedings in respect of an insolvent overseas company where the only connecting factors are the presence of assets within the jurisdiction of the court.”3

38. The learned authors of O’Neill & Woloniecki, ‘The Law of Reinsurance in England and Bermuda’, 2nd edition (Sweet & Maxwell: London, 2004) at page 922, after reviewing the limited local case law were also prudent enough to caution: “In both of these cases, the applications were not opposed and the scope of the winding-up jurisdiction of the Supreme Court has yet to be tested in the context of contested proceedings.”

39. Convertix Corporation Ltd. was a company which was incorporated in the British Virgin Islands but which operated through a sole director in Bermuda without a permit. Horizon Bank Limited was incorporated in Saint Vincent and the Grenadines and carried out business in part in Bermuda through accounts in a Bermudian bank. Neither overseas company had a permit to operate in Bermuda, and so Part XIII of the Companies Act 1981 did not explicitly apply to them by virtue of section 4(1A)(b). In the absence of an explicit application of the winding-up regime to these unregistered overseas companies, a somewhat convoluted analysis was required to conclude that such companies could indeed be wound-up.

40. Firstly, it had been contended that Part XIII applied by virtue of section 4(1) of the Act, which states that the 1981 Act applies to local companies and “any overseas company so far as any provision of the Act requires it to so apply.” The difficulty with this argument was that it was far from clear on a simple reading of Part XIII of the Act which provisions required the application of that Part to overseas companies. Secondly, it had been contended that the 1885 Act, which, on superficial analysis, only unambiguously conferred jurisdiction in respect of ordinary civil actions over overseas companies with commercial operations in Bermuda, also conferred winding-up jurisdiction over such companies.

41. Mr. Hill for the JPLs contended that the Companies in the present case had greater formal connections with Bermuda, in that they had been lawfully operating under statutory exemptions from requiring a permit. In these circumstances it would be anomalous to hold that the Court had no jurisdiction to 3 ‘Judicial Cooperation in Civil and Commercial Litigation: the British Offshore World’, idem. 19

wind them up. This portion of the Applicants’ Skeleton Argument merits reproduction in full: “Part XIII of the 1981 Act applies to the Funds as mutual funds 17.Section 4(1) of the 1981 Act provides that the Act applies to companies registered or incorporated in Bermuda (known as “local companies”: see section 2) and “any overseas company so far as any provision of this Act requires it to so apply”. Section 2(1) defines “overseas company” as any body corporate incorporated outside Bermuda. 18.Section 4(1A)(b) provides that Part XIII of the Act (which includes the Court’s power to wind up a company, in section 161, and section 195) applies to “permit companies”. Section 2(1) defines “permit company” as any company with a valid permit, and “permit” as a permit issued under section 134. 19.Section 134 provides that an overseas company without a permit may apply for a permit to engage in or carry on any trade or business in Bermuda. Section 133(1) provides that an overseas company shall not engage in or carry on any trade or business in Bermuda without a permit under section 134. Subsection (4) then provides that a company is deemed to engage in or carry on a trade or business in Bermuda if it makes known by way of advertisement, or by an insertion in a directory or by means of letter heads that it may be contacted at a particular address in Bermuda, or is otherwise seen to be engaging in or carrying on any trade or business in or from within Bermuda on a continuing basis. 20.There is an exception to section 133. Section 133A provides that section 133 has no application to a “mutual fund” if the conditions in section 133(2) are met. 21.“Mutual fund” is defined in section 133A(3) by reference to section 136(5). Section 136(5) provides that a “mutual fund” is a company 20

incorporated outside Bermuda but having the characteristics set out in section 156A. Section 156A provides that a “mutual fund” is a company: 21.1 incorporated by shares, or having a share capital; 21.2 incorporated for the purpose of investing the moneys of its members for their mutual benefit; 21.3 having the power to redeem or purchase for cancellation its shares without reducing its authorised share capital; and 21.4 stating in its memorandum that it is a mutual fund. 22.To satisfy the conditions in section 133(2) the mutual fund must engage a person in Bermuda to be the mutual fund’s administrator or registrar to perform any or all of the following services or activities for the mutual fund in Bermuda: 22.1 corporate secretarial; 22.2 accounting; 22.3 administrative; 22.4 registrar and transfer agency; 22.5 in relation to marketing or dealing with the holders of its shares, the activities referred to in section 136(4), namely: 22.5.1offering of such shares for subscription or purchase by way of prospectus or otherwise; 22.5.2acceptance of subscriptions for, or offers to purchase, or of applications to redeem, such shares; 21

22.5.3distribution of shareholder information to the holders of such shares; 22.5.4making known, by way of advertisement or otherwise, that it may be contacted at a particular address in Bermuda for the purpose of communication with the holders of such shares or the distribution and collection of shareholder information; and 22.5.5any other dealing with the holders of such shares, with respect to any such shares held by them. 23.The Applicants submit that, as Part XIII of the 1981 Act applies to overseas companies carrying on business in Bermuda with a permit under section 133, it would be anomalous for Part XIII not also to apply to an overseas company carrying on business in Bermuda without a permit for the reason that the company was exempted from the requirement to have a permit under section 133A. So Part XIII must apply to such companies. Further, the Funds are such companies. In particular: 23.1 Being incorporated in the British Virgin Islands, the Funds are not local companies but overseas companies. 23.2 However, the Funds must be deemed to carry on business in Bermuda as, within section 133(4) they have made known that they may be contacted at an address in Bermuda. Each Fund’s Information Memorandum (as amended and restated as at 6 October 2008) states that communications with the Fund should be directed to the Funds’ administrator at the address set out in the ‘Directory’ section of the Information Memorandum. The Directory provides that the Fund’s administrator is Citi Hedge Fund Services Ltd of 9 Church Street, PO Box HM 951, Hamilton, Bermuda, HM DX.. 22

23.3 It is not in dispute that neither of the Funds has a permit under section 134. 23.4 However, the Funds are exempted from the requirement to have a permit by section 133A, as they are both mutual funds which meet the conditions set out in section 133A(2). In particular, it is clear from each Fund’s Information Memorandum that: 23.4.1 each Fund was incorporated for the purpose of investing the moneys of its members for their mutual benefit;. 23.4.2 each Fund has the power to redeem or purchase for cancellation its shares without reducing its authorised share capital;. 23.4.3 each Fund’s Information Memorandum states that it is a mutual fund;. and 23.4.4each Fund meets the conditions set out in section 133A(2) as both engaged a person in Bermuda to be their administrator and/or registrar to perform any or all of the listed services and activities, namely, their administrator, Citi Hedge Fund Services Ltd.. 23.5 Accordingly, to avoid the anomalous application of the 1981 Act, Part XIII of the Act must apply to the Funds.” 23

42. This argument initially appeared to me to be another variant of the broad policy contention that it would be absurd to find that an unlawfully operating overseas company cannot be wound up while a lawfully operating permit company can be. The mere fact that a statutory provision produces an absurd result can only be taken into to resolve an ambiguity, not to rebut the plain meaning of the Act. This argument ultimately invited the Court to construe the words “permit companies” in section 4(1A)(b) of the Act as including companies exempted from the need to obtain a permit. This argument is not as improbable as it first seems when one considers the fact that those provisions of the Act creating exemptions from the permit requirements in the Part of the Act to which the insolvency regime explicitly applies were added by way of amendment to the original permit regime in place when section 4(1A)(b) was enacted. This raises a genuine question as to whether Parliament must be presumed to have intended, when enacting the mutual fund permit exemptions, that section 4(1A)(b) would either (a) continue to apply only to overseas companies issued with a permit under section 134, or (b) in light of the amendments henceforth apply both to permit companies and companies which would, but for the exemption, have been permit companies. It seems likely that no actual consideration of this insolvency conundrum took place on the part of the drafters of the Act or those who approved it in Parliament.

43. Finally, Mr. Hill invited the Court to take into account, when construing the statutory jurisdiction to wind-up, the broad common law powers to assist foreign liquidators. This argument seemed both somewhat circular and imprecise and was not responsive in any meaningful way to the rigorously incisive attack launched by Mr. Riihiluoma on the sacred cow that conventional thinking on the jurisdiction to wind-up unregistered overseas companies has become. However, the common law position is ultimately a significant factor to be taken into account. The Respondent’s submissions

44. The full force of the Respondent’s counsel’s trenchant attack on the jurisdiction of this Court to wind-up an unregistered non-permit company only emerged in the course of Mr. Riihiluoma’s oral submissions which were presented with admirable precision and clarity. At the end of his presentation, it seemed reasonably clear that the merits of the jurisdiction argument on the Companies Act 1981 would have to be determined in his client’s favour unless some compelling reason could be found for departing from the natural and ordinary meaning of the relevant provisions of the 1981 Act; my view of the position under the External Companies (Jurisdiction in Actions) Act 1885 hung in the balance.

45. The starting point in counsel’s analysis was to take the Court on an intellectual tour of the legislative history of the relevant provisions of the 1981 Act. It appears that the first Bermudian statute to deal expressly with winding-up companies was the Companies Act 1923. This dates back to the era when local companies had to 24

be incorporated by private act of Parliament. Section 36 provided for winding-up by means of shareholder resolution, section 37 provided for winding-up by way of petition to the Court and section 38 provided that winding-up should take place in the same manner as occurred in England. It is clear from the definition of “the Company” in section 2(1), that the 1923 Act only contemplated local companies incorporated by private Act in Bermuda being wound-up.

46. From 1923 to 1977, it seems that Bermudian companies could be wound-up under the 1923 Act in accordance with English law but, subject to the interpretation of the 1885 Act, overseas companies could not be wound-up at all. In 1970, the Companies (Incorporation by Registration) Act 1970 was passed. This was not placed before the Court, and I assume for present purposes that it did not alter the scope of this Court express statutory winding-up jurisdiction in respect of overseas companies. In 1977, the Companies (Winding Up) Act was passed. The Act contains two potentially inconsistent provisions.

47. Section 2(1) provided most broadly as follows: “The United Kingdom law as it applies to England which makes provision for the winding up of companies shall apply to Bermuda and shall be deemed to have so applied since the 22nd February 1923...”

48. Did this incorporate into Bermuda law both Part V of the UK 1948 Act (on which our current Part XIII is substantially based) together with Part IX which deals separately with winding-up unregistered companies and which was omitted from the 1981 Bermuda Act? Section 2(2) provided that: “With effect from the commencement of this Act the United Kingdom Provisions shall be subject to the amendments set out in the First Schedule.” Section 1 provided as follows: “‘United Kingdom Provisions’ means section 210 and Part V of the United Kingdom Companies Act 1948 in force on 27th July 1967...”

49. Having regard to the fact that the First Schedule contains various amendments to Part V of the UK 1948 Act but not Part IX, Mr. Riihiluoma’s submission that the power to wind-up unregistered companies was not imported into Bermuda law by the 1977 Act must be sound.

50. The next port of call for this journey into the legislative history of the 1981 Act is the Law Reform Committee’s Report on Company Law in Bermuda. This report was based on the work of a sub-committee which first met in January 1975 and held 39 meetings before it submitted its Interim Report on a date which is unclear. The Sub-Committee was chaired by Charles Collis, and included John Butterfield, Ian Hilton and David Lines. The Sub-Committee was initially assisted by Parliamentary Counsel George Griffiths and later by Parliamentary Counsel, Law Reform, Ralph Dreschfield. The Report was largely responsible for Bermuda’s 25

modern company law structure under the umbrella of which international business rose from playing second fiddle to tourism as a major pillar of the local economy to its position today as the generator of an estimated 70% of Bermuda’s foreign currency earnings. The least original aspects of the Act were those relating to insolvency (save for modifications to the preferential payments rules), which the Report described as follows:

“PART XIII

Winding Up Clauses 157-264 This Part makes no substantial changes in the present law which follows the United Kingdom’s 1948 Act but is somewhat simplified.”

51. There is nothing in the Report which sheds light on whether or not consideration was explicitly given to the question of winding-up overseas companies which were operating in Bermuda with or without a permit. Section 4(1A)(b), which expressly provided that Part XIII of the Act applied to permit companies was only introduced by way of amendment in 1992. Neither the Report’s recommendations nor the Act’s provisions contain any express provision applying Part XIII of the Companies Act to overseas companies. Nor is it evident that any consideration was given to the implications of the External Companies (Jurisdiction in Actions) Act 1885 for this topic.

52. Had the drafters of the Report or the Act based on its recommendations referred to the commentary on section 399 of the UK 1948 Act (“Winding up of unregistered companies”) in ‘Buckley on the Companies Act’, 14th edition4, they would have found no simple guidance on what approach to take in this regard. The commentary refers to cases which suggest that unregistered companies which ought to be registered are illegal and cannot be wound up, while questioning the logic of these decisions; it then goes on to say that overseas companies can be wound up if they have a branch or assets in the UK or if a winding-up would otherwise be beneficial. Since the Law Reform Committee Report recommended requiring overseas companies carrying on business in Bermuda to obtain a permit, doubts might well have existed as to whether it was feasible to provide for the winding-up of “illegally operating” overseas companies.

53. But the Respondent’s counsel’s review of the legislative history of the Act in my judgment makes it impossible to fairly conclude that the need to provide a statutory basis for winding-up any overseas company was so obvious and simple a matter that Parliament must be deemed to have intended not to include it. If the 4 (Butterworths: London, 1981) pages 841-851. The Companies Act Bill received the Royal Assent on July 16, 1981, but the previous edition would have been available to the Law Reform Committee and the drafters of the Act. 26

original version of the Act did, through the obtuse words of section 4(1) (d) (“This Act shall apply to-...(d) any overseas company so far as any provision of this Act requires it to apply”) apply to all overseas companies, it is difficult to make sense of the 1992 enactment of section 4 (1A)(b). This expressly applied Part XIII of the Act to permit companies but made no equivalent provision for non-permit companies. Unlike the provision of the 1981 Act considered by Chief Justice Ground in D.E. Shaw Oculus Portfolios, LLC et al-v- Orient-Express Hotels Limited et al [2010] SC (Bda) 25 Com (1 June 2010), it is far from clear that section 399 of the English 1948 Act was deliberately omitted. The Report only explicitly averted to that portion of the UK 1948 Act dealing with winding-up which had in 1977 been incorporated into Bermuda law. But as Ground CJ observed in a passage upon which counsel relied: “Whether the intention to legislate in those terms represents a deliberate expression of parliamentary intent or whether it was an oversight, is really neither he nor there, because Parliament’s intent is expressed through legislation, and the absence of legislation can only mean that it has not addressed the matter.”

54. The main focus of the Law Reform Sub-Committee was clearly regulating the establishment and operation of companies in Bermuda at a time when the importance of cross-border insolvency law had not yet surfaced on the local scene. This would not happen until the mid-to late 1980’s. So it is entirely possible that consideration of the need to expressly provide for winding-up jurisdiction over overseas companies of any description was simply overlooked. It is equally possible that the topic was identified as a knotty one which ought to be deferred for future consideration. What consideration, if any, was actually given to the 1885 Act can only be a matter of speculation; it was not referred to at all in the Report.

55. Mr. Riihiluoma went on to deconstruct the argument that section 4(1)(d) can be read with the provisions of section 161(g) of the Act as empowering the Court to wind-up an overseas company wherever it is just and equitable to do so. Having regard to the statutory scheme of the UK 1948 Act from which section 161 is derived, I accept that section 161 merely lists the grounds upon which companies over which the Court has jurisdiction under other statutory provisions can be wound up. Further than this, counsel demonstrated that the scheme of the 1981 Act as a whole was to explicitly signify which provisions apply to overseas companies. I agree. Having regard to this wider statutory context, there is nothing in the 1981 Act which “requires” the winding-up regime to apply to non-permit companies.

56. Counsel further submitted that on the face of the Act Part XIII did not apply to an overseas company which was operating in Bermuda without a permit such as the Companies. Assuming the provisions of the Act must be construed according to 27

the primary rules of statutory interpretation, I found the following submissions to be sound: “17.The term “company” is defined in Section 2 of the Companies Act as: “Company means a company to which this act applies by virtue of Section 4(1)” Section 4(1) of the Companies Act provides an exhaustive list of companies to which the Act applies: ‘(1) This act shall apply to: (a) all companies registered under it or registered before 1 July 1983 under the Companies (Incorporation by Registration) Act 1970; (b) all companies limited by shares incorporated by Act in Bermuda prior to or after 1 July 1983, except to such extent (if any) as may otherwise be expressly provided in the incorporating Act; (c) all mutual companies incorporated prior to 1 July 1983 to which Part XII applies; and (d) any overseas company so far as any provision of this Act requires it to apply. (1A) In respect of – (a) non-resident insurance undertakings, section 2 and Parts XIII and XIV shall apply to them except those sections in Part XIII relating exclusively to members’ voluntary liquidations and for the purposes of section 2 and Parts XIII and XIV “insurance business” has the meaning assigned to it in the Non-Resident Insurance Undertakings Act 1967 [title 5 Item 17]; (b) permit companies, section 2 and Parts III, V, XI and XIII except those sections in Part XIII relating exclusively to members’ voluntary liquidations shall apply to them. 28

(2)Where the provisions of a private Act incorporating a company conflict with the provisions of this Act the provisions of the private Act shall prevail provided that – (a) (b) (c) where reference is made in the private Act to any provision of an Act repealed by this Act then if there is a provision in this Act corresponding or nearly corresponding to the provision repealed then that provision shall apply; when reference is made in the private Act to any provision of an Act repealed by this Act and there is no provision in this Act corresponding or nearly corresponding to the provision repealed then that provision shall continue to have effect; and Notwithstanding any provision in the private Act from 1 July 1984 Parts VI (excepting section 91), VII, VIII, XIII, XIV and XV shall apply to the company.”. 18.The term “overseas company” is defined in the Companies Act as any body corporate incorporated outside of Bermuda. “Permit Company” is defined as any company with a valid permit, allowing it to conduct business in Bermuda.” 19.The Kingate Funds are plainly overseas companies within the meaning of the Companies Act. Neither of the Kingate Funds were permit companies. 20.The Kingate Funds operated lawfully in Bermuda under section 133A of the Companies Act. Section 133A of the Companies Act exempts overseas mutual funds from the requirement that overseas companies must obtain a permit to trade or carry on business in Bermuda. Section 133A (2) provides: (2) A mutual fund is exempt if it engages a person in Bermuda to be the mutual fund's administrator or registrar to perform any or all of the following services or activities for the mutual fund in Bermuda — (a) corporate secretarial; 29

(b) accounting;

(c) administrative;

(d) registrar and transfer agency;

(e) in relation to the marketing or dealing with the holders of its shares, the activities specified in section 136(4). 21.Section 4 does not on its face extend the winding-up provisions of the Companies Act to overseas companies. It does, however, give the Bermuda court jurisdiction to wind-up a permit company licensed to do business in Bermuda.”

57. Counsel finally submitted that this Court ought also to decline to follow Wade- Miller J’s decision in Informission-v-Convertix Corporation Ltd. [2000] Bda LR 75, because the External Companies (Jurisdiction in Actions) Act 1885 plainly did not apply to winding-up petitions. The 1885 Act provides in material part as follows: “1 (1) Companies and corporate bodies incorporated out of Bermuda, for banking, insurance or other trading purposes, and doing business in Bermuda by agents or branches, may be sued in the Supreme Court for any cause of action, legal or equitable, arising in whole or in part in Bermuda, by the name whereby they are, or purport to be, associated or incorporated, or under which they carry on business, in Bermuda. (2) Service of any process, pleading, rule or notice on the agent, or any one of the agents, or manager, of the company or association in Bermuda shall be deemed good and sufficient service on the company. (3) All such suits may be prosecuted and carried on to judgment or decree in like manner as if the defendant company were formed, or incorporated, or established in Bermuda, or had its principal place of business therein: Provided that in all such suits and proceedings it shall be competent to the Supreme Court to make such orders with respect to pleading and practice as the Court may deem necessary for 30

securing the defendant company against surprise or undue haste in prosecuting the suit or other proceeding.”

58. There can be little doubt that when enacted in 1885, this Act did not contemplate winding-up proceedings. But statutes may also usually be construed in accordance with the rule that they are read as “always speaking”; they are not to be read as if since enactment the provisions have been in a state of suspended animation. Be that as it may, Mr. Riihiluoma challenged the soundness of the following portion of the Judgment in Convertix: “There is persuasive authority, argues Mr. Kawaley, for the proposition that the phrase ‘suit and legal process’ includes winding-up proceedings: Re International Tin Council [1987] Ch 419 as cited with approval by Derek French ‘Applications to Wind up Companies’ (Blackstone press: London, 1993) p.2. In my judgment although this point has not been fully argued it would seem from a plain reading of the provision ‘suit and legal process’ can include winding up proceedings.”

59. In the course of argument I put to counsel the question whether interpreting these statutory provisions brought the need to avoid an unconstitutional construction into play and invited him to address this issue. A broad construction would include winding-up proceedings within the ambit of the 1885 Act, facilitating the right of access to the Court guaranteed by section 6(8) of the Bermuda Constitution and article 6 of the European Convention on Human Rights (ECHR). A narrow construction would impede the right of access to the winding-up jurisdiction of the court. Mr. Riihiluoma responded by contending that this principle applied to procedural impediments only where some substantive right of access existed. This submission is fundamentally sound, subject to the need to evaluate the significance of the common law jurisdiction to recognise and assist foreign liquidators. III. Legal findings: does Part XIII of the Companies Act 1981 apply to overseas companies operating lawfully in Bermuda with an exemption from the permit requirements under section 133A?

60. Applying a literal approach to the relevant provisions of the Companies Act, I would find that this Court has no statutory jurisdiction to wind-up the Companies because: (a) the Act only applies to overseas companies to the extent that any provision requires it to apply (section 4(1)(d)); (b) section 4(1A)(b) expressly applies Part XIII on winding-up to “permit companies”5; and (c) “permit company”, is defined by section 2 of the Act as meaning “any company with a valid permit”. The Companies are exempted from the need to obtain the permit as 5 Section 4(1A)(a) applies Part XIII to non-resident insurance undertakings under the non-resident Insurance undertakings Act 1967. 31

mutual fund companies under section 133 by section 133A, enacted in 2001. Had sections 4(1A) and 133A been enacted together, or had section 133A been in force prior to the express extension of the winding-up regime to permit companies in 1992, little doubt as to the scope of section 4(1A)(b) could fairly be found to exist. But when this exemption was granted, must Parliament be deemed to have intended to exclude the exempted entities from the ambit of section 4(1A)(b)?

61. Section 133 itself provides as follows: “Overseas company not to carry on business without a permit 133 (1) An overseas company shall not engage in or carry on any trade or business in Bermuda without a permit from the Minister issued under section 134. under the authority of any Act other than this Act or the Non-Resident Insurance Undertakings Act 1967 [title 5 item 17] shall be deemed to be a permit issued under section 134 if valid on 1 July 1983 and for so long as it remains valid. (3) For the purposes of this Part "engage in or carry on any trade or business in Bermuda" includes the engaging in or carrying on any trade or business outside Bermuda from a place of business in Bermuda. (4) A company shall be deemed to engage in or carry on any trade or business in Bermuda if it occupies premises in Bermuda or if it makes known by way of advertisement, or by an insertion in a directory or by means of letter heads that it may be contacted at a particular address in Bermuda or is otherwise seen to be engaging in or carrying on any trade or business in or from within Bermuda on a continuing basis: Provided that a company shall not be deemed to engage in or carry on any trade or business in Bermuda by reason only that— (a) a travelling salesman representing the company who has been permitted to land in Bermuda as such establishes a temporary place of business in Bermuda; or (b) meetings of its officers or members are held in Bermuda; or (c) the company is buying or selling or otherwise dealing in shares, bonds, debenture stock obligations, mortgages or other securities issued or created by an exempted undertaking, or a local company, or any partnership which is not an exempted undertaking. (5) A company shall be deemed to engage in or carry on any trade or business in Bermuda if it makes known by way of advertisement or by any statement on a web site or by an electronic record as defined in the 32

Electronic Transactions Act 1999 that it may be contacted at a particular address in Bermuda or if it uses a Bermudian domain name.”

62. In effect, any company which conducts business in Bermuda from a permanent physical or electronic base in Bermuda requires a permit. Section 133A, introduced in 2001, provides as follows: “Mutual fund exempted from requirement of a permit 133A (1) Section 133 shall not apply to a mutual fund exempted under subsection (2). (2) A mutual fund is exempt if it engages a person in Bermuda to be the mutual fund's administrator or registrar to perform any or all of the following services or activities for the mutual fund in Bermuda⎯ (a) corporate secretarial; (b) accounting; (c) administrative; (d) registrar and transfer agency; (e) in relation to the marketing or dealing with the holders of its shares, the activities specified in section 136(4). (3) In this section "mutual fund" has the meaning given in section 136(5).

63. This exemption from obtaining a permit conferred on mutual funds by section 133A of the Act appears to be designed to encourage mutual funds incorporated elsewhere to base their management functions in Bermuda. Its effect is that mutual funds which are in factual terms as connected to Bermuda as permit companies have permission to operate from Bermuda without having to acquire a permit. Was it intended in granting this exemption to also waive the application of section 4(1A) of the Act to such companies? This question reflects a genuine ambiguity in interpreting the meaning and effect to be given to this provision.

64. Section 4(1A) applies the following provisions of the Act to permit companies: (a) Part III (“PROSPECTUSES AND PUBLIC OFFERINGS”) ; (b) Part V: (“REGISTRATION OF CHARGES”); (c) Part XI: (“OVERSEAS COMPANIES”); (d) Part XIII: (“WINDING-UP”). 33

65. If companies to which section 133A applies were not intended to be permit companies for the purposes of section 4(1A)(b) of the Act, this would mean that none of the above Parts of the Act would apply. Part III regulates the issue of prospectuses. Section 133A contemplates overseas mutual fund companies which are exempted from obtaining a permit under section 133 carrying out the activities specified in section 136(4) in or from Bermuda. Section 136(4) provides as follows: “(4) The activities referred to in subsection (3) are— (i) the offering of such shares, interests or units for subscription or purchase by way of a prospectus or otherwise; (ii) the acceptance of subscriptions for, or of offers to purchase, or of applications to redeem, such shares, interests or units; (iii) the distribution of shareholder, limited partnership or unit- holder information to holders of such shares, interests or units; (iv) the making known, by way of advertisement or otherwise, that it may be contacted at a particular address in Bermuda for the purpose of communication with the holders of such shares, interests or units or the distribution and collection of shareholder, limited partnership or unit-holder information; and (v) any other dealing with the holders of such shares, interests or units with respect to any such shares, interests or units held by them.”

66. Part III of the Act contains various regulatory requirements relating to the issue of prospectuses which are designed to protect the public, or that segment of the public likely to purchase shares issued by companies to which Part III applies, against misrepresentation and fraud. Sections 30 and 31 create criminal and civil liability for fraud. In my judgment it would lead to results which are manifestly contrary to public policy to construe section 133A as permitting mutual funds exempted from the requirements of obtaining a section 133 permit to be able lawfully to issue prospectuses from within Bermuda without being subject to the regulatory constraints contained in Part III of the Act. The cross-reference to section 136(4) in section 133A further supports the view that that the presumed legislative intent was not create a new species of unregulated non-permit company by granting the mutual fund exemption; rather it was to bring into the permit company fold a new category of company without requiring the “initiates” to pay for a permit.

67. It is perhaps far more obvious that the drafters of section 133A did not intend to exclude companies falling under its exemption umbrella from regulation under Part III than regulation under Part XIII; however the logic is essentially the same. I also cannot ignore the fact the activities section 133A companies are permitted 34

to carry out in Bermuda embody all of the substantive activities which a mutual fund will ever carry out. Focussing on the likelihood of Parliament intending to deprive this Court of the statutory jurisdiction to wind-up alone, the results would be no less absurd and contrary to public policy. The Registrar of Companies, for instance, would be empowered to petition to wind-up a permit company which carried out a small portion of its total business in Bermuda; he would not be empowered to petition to wind-up a section 133A mutual fund which carried out all of its business activities in Bermuda.

68. Having regard to these broader contextual considerations, I accept Mr. Hill’s submission that section 133A of the Companies Act cannot sensibly be construed in any other way than as modifying the narrow definition of “permit company” in section 2 of the Act so as include mutual fund companies which are authorised to operate as permit companies without having to formally obtain a permit pursuant to section 133 of the Act. In so doing, I apply the interpretative principles relating to repeal by implication which are set out below in the discussion on the 1885 Act.

69. I find that Part XIII of the Companies Act 1981 applies to the Companies and this Court (Bell J) did possess the jurisdiction to wind them up. IV. Legal findings: did this Court possess jurisdiction to wind-up the Companies by virtue of section 4(1)(d) of the Companies Act?

70. I accept Mr. Riihilouma’s submissions that section 4(1)(d) of the Companies Act 1981 cannot fairly be construed as conferring a statutory jurisdiction to wind-up an overseas company operating in Bermuda which is not a “permit company” as defined in section 2 of the Act as modified by section 133A. I would decline to follow the contrary findings on this issue in the Convertix case.

71. Section 4(1) (d), it is worth remembering, provides that the Act generally applies to “any overseas company so far as any provision of this Act requires it to apply”. I am unable to identify any provision of the Act which “requires” Part XIII to apply to overseas companies which are not permit companies, having regard to the scheme of the Act (notably section 4(1A)) which is to expressly indicate what provisions apply to overseas companies. While it is tempting to seek to engage a more purposive interpretative approach, having regard enhancing the right of access to the Court and the ability to regulate rogue companies, such interpretative tools may only properly be deployed to resolve ambiguities. In this context, there are no ambiguities which may fairly be found.

72. However, this conclusion only has any practical effect for present purposes if one assumes that the External Companies (Jurisdictions in Actions) Act 1885 has no application to winding-up matters; and the above findings are based on such assumption. The 1885 Act must next be considered. 35

V. Legal findings: did this Court possess jurisdiction to wind-up under the 1885 Act?

73. This issue, like the previous finding, does not in light of my primary findings strictly fall for determination. But in case my primary findings are wrong, I set out the conclusions I would have reached.

74. The crucial provisions of the 1885 Act bear setting out in full again: “1 (1) Companies and corporate bodies incorporated out of Bermuda, for banking, insurance or other trading purposes, and doing business in Bermuda by agents or branches, may be sued in the Supreme Court for any cause of action, legal or equitable, arising in whole or in part in Bermuda, by the name whereby they are, or purport to be, associated or incorporated, or under which they carry on business, in Bermuda. (2) Service of any process, pleading, rule or notice on the agent, or any one of the agents, or manager, of the company or association in Bermuda shall be deemed good and sufficient service on the company. (3) All such suits may be prosecuted and carried on to judgment or decree in like manner as if the defendant company were formed, or incorporated, or established in Bermuda, or had its principal place of business therein: Provided that in all such suits and proceedings it shall be competent to the Supreme Court to make such orders with respect to pleading and practice as the Court may deem necessary for securing the defendant company against surprise or undue haste in prosecuting the suit or other proceeding.”

75. The 1885 Act clearly applies to ordinary civil actions against overseas companies. The critical question is whether the term “may be sued” includes the presentation of a winding-up petition. It is likely that when the 1885 Act was initially passed, no winding-up jurisdiction existed under Bermuda statute law. This not dispositive because of the “always speaking” canon of construction, most generally, and also because the Act has been retained in force through the process of two law revisions, one prior to the 1981 Act, and one after, in 1971 and 1989, respectively. 36

76. It is noteworthy that when the Companies Act 1981 was enacted (and ultimately brought into force in 1983), the 1885 Act was not repealed. It was originally enacted as ‘AN ACT relating to Suits against public Companies abroad having Agencies in these Islands’, but the title was then amended by 1951: 59 to the one it retains nearly sixty years later. Bearing in mind the exhaustive review of Bermuda company law carried out by the Law Reform Sub-Committee, it seems improbable that neither the Sub-Committee’s members, nor the two punctilious Parliamentary Counsel associated with the law reform project, would have been aware of the existence of the 1885 Act. This tentative view is not undermined by the fact that Title 8: 74 of the Revised Laws, the Act was published under the Administration of Justice umbrella rather than Title 17 alongside other substantive company related legislation. It is ultimately to be presumed, as a matter of construction, that Parliament was aware of the existence of the 1885 Act when it enacted the 1981 Act.

77. Starting , as it were, with a blank slate and ignoring the decision in Informission- v- Convertix Corporation Ltd. [2000] Bda LR 75 where the point was not fully argued, the following issues fall for consideration: (a) whether the term “sued” and/or “suit” in sections 1 and 3 of the 1885 Act include or exclude winding-up proceedings having regard to the natural and ordinary meaning of the words in their context as read with the 1981 Act; (b) if there is any ambiguity as to whether winding-up jurisdiction is conferred, is the exclusion of the winding-up jurisdiction contended for by the Respondent so inconsistent with the right of access to the Court or Bermudian public policy as to justify resolving that ambiguity by finding that winding-up jurisdiction is conferred by the Act? VI. Does the 1885 Act unambiguously include or exclude winding-up proceedings from its operational scope?

78. On balance, I find that the term “sued” and/or “suit” in sections 1 and 3 of the 1885 Act includes winding-up proceedings having regard to the natural and ordinary meaning of the words in their context. In particular, the statute authorises suits in respect of “any cause action, legal or equitable”, which are also broad enough to encompass a winding-up petition. After all, it cannot seriously be doubted that an appeal lies to the Court of Appeal against the granting or refusal of a winding-up order, and that such an appeal would qualify as a “civil cause or matter” for the purposes of section 12(1) of the Court of Appeal Act 1964.

79. I reject the suggestion that this ancient statute must today be construed based on the historical reason for its initial enactment, especially in light of its change of name in 1951. I am also guided by the following interpretative principles articulated by the Judicial Committee of the Privy Council in Roodal-v- The State

[2003] UKPC 78:

“13…In any event, the question arises whether interaction between section 4 of the 1925 Act and the Interpretation Act must be 37

approached as always speaking legislation to be construed in the world of today. This principle of construction was explained by the House of Lords in R v Ireland [1998] AC 147. How is it to be determined whether legislation is an always speaking or tied to the circumstances existing when it was passed? In R v Ireland the House of Lords held (at 158): ‘In cases where the problem arises it is a matter of interpretation whether a court must search for the historical or original meaning of a statute or whether it is free to apply the current meaning of the statute to present day conditions. Statutes dealing with a particular grievance or problem may sometimes require to be historically interpreted. But the drafting technique of Lord Thring and his successors has brought about the situation that statutes will generally be found to be of the ‘always speaking’ variety ...’ Section 10(1) of the Interpretation Act 1962 spells out this principle for Trinidad and Tobago by providing that “Every written law shall be construed as always speaking ...’. 14.Counsel for the respondent was not prepared to accept that this principle is applicable in the present case. But he was not able to point to specific features of the legislation which exclude the principle. Given that in R v Ireland the principle was applied to a Victorian criminal statute, it is difficult to see why it should not be equally applicable in the present context. The Court of Appeal may have erred in searching for an original intent. The better view may be that the legislation “should be interpreted in the light of its place within the system of legal norms currently in force”: Sir Rupert Cross, Statutory Interpretation, 3rd ed., (1995), p 52.” [emphasis added]

80. When section 1 of the 1885 provides that an overseas company “may be sued” and section 3 provides that such “suits” shall be pursued in the same manner as against local companies, the natural and ordinary meaning of the word “suit” encompasses not just actions for the recovery of money, but winding-up proceedings as well. According a modern online legal dictionary: “suit n. generic term for any filing of a complaint (or petition) asking for legal redress by judicial action, often called a "lawsuit." In common parlance a 38

suit asking for a court order for action rather than a money judgment is often called a "petition," but technically it is a "suit in equity.”6

81. Not only does section 1(1) expressly refer to “any cause of action, legal or equitable”, but section 1(3) also states that all “such suits may be prosecuted and carried on to judgment or decree in like manner as if the defendant company were formed, or incorporated, or established in Bermuda, or had its principal place of business therein…”. This means that, assuming the 1885 Act applies to winding- up proceedings, no need to find provisions in the Companies Act conferring winding-up jurisdiction over overseas companies properly arises. Section 1(3) requires the Court to deem qualifying overseas companies to be local companies, for jurisdictional purposes in respect of the relevant “suit”.

82. The juxtaposing of the word “judgment” with “decree” in section 1(3) seems to emphasise the breadth of proceedings the statute is intended to cover. Moreover, sections 3 and 4 also look to what happens after a judgment or other order is obtained: “Enforcement of judgment 3 If judgment passes, or any decree or order is made, in any such suit or proceeding in favour of the plaintiff or person suing, or against the defendant company, then such judgment or decree shall be or shall create a charge on any real estate of the company in Bermuda, and execution or other process for enforcing such judgment or decree may be sued out in like manner and form against the defendant company as if such company were established or had its principal place of business in Bermuda, or as near thereto as circumstances may permit, or in such form as the Supreme Court or a Judge in Chambers, may sanction, and it may be served on the agent or manager, and shall bind the assets of the company in Bermuda or which then are in, or afterwards may come to, the hands or under the control of such agent or manager, subject always to the agent's or manager's lawful charges or commissions thereon. Ascertainment of assets 4 After any judgment or decree is given, or any order is made, in any suit against the defendant company, the Supreme Court, or a Judge in Chambers, may cause the agents or managers of the company to be examined from time to time on oath before the Court or a Judge concerning the assets or property of the company in Bermuda; and the Court or Judge may make such order therein as to justice may pertain, and such order may, if the Court or Judge so orders, be enforced against any agent or manager personally.”

83. Section 3 expressly provides that “execution or other process for enforcing such judgment or decree may be sued out in like manner and form against the defendant company as if such company were established or had its principal 6 Law.Com Dictionary. 39

place of business in Bermuda, or as near thereto as circumstances may permit”. This seems broad enough to encompass winding-up a company after a winding-up order has been obtained, although the term “may be sued” does not explicitly empower a company to petition for its own winding-up. The reference to the terms “suit” in section 1 and “execution or other process” in section 3 are not dissimilar to the words “suit or legal process” considered by Millett, J (as he then was) in In re International Tin Council [1987] Ch 419. This was the main judicial authority upon which Wade-Miller J relied in construing the 19885 Act in Informission-v- Convertix Corporation Ltd. Although the “primary”7 finding was that winding-up proceedings were not a means for enforcing an arbitration award (there were, implicitly, strong public policy motives for preventing a major international organisation from being wound up), this case provides some assistance to the interpretative task at hand in the present case. It supports the view that: (a) the natural and ordinary meaning of the term “suit” includes winding- up proceedings; (b) the proof of debt process which occurs after a winding-up order has been made is, as regards any judgment creditors, a species of judgment enforcement process, albeit a collective remedy entitling the judgment creditor only to a pari passu share of the insolvent estate.

84. The International Tin Council case was primarily concerned with an immunity from suit clause in an Order-in-Council, which the English High Court found should be construed in favour of immunity. A winding-up petition was also held to fall within the ambit of the immunity clause because it was not a means of enforcing an arbitration award, which would have been actionable. Nevertheless, in my judgment the views expressed by Millett J on the natural and ordinary meaning of the words “suit or legal process” are highly persuasive: “It is not a ‘suit, it was said, which is a word not normally used in English legal writings to describe a winding-up petition….But in my judgment there is no ambiguity. The phrase ‘suit or legal process’…embraces all forms of adjudicative and enforcement jurisdiction, and clearly includes the winding up process…‘suit’ extending to all forms of the adjudicative, and ‘legal process’ to all forms of the enforcement, jurisdiction…”8

85. This analysis supports the finding that “suit” in section 1 and “other forms of process” in section 3 include an application to wind-up a company and the process after a winding-up order is made to settle the debtor’s estate. In the present context, I find the following dictum of Brightman LJ (referred to in 7 In fact the primary and summary finding was that the relevant statute did not permit winding-up an international organization at all under section 665 of the Companies Act 1985. 8 [1987] Ch 419 at 453D,G. 40

Millett J’s judgment at page 454) supportive of construing section 3 of the 1885 Act as applying, according to its terms, not just to execution but the winding-up process as well: “The liquidation of an insolvent company is a process of collective enforcement of debts for the benefit of the general body of creditors. Although it is not a process of execution, because it is not for the benefit of a particular creditor, it is nevertheless akin to execution because its purpose is to enforce, on a pari passu basis, the payment of the admitted or proved debts of the company. When therefore, a company goes into liquidation a process is initiated which, for all creditors, is similar to the process which is initiated, for one creditor, by execution.”9

86. Section 4 of the 1885 Act, ironically in the present context, creates a procedure for examining the agents or managers of an overseas company about its assets. This jurisdiction would obviously overlap with both the Court’s power under the Rules to order the examination of a debtor in the context of enforcing a money judgment and the Court’s powers to order an examination in a winding-up under section 195 of the Act. Section 4 is quite possibly redundant in the modern legal context. Having zoomed in and looked at the language of the statute, it is necessary to step back for a broader perspective.

87. The primary object of the 1885 Act appears to be to achieve three broad policy goals. Firstly, the Act facilitates non-personal service on overseas companies which are not incorporated in Bermuda, obviating the need for service of process in the company’s domicile, after obtaining leave to serve abroad. This was the only statutory provision permitting service on overseas companies here when the 1981 Act was enacted. It was only in 1992, by way of amendment, that permit companies could be served at their principal place of business in Bermuda under section 62A of the Companies Act: “Service of documents 62A A document may be served on a company by leaving it at the registered office of the company or, in the case of a non-resident insurance undertaking the principal office in Bermuda, or in the case of a permit company, the principal place of business in Bermuda from which the company engages in or carries on its trade or business in Bermuda.”

88. Section 62A was seemingly primarily enacted to lighten the burden of personal service on officers of a local company under Order 65 rule 3 (or the local agents of companies under the 1885 Act). As far as permit companies are concerned, but not overseas companies operating in Bermuda without a permit where one is required, the service provisions of section 62A relax the corresponding service 9 In re Lines Bros. Ltd. [1983] Ch1,20. 41

provisions of section 1(3) of the 1885 Act, which still require service on individuals rather than at an address.

89. Secondly, the 1885 Act confers personal jurisdiction over overseas companies based on their operations here, effectively providing that in relation to their local operations, they are deemed to be domiciled in Bermuda notwithstanding the fact that their “true” corporate domicile may be elsewhere. Section 1(3) provides that “such suits may be prosecuted and carried on to judgment or decree in like manner as if the defendant company were formed, or incorporated, or established in Bermuda, or had its principal place of business therein”. This aspect of the 1885 Act facilitates, unarguably, the assertion of personal jurisdiction in civil proceedings over all categories of overseas companies, including those to which the 1981 Act unambiguously applies. If one accepts that section 1(3) applies to winding-up proceedings as well, their effect is to jurisdictionally treat qualifying overseas companies in the same manner as, inter alia, locally incorporated companies, nothing turns on the silence of the 1981 Act on winding-up overseas companies at all. The 1885 Act is the governing statute in this regard.

90. This aspect of the 1885 Act may also, less obviously, be read as buttressing the almost bare assertion in section 4(1A)(b) of the Companies Act that the winding- up (and other provisions mentioned) apply to permit companies. Section 1(3) may be construed as defining how the winding-up provisions apply: in the same manner as they do to companies incorporated in Bermuda. The manner of winding-up permit companies (and indeed non-resident insurance undertakings) is not expressly articulated in the 1981 Act; it is merely stated that Part XIII applies, save for those provisions relating to members voluntary liquidations. It is left to inference that the winding-up jurisdiction under Part XIII operates both (a) in the same manner as for local companies, but (b) without prejudice to winding-up proceedings elsewhere. Section 7 of the 1885 Act, meanwhile, explicitly provides that the jurisdiction conferred is limited to the assets of the overseas company within Bermuda: “Saving for other rights 7 Nothing in this Act contained shall prevent any person from proceeding against any company or association of persons out of Bermuda, or against the assets, property or effects of any company or association of persons out of Bermuda, in like manner as if this Act had not been passed.”

91. The 1885 Act may also fairly be construed as applying to winding-up proceedings (as well as other forms of civil proceedings) because its approach is, to some extent, conceptually similar to that of section 399 of the UK 1948 Companies Act, albeit that the UK provision deals exclusively with winding-up proceedings. Section 399 deems an unregistered company to be registered in the UK (England or Scotland) if it has a principal place of business there. Section 399 (3) of the UK 1948 Act provided as follows: 42

“(3) An unregistered company shall, for the purpose of determining the court having jurisdiction in the matter of winding up, be deemed to be registered in England or Scotland...and the principal place of business situate in that part of Great Britain in which proceedings are being instituted shall, for the purposes of the winding up, be deemed to be the registered office of the company.”

92. It must be admitted that section 4(1A)(b) in excluding the operation of the members voluntary winding-up regime to permit companies does to a more limited extent replicate section 399(4) of the UK 1948 Act, which excludes voluntary liquidation altogether from the regime for winding-up overseas companies. But there is still no obvious reason for viewing the 1885 Act as wholly incompatible with winding-up proceedings, Rather, the conundrum is how the Act can be construed as conferring a free-standing winding-up jurisdiction when the 1981 Act has explicitly provided for the application of Part XIII to permit companies and non-resident insurance undertakings.

93. The third important function of the 1885 Act is to confer on those who have obtained a judgment or other decree against an overseas company to which the Act applies with the same remedies, by way of “execution or other process”, they would have in relation to a judgment against a local company. In my judgment it is difficult to rationally exclude the winding-up remedy from the range of enforcement remedies contemplated by section 3 of the Act, by implication alone. An unsatisfied judgment constitutes one of the three instances of deemed insolvency under section 162(b) of the 1981 Act. Can the 1885 Act be fairly read as permitting the enforcement of civil claims (particularly debt claims) by all means possible against local companies except winding-up (unless the Companies Act expressly confers such jurisdiction)?

94. The Act explicitly states that judgments against overseas companies can be enforced by execution or other process in the same manner as judgments against local companies. And if a judgment creditor of a an overseas company can have recourse to the winding-up jurisdiction in reliance on section 162(b) of the 1981 Act, why should a creditor who has not obtained a judgment not be able to petition for winding-up in reliance upon section 162(a) (statutory demand) and section 162(c) (insolvency) as well? Absent section 4(1A) of the Companies Act, the exclusionary argument would have been wholly implausible and could be summarily rejected.

95. Another serious difficulty with the exclusionary argument is that it requires a construction of the 1981 Act, and section 4(1A) in particular, which would have potentially interfered with vested rights of access to the Court by partially repealing the 1885 Act by implication. The historical position would have been as follows: 43

(a) 1885-1923: as there was no known statutory jurisdiction to wind-up local companies, the 1885 Act probably in practical terms conferred no jurisdiction to wind-up the overseas companies to which it applied;

(b) 1923-1977: the 1923 Companies Act provided for local companies to be wound-up in accordance with the law and practice in England. The 1885 Act could without difficulty have been construed as conferring the jurisdiction to wind-up the companies to which it applied;

(c) 1977-1983 (when the 1981 Act came into operation): the 1977 Winding Up Act expressly applied the winding-up provisions of the UK 1948 Act (excluding the provisions conferring winding-up jurisdiction on overseas companies). The 1885 Act could still be construed without difficulty as applying, inter alia, to winding-up proceedings against overseas companies.;

(d) 1983-1992 (when section 4(1A) was enacted): the 1885 Act could still be construed without difficulty as conferring jurisdiction to commence civil proceedings including winding-up proceedings against qualifying overseas companies which were deemed for these purposes to be the same as local companies. On this basis, there was no need for the 1981 Act to make any express provision as regards winding-up for the Act’s application to overseas companies. This interpretation of the legal position is consistent with both (1) the assertion in the Law Reform Committee Report that the law relating to winding-up was not substantially changed by the proposed new legislation, and (2) the interpretative presumption that the drafters of the 1981 Act (including the very learned members of the Law Reform sub-Committee) were not ignorant of the existence of the 1885 Act;

(e) 1992-to present (the status quo except for section 133A companies): it is only when one looks at the jurisdictional question through the lens of the post-1992 version of the Companies Act, that there is any credible basis for viewing the 1981 Act as being the sole statutory source for winding-up overseas companies. When the Act was altogether silent on this issue and one viewed the issue through the lens of the 1885 Act as the primary source of jurisdictional competence over overseas companies for all civil proceedings, it would in my judgment have been reasonably clear that jurisdiction to wind-up existed. This would particularly be the case when such jurisdiction was asserted by or on behalf of local creditors.

96. I find that prior to the enactment of section 4(1A) of the Companies Act 1981, the 1885 Act conferred jurisdiction on this Court to wind-up overseas companies to which the latter Act applied as if they were incorporated in Bermuda. This 44

jurisdiction existed in tandem with the winding-up jurisdiction conferred in respect of local companies under the Companies Act 1923, the Companies Winding Up Act 1977 and the Companies Act 1981. This conclusion is consonant with the natural and ordinary meaning of the words of the 1885 Act as well as its manifest legislative purpose of affording protection to local creditors against “external” companies operating in Bermuda. Prior to 1992 when section 4(1A) was enacted, I find that there was no or no cogent basis for viewing the terms of the Companies Act 1981 (or the 1923 and 1977 Acts which it repealed) as being inconsistent with the construction of the 1885 Act as conferring winding-up jurisdiction over the companies to which it applied on the deemed basis that such companies had been established in Bermuda.

97. An inconsistency does arise, accepting Mr. Riihiluoma’s analysis of how section 4(1A) ought to be construed in the context of the 1981 Act as a whole, ignoring the potential effect of the 1885 Act. The 1981 Act clearly provides that it applies to overseas companies when the provisions of the Act so require (section 4(1)(d)), and (b) section 41(A) states that various Parts including Part XIII apply to permit and non-resident insurance undertakings. The original status of overseas companies in the 1981 Act in winding-up terms was essentially neutral. It could not be suggested that section 4(1)(d) was so repugnant to the application of the 1885 Act to the winding-up of overseas companies, permit or otherwise, as to have repealed the earlier provisions by implication. The strong interpretative presumption against repeal by implication has been described as follows: “22.The court will not lightly find a case of implied repeal, and the test for it is a high one. Mr Craig properly took us to two well-known statements of principle to that effect. In Seward v “Vera Cruz”(owner) (1884) 10 App Cas 59 the Earl of Selbourne LC said, at p68: ‘Now, if anything be certain it is this, that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered or derogated from merely by force of such general words, without any indication of a particular intent to do so.’ 23.In Kutner v Phillips [1891] 2 QB 267 at p 271 AL Smith J said: ‘a repeal by implication is only effected when the provisions of a later enactment are so inconsistent with or repugnant to the provisions of an earlier one that the two cannot stand together…..Unless two Acts are so plainly repugnant to each other that effect cannot be given to both at the same time a repeal will not be implied and special Acts are not 45

repealed by general Acts unless there is some express reference to the previous legislation, or unless there is a necessary inconsistency in the two Acts standing together.’ 24.AL Smith J repeated that test in the following year in West Ham Wardens v Fourth City [1892] 1 QB 654 at p658: ‘The test of whether there as been a repeal by implication by subsequent legislation is this: are the provisions of a later Act so inconsistent or repugnant with the provisions of an earlier Act that the two cannot stand together?’ 25.In section 87 of his Statutory Interpretation (4th edition) Mr Bennion cites that passage with approval, and continues: ‘This principle is a logical necessity, since two inconsistent laws cannot both be valid without contravening the principle of contradiction. The possibility of implied repeal goes wider however than is indicated by the principle of contradiction. Other interpretative criteria may indicate implied repeal, for example the commonsense construction rule or the presumption that Parliament wishes to avoid an anomalous result’ 26.No authority is cited for the latter proposition, and I am not able to act on it. The presumption against anomaly is, as Bennion makes clear in section 315, a principle of construction, applied as such within the boundaries of an individual Act, and going much wider than the case of absurdity or impossibility of reading two Acts together that is the characteristic of implied repeal. To hold that an implied repeal arose when the combined result of the two statutes could not be characterised as anything worse than anomaly would be to fly in the face of the strong statements of principle set out in paragraph 19 above.”

98. I find that there was no or no cogent basis for viewing the terms of the Companies Act 1981 (or the 1923 and 1977 Acts which it repealed) as being inconsistent with the construction of the 1885 Act as conferring winding-up jurisdiction over the companies to which it applied. Even when section 4(1A) is taken into account, all that results is no more than an anomaly. Companies which are operating in Bermuda on a formal basis (either as non-resident insurers regulated by the 1967 Act or as permit companies regulated by Part XI of the 1981 Act) are governed by various provisions in the 1981 Act (including the winding-up provisions) while other overseas companies (such as those operating in breach of section 133 of the Companies Act are not. Bringing some overseas companies under the regulatory umbrella of the 1981 Act is not repugnant to the notion of other overseas 46

99. 100. 101. companies continuing to fall within the jurisdictional scope of the 1885 Act for winding-up purposes. On the contrary, it makes no sense that “rogue” companies should be exempt from the winding-up jurisdiction of this Court as it is precisely the “dodgy” overseas company which the 1885 Act is designed to afford creditors relief against. It is self-evident that the statute must also be construed as permitting winding-up suits by creditors or by the overseas company itself acting in the interests of its creditors, whether acting by its directors or by its foreign liquidators. Although it is not without considerable analysis that one arrives at this interpretative conclusion, in my judgment the 1885 Act without ambiguity confers winding-up jurisdiction over overseas companies which is broadly equivalent to that exercised over local companies under the 1981 Act. In my view Informission Group Inc v Convertix Corporation [2000] BLR 75 was rightly decided to the extent that Wade-Miller J grounded jurisdiction on the External Companies (Jurisdiction in Actions) Act 1885. On the assumption that it is ambiguous whether the 1885 Act confers the jurisdiction to wind-up overseas companies, how should the ambiguity be resolved? In the context of the present application, the common law jurisdiction to recognise foreign winding-up orders and to assist foreign insolvency courts and the liquidators they have appointed by engaging the provisions of local insolvency law was not in controversy. The breadth of this common law jurisdiction has been recognised in the Isle of Man (Re Impex Services Worldwide Ltd [2004] BPIR 564), by the Judicial Committee of the Privy Council on appeal from the Isle of Man (Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors (of Navigator Holdings plc) [2006] 3 WLR 689), and by this Court (Re Founding Partners[2009] Bda LR 35). In the Navigator Holdings case, Lord Hoffman opined as follows: “At common law, their Lordships think it is doubtful whether assistance could take the form of applying provisions of the foreign insolvency law which form no part of the domestic system. But the domestic court must at least be able to provide assistance by doing whatever it could have done in the case of a domestic insolvency. The purpose of recognition is to enable the foreign office holder ... to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum”10 . So at common law, if an overseas company which has assets in Bermuda or has been trading through a branch office or agents in Bermuda without a permit is placed in liquidation in a court of competent jurisdiction abroad, its foreign 10 [2006] 3 WLR 689 at 696. 47

102. liquidator acting on behalf of foreign and local creditors can invoke the winding- up jurisdiction of this Court. This is a substantive right of access to the Court which has arguably existed since the nineteenth century, although based on the materials placed before me, no local statutory winding-up jurisdiction existed until 1923. It is against this substantive law background that the competing constructions of the 1885 Act fall to be resolved, assuming the correct meaning is ambiguous. The Respondent contends that the 1885 Act ought not to be construed as applying to winding-up proceedings at all. These are solely governed by the 1981 Act and section 4(1A) of that Act which extends Part XIII of the Companies Act to (a) non-resident insurance undertakings; and (b) permit companies. The Applicant contends that the 1885 Act should be construed as applying to overseas companies other than those designated by section 4(1A) of the Companies Act. If Mr. Riihiluoma’s submission is correct, creditors of an insolvent “rogue” overseas company which has been operating in Bermuda without a permit can only access the winding-up jurisdiction of the Bermuda Court provided they first take one or more of the following steps: (a) winding-up the company in its place of incorporation, appointing a liquidator there and obtaining a letter of request from the company’s home court seeking the common law assistance of the Bermuda Court; or (b) commencing restructuring or liquidation proceedings in some other jurisdiction with which the company is linked and which has a more flexible statutory jurisdiction over insolvent foreign companies (e.g. the US Bankruptcy Court), and obtaining a letter of request from that court directed to this Court seeking judicial assistance at common law.

103. Construing the 1885 Act in this way would result in purely procedural impediments being placed in the way of creditors seeking to access the winding- up jurisdiction of this Court in respect of overseas companies to which section 4(1A) of the Companies Act 1981 do not apply. The common law right of access to the Court’s winding-up jurisdiction is on any view unaffected by the 1885 Act, however construed. So the competing interpretations essentially involve a choice between (a) enhancing the right of access to the Court by providing a more convenient statutory procedure; and (b) passively restricting the right of access to the Court by leaving creditors with the existing and more cumbersome common law procedure. In Re First Virginia Reinsurance Ltd.[2003] Bda LR 4711, I favoured a construction of the Companies Act which facilitated the right of access to the Court rather than hindered it, but this was on an ex parte application. 11 At pages 9-10. This case is also reported at (2003) 66 WIR 133. 48

104. A more compelling and prosaic interpretative presumption to invoke to resolve any ambiguity in the scope of operation of the 1885 Act is the presumption that Parliament does not intend to legislate in a way which is inconsistent with public policy. It would very obviously be damaging to Bermuda’s economic interests as a jurisdiction the economy of which depends heavily on a reputation of sound financial regulation for no effective insolvency law relief to be available in respect of rogue overseas companies operating here. The position of the Companies which invested funds with the now notorious Bernard Madoff in New York is a classic case in point. It seems absurd that Parliament should be deemed to have intended (when enacting section 4(1A) of the Companies Act in 1992) to limit the winding-up remedy to those companies to which that section applied, presuming Parliament to have known that the 1885 Act already provided a more liberal jurisdiction in that regard.

105. Taking all of these matters into account, I would resolve any ambiguities as to whether or not the 1885 Act confers jurisdiction to wind-up overseas companies not falling within the ambit of the Companies Act’s narrow jurisdictional provisions in favour of the liberal construction the Applicant contends for.

106. Of course these secondary findings are only recorded in case I am held to be wrong on my primary findings that (a) PwC Bermuda lacks the standing to challenge the validity of the winding-up order made herein save by way of appeal; and (b) the Companies are in any event “permit companies” for the purposes of section 4(1A) (b) of the Companies Act as read with section 133A. Conclusion

107. Accordingly, the Applicants are entitled to an Order in terms of their Summons under section 195 of the Companies Act 1981, subject to any modifications which may be required to deal with points of detail which were overlooked at a hearing which focussed on the jurisdictional challenge.

108. The Respondent contended that this Court had no power to wind-up the Companies as they were not subject to the winding-up jurisdiction of the Court under section 4(1A) of the 1981 Act. The jurisdictional challenge was rejected on the grounds that (a) PwC Bermuda lacks the standing to challenge the validity of the winding-up order made herein save by way of appeal; and (b) the Companies are in any event “permit companies” for the purposes of section 4(1A) (b) of the Companies Act as read with section 133A. I find that section 133A has modified the original definition of “permit company” to include mutual funds permitted to operate in Bermuda without a permit. 49

109. Further and alternatively, I would in any event have found that the External Companies (Jurisdiction in Actions) Act 1885 (but not section 4(1)(d) of the Companies Act) empowered this Court to wind-up the Companies as overseas companies carrying on business through agents in Bermuda. To this qualified extent, I would have found that Informission-v- Convertix Corp Ltd. [2000] Bda LR 75 was rightly decided. I accept Mr. Riihiluoma’s compelling submissions that the Companies Act 1981 is not, by itself, a source of winding-up jurisdiction over overseas companies which are neither (a) non-resident insurance undertakings, nor (b) permit companies.

110. Unless either party applies to be heard as to costs within 21 days by letter to the Registrar, the costs of the present application are awarded to the Joint Liquidators, to be taxed if not agreed. Dated this 20th day of August 2010 __________________

KAWALEY J

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