Business

The secure and the jaded - the status quo

Friday, March 14, 2014    

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This article is the sequel to an article published on Friday, February 7, 2014, in relation to the judgement handed down by the Honourable Justice Mangatal in the Commercial Division of the Supreme Court in Claim No 2013 CD00142 between Jade Overseas Holdings Limited, as Claimant ("JADE") vs Palmyra Properties Limited (In Receivership), 1st Defendant ("PPL"), Sanctuary Systems Limited (In Receivership), 2nd Defendant ("SSL") and Kenneth Tomlinson, 3rd Defendant ("the Receiver")concerning an application by JADE for an interlocutory (interim) injunction restraining PPL, SSL and the Receiver (pending trial) from dealing with property and other assets awarded to them, or any monies received therefrom, pursuant to a judgement handed down in a previous case "the Former Case". As indicated in the previous article, Justice Mangatal ultimately refused JADE's application for an interlocutory injunction in her judgment ("the JADE Judgment"), pursuant to which JADE appealed the JADE Judgement, in the Civil Division of the Court of Appeal in Supreme Court Civil Appeal No 101/2013.

The outcome of the appeal

The appeal was heard before the Honourable Justices Panton, Morrison and Lawrence-Beswick (Acting). The Appellate Court in handing down its decision on Friday, February 14, 2014, found that Justice Mangatal erred in refusing JADE's application for an interlocutory injunction, allowed JADE's appeal against the JADE Judgement and granted JADE the injunction sought in its application to the Supreme Court.

JADE casted its net wide by filing thirteen (13) grounds of appeal, thereby challenging virtually every aspect of the JADE Judgement, the strategy clearly being that at least one (1) ground of appeal should resonate with the Appellate Court. At the end of the day, it was the following ground of appeal (as summarised by the Appellate Court) that resonated with the Appellate Court:

"the learned judge erred in finding that to maintain the status quo which existed prior to the issuing of the claim form, was for the receiver to be free to sell or deal with the assets of the other respondents in the interest of the debenture holders, without having regard to the entire evidence in the case and the need to preserve the funds and prevent dissipation."

In its application to the Supreme Court for the injunction, JADE had requested that the Defendants be only allowed to pay any sums of money received pursuant to the Former Case into a joint escrow account issued in the joint names of the parties pending the determination of the trial "the Current Case", thereby effectively preserving the fruits of the Defendants' judgement in the Former Case, until it is ultimately decided whether JADE or the Defendants are entitled to same in the Current Case. In other words, JADE had stated in its original application for an injunction to the Supreme Court, that it wished for the status quo (as at the end of the Former Case) to be preserved until the judgement in the Current Case is handed down, and this was the crux of the Appellate Court's decision to allow JADE's appeal and grant JADE the injunction.

In essence, the Appellate Court's judgement departed from that of Justice Mangatal's insofar as their respective views with regards to how a court should rule in this instance in order to preserve the status quo.

The Appellate Court recited JADE's attorney's quotation from Lord Diplock's judgement in the case Garden Cottage Foods Ltd. v Milk Marketing Board[1983] 2 All ER 770 at 774, which in summary is theauthority for the proposition that the relevant status quo is to be defined as the state of affairs existing during the period immediately preceding JADE's claim in the Current Case. Actually, Justice Mangatal had also considered this authority in the JADE Judgement. However, it is her application of this authority to JADE's application for an injunction, juxtaposed to the Appellate Court's application of same, that caused the Appellate Court to ultimately overturn the JADE Judgement.

At paragraph [38] of the JADE Judgement, Justice Mangatal stated:

"In this case, the status quo is that the Receiver having been appointed by the Debenture Holders from as far back as July 2011, is free to sell or deal with the assets of the 1st and 2nd Defendants, in such a way as to see to the interests of the Debenture Holders in recovering monies owed to them and reducing the indebtedness to them. To require the Receiver to place the funds or assets derived from the Settlement of Claim No 2009 HCV 04344 would require the Receiver to do something which he has never previously had to do and would curtail him in his management of the 1st and 2nd Defendants as Receiver."

Justice Panton (with whom the two (2) other Appellate Judges agreed) stated the following in his decision (in relation to the Jade Judgement):

"I differ from her in respect of how the status quo is to be maintained in this case. In my view, it may only be maintained by preventing the receiver from accessing the fruits of the summary judgement."

Therefore, it was Justice Mangatal's view that in order to maintain the status quo immediately before JADE filed its claim in the Current Case, the Receiver should have been free to use the fruits of the judgement in the Former Case in order to discharge his duties, whereas, the Appellate Court's view was that in order to preserve the status quo, none of the parties should have the benefit of the fruits of the judgement in the Former Case pending trial of the Current Case, and accordingly the Appellate Court ordered Defendants/Respondents to pay any sums of money received pursuant to the judgment in the Former Case into a "fixed deposit US currency account at First Global Bank issued in the joint names of the parties hereto pending determination of this claim or further order"by March 4, 2014, in addition to being enjoined from dealing with, disposing and/or otherwise dissipating any property obtained pursuant to the judgement handed down in the Former Case.

Arguably, the Appellate Court's view with respect to the preservation of the status quo is the lesser of the evils, as it appears to have tried to adopt a position that would in effect preserve the fruits of the judgement of the Former Case for the ultimate victor of the Current Case, and further expressed the view that if the Defendants/Respondents ultimately prevail as the victors of the Current Case, that any interest accrued on the sum placed in the joint escrow account would adequately compensate them. However, having considerable experience with the management of many complex cross-border receiverships, I find myself conflicted as to whether the Appellate Court has the better view insofar as what must obtain in order for the status quo to be preserved pending the outcome of the Current Case.What was not considered was that, not only will the Receiver's principal and interest payments to the Debenture Holders continue to compound pending the outcome of the Current Case, the Receiver may well have a substantial opportunity cost in respect of such funds, such as using the funds to negotiate reduced costs of products, services and other payables required for the Palmyra's operations by paying in lump sum, or in advance, and/or using such funds in order to realise some of the Palmyra's assets, or make other investments, in order to discharge the obligations to the Debenture Holders. Being unable to take advantage of such opportunities will by no means be offset by the pittance of interest earned on a US Dollar denominated fixed deposit account, nor could it be said that he is likely to be in substantially the same position at the end of the Current Case as he was immediately before it commenced (assuming that the Defendants prevail as the victors of the Current Case).

It must be even harder for the Receiver to accept the Appellate Court's ruling in light of the fact that it is very unlikely that JADE will prevail as the victor in the Current Case. In the words of Justice Mangatal: "when examined closely, it is my assessment that the case of the Defendants is far stronger than that of Jade." Whether or not it was appropriate for the learned Judge to have so opined, for the very same reasons stated in my previous article, I feel compelled to say that I agree with her in this regard.

Please note that the content of this article consists of the author's opinions and interpretations, and is not to be construed as constituting legal advice. The content of this article is also intended to be synopsised in nature and not in any way a comprehensive review of the matters referred to herein.

LOOK OUT FOR THE NEXT "LEGAL EASE" ARTICLE ON FRIDAY, MARCH 28, 2014

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