We are often advised against leaving things to the last minute (and for good reason). However, for those working in the financial services industry, sometimes the “last minute” simply cannot be avoided. Often the “last minute” is also the first minute a task can be completed. Regardless of time available, we of course also need to get the job done right.
The themes of getting things done in the last minute and getting things done the right way feature throughout the below discussion of recent jurisprudence from the Cayman Islands Grand Court and an update from the Cayman Islands Monetary Authority in relation to anti-money laundering regulations.
As we move closer to the end of 2018 and towards end of year deadlines, at least we can take comfort that holiday season (and a chance to reflect on our accomplishments over the year) is not far away.
Settling litigation on the courthouse steps
“Settling on the courthouse steps” is a common expression which usually elicits images of slightly disheveled (and perhaps sleep-deprived) lawyers signing documents on the back of a briefcase early in the morning before being summoned to appear before a judge.
While it is true that many settlements happen immediately before a court hearing takes place, the phrase “settling on the courthouse steps” could equally apply to parties settling not on their way in but on their way out of court. In complex matters, judges will often reserve their decisions for weeks or months. This may give parties further time to settle disputes after the hearing, but before judgment is given. There are good reasons that many disputes are only resolved at the last minute. Understandably, it is sometimes only after each party has had an opportunity to review and consider each other’s evidence and arguments (and perhaps witness the judge’s approach to the dispute) that the parties have enough information to reach settlement.
On two recent occasions, the court has been asked to consider whether it should release judgments in circumstances where the parties had reached settlement after trial:
- In the Aug. 30, 2018, unreported judgment of Justice Ingrid Mangatal in Toby v Allianz Global Risks US Insurance Company Cause no. FSD 152 of 2013, the parties announced to the court that they were at an advanced stage of settlement only after a 200-page draft judgment had been circulated to the parties (and after over four years of litigation). The parties then asked the court not to publish the judgment.
- In the Sept. 13, 2018, unreported judgment of Justice Robin McMillan in In re Torchlight Fund L.P. Cause no. FSD 103 of 2014, the court was asked to consider whether it could deliver judgment notwithstanding that the parties reached settlement after the hearing had been completed, but before the parties had received a copy of the judgment.
Both Justice McMillan and Justice Mangatal took into account the comments of Lord Neuberger MR in Barclays Bank v Nylon Capital LLP  All ER (Comm) 912 at paragraph 74: “Where a case has been fully argued, whether at first instance or on appeal, and then it settles or is withdrawn or is in some other way disposed of, the court retains the right to decide whether or not to proceed to give judgment. Where the case raises a point which it is in the public interest to ventilate in a judgment, that would be a powerful reason for proceeding to give judgment despite the matter having been disposed of between the parties. Obvious examples of such cases are where the case raises a point of potential general interest, where an appellate court is differing from the court below, where some wrongdoing or other activity should be exposed, or where the case has attracted some other legitimate public interest.”
Justice Mangatal and Justice McMillan both reached the same conclusion. In exercising the court’s discretion to release the judgment, Justice McMillan noted his concern “in this day and age with the paramount aspect of public access to justice.” Justice Mangatal’s decision to publish also highlights the importance of judgments to the wider public. While the wishes of the parties are to be taken into account by the judge, they are not an overriding factor, particularly in circumstances where a trial is concluded. Suppressing judgments prevents the court from providing useful guidance to the public and the legal profession.
A competing concern is that releasing judgments after settlement may discourage parties from settling their differences at a late stage. However, the court must balance this against the importance of public access to justice. These judgments serve as clear notice that if parties to Grand Court proceedings delay settlement until after a hearing is concluded, they may be too late to prevent release of a judgment. At such time, the decision of whether or not to publish will be in the court’s hands.
Conyers Dill & Pearman is Cayman Islands counsel for Torchlight Fund L.P.
Extension of time for notification of AML officers
As avid readers of Law Talk will no doubt be aware, financial services providers are now required to appoint suitably qualified management-level natural persons as anti-money laundering compliance officer, money laundering reporting officer and deputy money laundering reporting officer by Sept. 30, 2018.
By notice dated Sept. 24, 2018, the deadline for notifying the Cayman Islands Monetary Authority of the appointment by a regulated fund of AML officers has been extended to Dec. 31, 2018. Note that this does not change the deadline for appointment of AML officers by regulated funds which remains Sept. 30, 2018.
Each regulated fund is, therefore, required to complete the requisite form for each appointee and submit it via the authority’s REEFS portal by Dec. 31, 2018. Unregulated funds also have an obligation to appoint AML officers and should have these appointments in place by Dec. 31, 2018. However, unregulated funds are not at this point required to confirm such appointments to the authority.
For those leaving things to the last minute, it is important to at least make sure that the above dates are kept in mind if relevant to your organization.
A reminder to funds to follow their own formalities
Last year, Lord Jonathan Mance stated, “the path to redemption is not always smooth” in the Privy Council’s judgment in Pearson -v- Primeo Fund  UKPC 19. Depending on your perspective, a recent Grand Court judgment may have thrown another rock in the road to redemption, or (on a more optimistic view) provided guidance on how to ensure the path is clear.
In the unreported judgment delivered July 17, 2018, In the matter of Ardon Maroon Asia Master Fund (in official liquidation) Cause no. FSD 18 of 2015, Justice McMillan found that in a master-feeder fund structure, a feeder fund redemption was ineffective on the basis that there was a failure by the feeder fund to serve a further redemption notice on the master fund in accordance with the procedures set out in the master fund constitutional documents.
Ardon Maroon Asia Dragon Feeder Fund was a feeder fund into Ardon Maroon Asia Master Fund Limited. Under this structure, investors would subscribe for shares in the feeder fund and the feeder fund would use this capital to subscribe for shares in the master fund. Both the feeder fund and master fund appointed the same service providers, including the investment manager, administrator and directors.
An investor in the feeder fund submitted a redemption notice in 2014. The feeder fund accepted the notice and accordingly sought funds from the master fund to meet the redemption. The master fund was unable to comply, as its assets were illiquid. Both the master fund and feeder fund were subsequently put into liquidation.
The investor in the feeder fund filed a proof of debt with the feeder fund which was approved. Correspondingly, the feeder fund filed a back-to-back proof of debt with the master fund. The joint official liquidators (JOLs) of the master fund rejected the feeder fund’s proof of debt.
The master fund JOLs asserted that the redemption procedure between the feeder fund and master fund had not been followed. The feeder fund had failed to serve a written redemption notice on the master fund as required under the fund’s constitutional documents. The rejection of the feeder fund’s proof of debt by the master fund JOLs was appealed to the Grand Court.
Justice McMillan found that the process set out in the constitutional documents had not been followed in order for an effective and valid redemption to take place. Further, the directors did not have the authority to disregard the constitutional procedures in relation to redemption. Even if they did have this authority, the judge found that they did not make a determination to change procedures, nor was there a valid waiver of these procedures. As a result, the Grand Court rejected the feeder fund’s appeal.
This judgment is a salient reminder that, although it may be operationally helpful for common directors to be appointed across feeder and master fund structures, funds must be careful to guard against any relaxing of constitutionally required formalities. Particularly, clear corporate records must be maintained by separate legal entities documenting any actions and resolutions of the directors.
Simply put, the redemption processes set out in legal documents must be followed.
Regardless of the amount of time that may be available to undertake these processes, they must be done the right way.