This application formed part of multi-jurisdictional legal battle between the parties in Bermuda and Brazil over the last four years.
The Enforcement Action
In Bermuda, these winding-up proceedings followed proceedings to enforce a Brazilian arbitration award obtained by the Petitioner against the Respondent (“the Company”) in 2013 requiring the Company to pay sums in excess of US$73 million (“the Award”) in Civil Jurisdiction 2013:No.84.
The Winding-up Proceedings
The main events in the winding-up proceedings prior to this action were as follows:
In June 2017, the Company sought an Order:
At the hearing, counsel for the Petitioner had no instructions to oppose the application to dismiss, but only to address the Court on the issue of costs. Accordingly, Kawaley CJ dismissed the Petition on 19 September 2017, but reserved judgment on the legal basis for the dismissal.
The main question in controversy on costs was not whether the Petitioner was liable to pay the Company’s costs, but whether the Petition was dismissed on one of three potential grounds, each of which would result in potentially different costs consequences:
Summary of Judgment
The Court rejected the Company’s argument that the Petition was presented for an improper purpose (i.e. to prevent the Company from attacking the Award) because the argument was “evidentially and legally fundamentally unsound”.
Kawaley CJ concluded that the appropriate ground on which to base the dismissal of the Petition was that its further prosecution became an abuse of process after 19 December, 2013. “The validity of both the Enforcement Order and statutory demand was parasitic on the effectiveness of the underlying Award, which was suspended on that date under the curial law of the arbitration.”
He concluded that after 19 December 2013 “the Petitioner was determined to continue to prosecute the Petition, even though the legal basis for its standing to do so (the Enforcement Order and the statutory demand) had already (as the Court of Appeal held) effectively fallen away.”
It followed that the Company was entitled to its costs in relation to the Petition (including the costs of the application to dismiss) starting from 20 December, 2013.
With regard to whether the costs should be awarded on an indemnity or a standard basis, Kawaley CJ concluded that in this case they should be awarded on a standard basis. He said “The present local practice appears to be that indemnity costs are awarded for serious misconduct rather than as a general rule because an abuse of process has been made out.” Finding no serious misconduct in this case, he awarded costs on a standard basis in accordance with local practice.
However, he offered the following opinion on the approach to be followed in future cases: “In my judgment, the traditional local approach to indemnity costs in relation to abusive winding-up proceedings is far too lenient. It serves as no real deterrent against the misuse of the Court’s winding-up jurisdiction and provides no meaningful support to the obligation of the Court and the parties to further the overriding objective. I see no reason why the English approach…should not in future cases be followed here. Where further prosecution or the presentation of a petition is restrained on abuse of process grounds, the usual rule should be that costs are awarded against the actual or prospective petitioner on an indemnity basis.”
To continue reading full articles in PDF format:
Emerging Markets Special Solutions 3 Ltd -v- LAEP Investments Ltd