On 12 November 2021, the Supreme Court of Bermuda issued its written judgment in NKWE Platinum Limited v (1) Glendina Pty Limited and Ors (2) Genorah Resources (Pty) Limited. The Court’s ruling both provides helpful procedural guidance to practitioners on declaratory relief, and squarely addresses the legal effect of an amalgamation under sections 104 to 109 of Bermuda’s Companies Act 1981.
NKWE’s principal asset is a majority interest in mining rights in South Africa. Glendina and its co-defendants are former minority shareholders in NKWE whose shares were cancelled following an amalgamation. They have brought an appraisal claim in separate Bermuda proceedings. Genorah is a company incorporated in South Africa and co-owner of the rest of the mining rights.
A dispute arose between the parties about the effect of the amalgamation on the mining rights: Genorah and Glendina argued that the rights had been transferred to a new entity (the amalgamated company) as a result of the amalgamation. As NKWE had failed to obtain the South African mining authority’s consent to the transfer, the effect was NKWE’s rights were lost.
Accordingly NKWE started proceedings in this jurisdiction seeking a declaration as to the legal effect of an amalgamation under sections 104 to 109 Companies Act 1981: was there a transfer of the mining rights and was the amalgamating company dissolved? NKWE obtained permission to serve the defendants out of the jurisdiction (in Australia and South Africa). The defendants made clear that they would not participate in the Bermuda proceedings.
Soon after the Bermuda proceedings began, Genorah in turn started proceedings in South Africa against NKWE. Genorah asked the South African court to determine the same question: whether under Bermuda law the effect of the amalgamation was to transfer the mining rights and whether the amalgamating company was dissolved. Although not initially a party to the South African proceedings, Glendina applied to intervene in them.
Granting a Declaration where the Defendant Doesn’t Participate
Historically courts would not grant declaratory relief in circumstances where all parties were not present to argue the disputed legal point. The approach has now changed: clarification has come from the English courts in a number of recent decisions.
In one such decision, Bank of New York Mellon v Essar Steel India, Marcus Smith J confirmed that there was no absolute prohibition against the Court making a declaration in circumstances where the defendant elects not to participate in the proceedings. The Court held that it was not the claimant’s fault that the defendant had chosen not to engage with the proceedings despite being properly served and that “it would be invidious and wrong to allow a defendant’s non-participation to prevent the making of declarations”.
The Honourable Chief Justice Hargun in NKWE relied on the relevant principles set out in Bank of New York Mellon in exercising its discretion whether to make a declaration absent a defendant. In summary the relevant principles are that: there must, in general, be a real and present dispute between the parties before the court as to the existence or extent of a legal right between them; each party must, in general, be affected by the court’s determination of the issues concerning the legal right in question; the fact that the claimant is not a party to the relevant contract in respect of which such a declaration is sought is not fatal to an application for a declaration, as long as the claimant is directly affected. However in such cases the court ought to proceed very cautiously when considering whether to make the declaration sought; the court will be prepared to give declaratory relief in respect of a ‘friendly action’ or where there is an ‘academic question’, if all parties so wish, even on ‘private law’ issues; the court must be satisfied that all sides of the argument will be fully and properly put. It must, therefore, ensure that all those affected are either before it or will have their arguments put before the court; and in all cases, assuming that the other tests are satisfied, the court must ask: is this the most effective way of resolving the issues raised? Here the court must consider what other options there are of resolving the issue.
Applying these principles in NKWE, the Chief Justice considered that he should exercise his discretion to grant the declaratory, and ancillary injunctive, relief sought.
The Chief Justice felt that notable among these principles was the requirement that all sides of the argument will be fully and properly put, as the Court was being asked to make legal findings in the absence of submissions from both sides. However, as set out below, the Court was satisfied that it had been shown both side’s legal arguments in the form of the expert evidence that had been put before the South African Court.
The judgment thereby provides welcome clarification as to the correct approach to granting declaratory relief where, as often happens, defendants who are out of the jurisdiction have been properly served and yet decide not to participate.
Effect of an Amalgamation Under the Companies Act 1981
The statutory provisions dealing with the amalgamation of companies are set out in sections 104 to 109 Companies Act 1981. In NKWE the Chief Justice noted that the legal effect of amalgamation under the statutory provisions has been previously considered by Meerabux J in Clark v Energia Global International Ltd. Meerabux J found (obiter) that sections 104 to 109 were derived from Canadian legislation and specifically the Canada Business Corporations Act.
In NKWE the Chief Justice found that the Canadian jurisprudence in relation to the legal effect of an amalgamation was firmly rooted in the reasoning of Dickson J in the decision of the Supreme Court of Canada in 1975’s R v Black & Decker Manufacturing, citing inter alia the following important passage of the judgment:
“The juridical nature of an amalgamation need not be determined by juridical criteria alone, to the exclusion of consideration of the purposes of amalgamation. Provision is made under the Canada Corporations Act and under the Acts of the various provinces whereby two or more companies incorporated under the governing Act may amalgamate and form one corporation.”
The ruling continued: “The purpose is economic: to build, to consolidate, perhaps to diversify, existing businesses; so that through union there will be enhanced strength. It is a joining of forces and resources in order to perform better in the economic field. If that be so, it would surely be paradoxical if that process were to involve death by suicide or the mysterious disappearance of those who sought security, strength and, above all, survival in that union.”
“But whatever the motive, the end result is to coalesce to create a homogeneous whole. The analogies of a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands have been suggested by others,” It concluded.
This passage is important as it sets out the underlying practical purpose for amalgamation and provides a striking metaphor for what happens to the amalgamating companies, and their assets, in this process.
This passage has been cited in numerous Canadian and New Zealand authorities since, all of whom have applied the same interpretation to the legislation on amalgamation: see: see Rossi v McDonald’s Restaurants of Canada Limited ; Loeb Inc. v Cooper ; Carter Holt Harvey Ltd v McKernan  and in Elders New Zealand Ltd v PGG Wrightson Ltd .
In NKWE, the Chief Justice held that the Courts have consistently rejected the contentions, such as those made by the Glendina and Genorah in the South African proceedings, that an amalgamation results in a ‘new’ amalgamated company; or that the amalgamation necessarily means that the property of the amalgamating companies has to be ‘assigned’ to the amalgamated company; or the amalgamation necessarily means that the property of the amalgamating companies has to be ‘transferred’ to the amalgamating company.
The judgment in NKWE is thereby an important and authoritative statement of the effect of amalgamation under sections 104 to 109 Companies Act 1981 on the questions of transfer and the status of the amalgamating companies post amalgamation.
It also provides welcome guidance for Bermuda practitioners on how the Court will consider applications for declaratory relief in the absence of the defendant. Where a refusal by overseas defendants to accept the Bermuda Court’s jurisdiction is not uncommon, this guidance should prove useful.
This article was originally published in Commercial Dispute Resolution Magazine.