When will the Bermuda Court grant a stay because of related foreign proceedings?

When will the Bermuda Court grant a stay because of related foreign proceedings?

A common tactical ploy by defendants in international disputes is to argue that whichever court they find themselves before should defer making a decision until a court in another jurisdiction has heard the matter. Sometimes it is just in the hope of putting things off long enough that the Plaintiff abandons the claim, deterred by the delay and costs.

In Griffin Line General Trading LLC v (1) Centaur Ventures Ltd and (2) Templar Capital Ltd [2023] SC (Bda) 24 Civ. (31 March 2023) the Bermuda court was asked to grant a stay to allow related proceedings to conclude in South Africa.

Background facts

The background facts are complex. The dispute arose from alleged wrongdoing in South Africa, connected to the Gupta family.

Griffin Line had loaned money to Centaur Ventures (CVL) which was partly unpaid, with around $104m outstanding. CVL had coal trading contracts with Optimum Coal Mine (Pty) (OCM) which OCM failed to deliver on, worth around $74m. This gave CVL a claim against OCM (the OCM Claim).

An agreement to sell the OCM Claim to an unrelated third party Lurco for $73m lapsed.

Mr McGowan, a director and shareholder of CVL and sole director of Templar Capital Ltd (TCL), then assigned the OCM Claim from CVL to TCL for around $11m, alleged by Griffin Line to have been a gross undervalue. At the date of the assignment, CVL knew (and therefore TCL must also have known given Mr McGowan’s position as its sole shareholder and director) that CVL could not pay outstanding amounts owed to Griffin Line and that the OCM Claim was CVL’s only significant asset with which it could repay Griffin Line.

The Bermuda proceedings were commenced by Griffin Line seeking an order that the assignment of the OCM Claim should be set aside pursuant to s36A-E of the Conveyancing Act 1983 on the basis it was at an undervalue.

TCL sought a stay of the Bermuda proceedings while South African authorities pursued a claim to preserve (i.e. freeze) the OCM Claim on the basis it was the proceeds of crime. The preservation orders are a precursor to forfeiture to the South African state. The South African authorities allege that the loans (and therefore the OCM Claim) were part of a money laundering scheme by the Gupta family and their associates to conceal funds stolen from the South African state.

The issues

TCL argued for the stay on the following basis:

• It was contrary to the overriding objective set out at Rule 1 of the Rules of the Supreme Court which requires the Bermuda Court to allocate its resources appropriately and to deal with cases, expeditiously, fairly, and in a way that saves expense.
• If the South African proceedings result in the OCM Claim being forfeited to the state, the subject matter of the Bermuda proceedings will no longer be held by TCL and therefore the Bermuda proceedings will have been a complete waste of time, money and resources.
• If the South African proceedings do not result in forfeiture then the Bermuda proceedings could resume with the benefit of the factual findings made in the South African proceedings which may be relevant to the conduct of Griffin Line and the value of the OCM Claim.

The Court refused the stay. Chief Justice Hargun agreed that the Court has an inherent jurisdiction to stay proceedings for case management purposes pursuant to s12 and s18 of the Supreme Court Act 1905, Justice Kawaley in Re Celestial Nutrifoods Limited (In Liquidation) [2017] Bda LR 11 but that this discretionary power required the consideration of the following principles:

1. A stay should only be granted in rare and compelling circumstances;
2. Exceptionally strong grounds are required to justify a stay on case management grounds where the parties have conferred exclusive jurisdiction to the Bermuda court;
3. A stay should not allow the applicant to achieve “by the back door” a result that would not otherwise be permitted;
4. A stay will generally not be appropriate where the other proceedings will not bind the parties to the action which has been stayed or finally resolve all the issues in the case to be stayed, or the parties are not the same; and
5. The Court’s function is to decide cases, not decline to do so and so access justice requires that properly pleaded cases should proceed.

The ruling relied heavily on the fourth principle (that the other proceedings should bind all the parties and finally resolve all the issues), his reasoning was as follows:

• The Bermuda proceedings concerned the issue of whether the OCM Claim was assigned at an undervalue, whereas in South Africa the issue was whether the OCM Claim should be forfeited because of wrongdoing. These issues were therefore different.
• Griffin Line were also not a party to the South African proceedings.
• Even if the OCM Claim was forfeited by TCL, Griffin Line might have other remedies against CVL and TCL or their directors so it is not a waste of time.
• Griffin Line has been deprived of significant funds by Mr McGowan and therefore would suffer prejudice by the delay.

Comment

The case gives a useful clarification of when a stay is available in Bermuda and should encourage plaintiffs where there are issues the Bermuda courts can usefully resolve. It is a notable decision because whereas in Re Celestial Nutrifoods the Court had been asked to lift a stay which had been granted while a liquidation continued overseas so that proceedings could commence in Bermuda, here the Court considered the issues when a new stay was sought on the basis of parallel proceedings.