Greater scrutiny of applications to serve proceedings out of Bermuda is inevitable following a ruling by the island's Supreme Court. The decision also highlights an apparent gap in Bermuda's rules. Chief Justice Ian Kawaley in The Majuro Investment Corporation v Vasile Timis and others [2015] SC (Bda) 87 Civ set aside a previous order granting the plaintiff permission to serve proceedings on overseas defendants under Order 11 rule 1(1)(c) of the Rules of the Supreme Court of Bermuda (RSC) for, among other things, showing no "viable adverse claim" against the so-called anchor defendant.

In reaching his decision, the Chief Justice considered both whether the applicant had met the requirements for permission under that particular gateway of the RSC and whether it had, more broadly, satisfied the court that this was an appropriate case for leave to serve the writ out of the jurisdiction, in the exercise of its discretion. 

In practical terms, the decision, which was handed down on 4 December 2015, makes it inevitable that applications brought on the same ground will no longer be given only cursory consideration by the Court. The Chief Justice recognised as much in his decision:

"...Order 11 rule 1(1)(c) has not to my knowledge been subjected to similar scrutiny in the local courts before. I have myself without adverting to the principles relied upon by the First Defendant here granted many ex parte orders under this rule which have never been challenged."

Order 11 rule 1(1)(c) contemplates service out of the jurisdiction where service of a claim has already been effected against one defendant (in or out of the jurisdiction) and another defendant is a "necessary or proper" party to that claim. Under Order 11 rule 4(1)(d), there must also be a "real issue between the plaintiff and the anchor defendant." whom is to be served.

In Majuro, there was no question of the anchor defendant being in an adversarial position to the plaintiff because it was a derivative claim, and the so-called anchor defendant was the company on whose behalf the claim was brought. The fact that Bermuda was arguably the appropriate forum for a claim to be heard did not displace the onus placed on the plaintiff to establish that bona fide, adversarial proceedings were on foot. 

On the facts that can be gleaned from the Majuro decision, the plaintiff alleged wrongdoing against the foreign defendants for whom permission for service was sought. One of those defendants was said to be a former executive of the anchor defendant, a company incorporated in Bermuda, and counsel for the plaintiff submitted that Bermuda ought to assert "broad jurisdiction over the internal affairs of" its companies.

In a footnote to his decision, the Chief Justice remarked: "A gap admittedly exists where a company is wholly or substantially managed from outside Bermuda so that the misconduct complained of does not afford access to the local court through an alternative jurisdictional gateway." The case thus highlights an apparent deficiency in
Bermuda's rules.

In contrast to Bermuda, other jurisdictions, including the Cayman Islands and other islands in the Caribbean, have put in place legislation making it possible for claims to be served on directors and officers (wherever they may be located) of companies incorporated within their jurisdictions, where the claim relates to the company or its actions.

It is an interesting time for this apparent gap to be highlighted as there is growing debate amongst Bermuda insolvency professionals about whether Bermuda's laws (in contrast to many other jurisdictions) allow for companies to set the threshold for director liability too high. Under the Bermuda Companies Act, a company may indemnify its directors and officers from liability except in cases of fraud or dishonesty. The indemnity threshold was raised from wilful default to fraud and dishonesty in the 1990s.

Taken together, the long-standing indemnity provision in the Companies Act and this now apparent gap in Order 11 rule 1(1)(c) can only compound the difficulties that claimants face in pursuing directors' and officers' liability claims in the Bermuda court.

Whilst it remains to be seen what legislative reforms may materialise, what is clear is that claims against a Bermuda company and its directors resident outside of the jurisdiction may now have to be pleaded in such a way as to bring the claim within one of the other jurisdictional gateways. This is likely to require the claimant to make a connection between the subject matter of the claim and the jurisdiction, or pursuant to certain Bermuda statutes. In the absence thereof, leave to serve the claim on foreign directors and officers is likely to be refused. This has the potentially unsatisfactory consequence of putting directors of Bermuda companies with administration largely outside of the island beyond the reach of the Bermuda court.

This article was first published i the INSOL International Electronic Newsletter, February 2016. 

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