Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 IN THE GRAND COURT OF THE CAYMAN ISLANDS 1 HOLDEN AT GEORGE TOWN, GRAND CAYMAN 2 3 4 CAUSE NO: 269 of 2009 5 6 7 BETWEEN: 8 9 10 TALISMAN CAPITAL ALTERNATIVE 11 INVESTMENT FUND LTD. 12 13 Plaintiff 14 15 AND: 16 17 18 SGC WORLDWIDE LTD. 19 20 Defendant 21 22 23 24 Appearances: Mr. Jeremy Walton & Ms. Marit Hudson of 25 Appleby for the Plaintiff 26 27 Ms. Cherry Bridges of Ritch & Conolly 28 for the Defendant 29 30 31 Before: Hon. Justice Henderson 32 33 34 Heard: August 25th, 2010 35 36 37 38 39 40 41 42 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 AMENDED JUDGMENT 1 2 3 4
The Plaintiff Talisman Capital Alternative Investment Fund Ltd. 5 (“Talisman”) asks for summary judgment on its claim in debt. 6 The Defendant SGC Worldwide Ltd. (“SGC”) does not deny the 7 existence of the debt but says that it is not due and owing at 8 present because of an oral agreement it made with the lender and 9 that Talisman, who acquired the rights of the creditor by 10 assignment, is unable to prove that the assignments are valid and 11 enforceable. 12 13 Evidence 14 15
The evidence on behalf of Talisman is given by Geoffrey Tirman, 16 a director of the company. Under a Master Financing and 17 Security Agreement (“the Master Agreement”), SGC agreed to 18 borrow from Westford Special Situations Master Fund, L.P. (“the 19 Lender”). The Lender made a series of term loans under the 20 Master Agreement to SGC which were evidenced by promissory 21 notes. Various events of default were defined in the Master 22 Agreement. 23 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 1
The Master Agreement provided that the Lender had the right: 2 “… without the consent of or notice to [SGC], to sell, 3 transfer, assign, negotiate, or grant participation in all 4 or any part of, or any interest in, [the Lender’s] 5 obligations, rights and benefits under [the Master 6 Agreement] …” 7 8
Under an agreement executed as of April 30th, 2008 the Lender 9 assigned its interest in the promissory notes in the total amount of 10 US $13,600,000 dollars to Capital Strategies Fund Ltd. (“the first 11 assignment”). By an agreement executed as of May 23rd, 2008 12 Capital Strategies Fund Ltd. sold the promissory notes to Surrey 13 Muse Trading Ltd. (“the second assignment”). Under a third 14 agreement executed as of March 5th, 2009 Surrey Muse Trading 15 Ltd. sold the same promissory notes to a company described in the 16 agreement as “Talisman Capital Alternative Strategies Fund Ltd.”. 17 Talisman seeks to assert rights acquired under this third 18 assignment. 19 20
Shortly after taking the assignment, Talisman served (on March 27, 21 2009) a notice of event of default on SGC requiring it to repay the 22 whole of the principal represented by the promissory notes 23 (US $13,600,000) together with interest as at that date of 24 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 US $2,436,667. No payment has been made. The evidence 1 establishes that, if the terms of the Master Agreement represent the 2 entirety of the agreement between SGC and the Lender, SGC is in 3 default and the amount claimed is owing. 4 5
SGC was in the gaming business. In its Defence SGC alleges that 6 it entered into a “partnership” with Mr. Steve Stevanovich (“Mr. 7 Stevanovich”) under which he would arrange for funding for the 8 development and expansion of SGC’s business activities in Latin 9 America and elsewhere. The Defence says that Mr. Stevanovich 10 decided to procure funding for SGC from the Lender in the form of 11 short-term promissory notes. Inconsistently, the Defence also 12 asserts that “no admission is made as to the amount or date of any 13 loan that was paid to [SGC] by [The Lender]”. The uncontested 14 evidence, however, establishes the fact of the loans and the lack of 15 repayment. SGC says that Mr. Stevanovich agreed to roll over the 16 short-term funding “from time to time,” was not “entitled to 17 procure an assignment by [The Lender] to a person outside the 18 partnership structure,” and was not authorized to permit a demand 19 for repayment to be made by the Lender. It is also alleged that 20 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Mr. Stevanovich told Paul Mouttet (“Mr. Mouttet”) “to forget 1 about the interest” stating that, as SGC became successful, he 2 would “simply take more shares.” 3 4
Mr. Mouttet, in his affidavit evidence, expands upon the nature of 5 the oral agreement. He says that it is inapt to describe it, as 6 Talisman has in argument, as an agreement for “perpetual 7 funding.” According to Mr. Mouttet, the two men agreed that 8 profits from the gaming business would be used to repay interest 9 first and then the principal. The SGC was not profitable. 10 Mr. Mouttet says that Mr. Stevanovich agreed orally that the term 11 loans would represent a stop gap measure until he could arrange 12 longer term financing. This was going to happen “later.” It was 13 expected that Mr. Stevanovich’s shareholding would be re- 14 calculated based upon “how much time it would take to repay the 15 debt.” 16 17
Mr. Stevanovich flatly contradicts Mr. Mouttet. He says, 18 essentially, that the Master Agreement sets out clearly and fully the 19 terms of the lending agreement. He denies that there was a 20 partnership or that he agreed to provide funding beyond that which 21 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 he had already arranged. He denies agreeing to waive the interest 1 payments in exchange for more shares in SGC. 2 3
Mr. Stevanovich is a director of the general partner of the Lender. 4 He points out that the Lender had a one third shareholding in SGC 5 and it would have been commercially unwise for it to agree to 6 provide all of the funding for an indefinite period of time. He 7 obtained a personal guarantee from Mr. Mouttet of SGC’s 8 obligations under the Master Agreement, a fact which is somewhat 9 inconsistent with the sort of partnership described by Mr. Mouttet. 10 He also obtained from Mr. Mouttet a promissory note dated 11 September 27, 2007 representing certain interest payments which 12 were owing but not paid. 13 14
In December, 2008 there were open discussions between the 15 parties with a view to reaching a global settlement of various 16 financial transactions, including the repayment by SGC of its 17 indebtedness. A draft term sheet arising from these conversations 18 is in evidence before me; it contemplates (at least on the part of the 19 Lender) that the term loans would be repaid as part of the overall 20 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 settlement. Moreover, no additional shares in SGC were ever 1 transferred to the Lender. 2 3
The Master Agreement supports fully the position of Talisman and 4 Mr. Stevanovich; it offers no support whatsoever for the oral 5 agreements relied upon by SGC. There is no documentary 6 evidence at all before me which would support the existence of an 7 agreement to continue to roll over the term loans, to provide 8 funding for an unspecified period of time, to restrict an assignment 9 to an assignee within the “partnership structure”, or to waive the 10 payment of interest in exchange for more shares. Moreover, the 11 Master Agreement contains clause 12.6 to this effect: 12 13 “All amendments to this agreement must be in 14 writing signed by both Lender and Borrower. This 15 Agreement and the Loan Documents represent the 16 entire agreement about this subject matter, and 17 supercede prior negotiations or agreements. All prior 18 agreements, understandings, representations, 19 warranties, and negotiations between the parties about 20 the subject matter of this Agreement and the Loan 21 Documents merge into this Agreement and the Loan 22 Documents.” 23 24 25 26 27 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Analysis 1 2
To deprive SGC of its right to a full trial, I must be satisfied that 3 there is “no fairly arguable point to be argued” on its behalf: 4 Anglo-Italian Bank v. Wells (1878) 38 LT 197, per Jessel, MR. 5 Our Court of Appeal has looked recently in some detail at the 6 proper approach to a summary judgment application where there is 7 (as here) conflicting or competing affidavit evidence. In Merren v. 8 Cayman National Bank [2008] CILR 428, Vos, J.A. said that: 9 10 “The proper approach to an O.14 application, where 11 there is conflicting or competing affidavit evidence, 12 was settled in England in National Westminster Bank 13 plc v. Daniel [1993] 1 WLR 1453 in which Glidewell, 14 L.J. reviewed the history, and concluded by applying 15 the dictum of Ackner, L.J. in Banque de Paris et des 16 Pays-Bas (Suisse) S.A. v. Costade Naray [1984] 1 17 Lloyd‟s Rep. 21 where he said [1984] 1 Lloyd‟s Rep. 18 at 23): 19 20 “It is of course trite law that O. 14 proceedings 21 are not decided by weighing the two affidavits. 22 It is also trite that the mere assertion in an 23 affidavit of a given situation which is to be the 24 basis of a defence does not, ipso facto, provide 25 leave to defend; the Court must look at the 26 whole situation and ask itself whether the 27 defendant has satisfied the Court that there is a 28 fair or reasonable probability of the 29 defendant‟s having a real or bona fide 30 defence.” 31 32 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Glidewell, L.J. himself concluded [1993] 1 W.L.R. at 1 1457): 2 3 “I think it right to ask, using the words of 4 Ackner, L.J. in the Banque de Paris case, at 5 p. 23, „Is there a fair or reasonable probability 6 of the defendants having a real or bona fide 7 defence?‟ The test posed by Lloyd, L.J. in the 8 Standard Chartered Bank case, Court of Appeal 9 (Civil division), Transcript No. 699 of 1990 „Is 10 what the defendant says credible?‟, amounts to 11 much the same thing as I see it. If it is not 12 credible, then there is no fair or reasonable 13 probability of the defendant having a defence” 14 … 15 …In the Cayman Islands, there are two reported first- 16 instance cases to which we have been referred. In 17 Panier S.A. v. Burns 2002 CILR N[6] Graham, J. 18 expressly applied National Westminster Bank plc v. 19 Daniel, while in Zuiderent v. Christiansen 2004-05 20 CILR N[23] Sanderson, J. purported to apply Panier 21 S.A. v. Burns, in suggesting that the appropriate test 22 should be applied in two stages: (i) Is what the 23 defendant says credible? And (ii) Has he shown that 24 there is a fair and reasonable probability that he has a 25 real bona fide defence? 26 27 In my judgment, the test is not really in two stages, 28 because the two stages, as Glidewell, L.J. pointed out 29 in National Westminster Bank plc v. Daniel, amount to 30 much the same thing, because ([1993] 1 W.L.R. 1457) 31 “if [the evidence] is not credible, then there is no fair 32 or reasonable probability of the defendant having a 33 defence.” No harm would be done, it seems to me, by 34 adopting the two-stage approach, even if, in reality, a 35 negative answer to the first question would inevitably 36 lead to a negative answer to the second question. For 37 my part, however, I would prefer to regard the test as 38 simply requiring the court to ask whether the 39 defendant has shown a fair or reasonable probability 40 that he has a real, or bona fide, defence. It can be 41 noted that the words used in Daniel and Banque de 42 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Paris were “real or bona fide” not “real bona fide”. 1 Accordingly, by citing Zuiderent v. Christiansen, it 2 seems to me that, despite the slightly different 3 formulation I have indicated above, the judge had in 4 mind, substantively, the right test. The contrary has 5 not been argued before us.” 6 7 8
Thus, I must ask whether SGC has a real or bona fide defence. 9 That depends upon whether the evidence of Mr. Mouttet is 10 credible, not in the sense that I believe it, but in the sense that there 11 is a reasonable prospect of a trial judge believing it when the trial 12 has concluded. 13 14
I am satisfied that the alleged oral agreements which depend, as 15 they do, solely upon the uncorroborated evidence of Mr. Mouttet 16 and which are flatly contradicted by all of the loan documentation 17 and the Master Agreement do not amount to a real or bona fide 18 defence. In addition, I share the sentiment expressed by Mr. 19 Stevanovich that the alleged oral agreements are inconsistent with 20 a number of actions by SGC after the Master Agreement was 21 executed, including Mr. Mouttet’s personal guarantee and the 22 promissory note of Sept. 27, 2007. The note represented unpaid 23 interest; the alleged agreement to waive interest occurred in the 24 summer of 2007. 25 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 1
A third objection by SGC can be disposed of briefly. Mr. Mouttet 2 asserts (in paragraph 40 of his second affidavit) that any money 3 which may be owing under the Master Agreement is owed not to 4 Talisman but to the Trustee in Bankruptcy of Westford Special 5 Situations Fund Ltd., with which Mr. Stevanovich had some 6 commercial involvement. I am advised by Counsel that the Trustee 7 in Bankruptcy has been told of this action and of the summary 8 judgment application but has expressed no interest in the matter. 9 The evidence does not contain any coherent explanation as to why 10 the debt, in contravention of the Master Agreement and the 11 assignments, might be owing to a third party. 12 13 The Three Assignments 14 15
During the Hearing, SGC argued that Talisman is required to show 16 affirmatively, with respect to each of the three assignments, that 17 the stated consideration passed to the assignor. The assignments, 18 which are in a similar form, each set out the consideration paid by 19 the assignee and provide that the assignor acknowledges the receipt 20 of that consideration in full and final payment. 21 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 1
In addition, Mr. Stevanovich has sworn an affidavit which 2 confirms that the Lender received its consideration from Capital 3 Strategies Fund Limited; he is a director of the investment manager 4 of this latter company. He also says that Surrey Muse Trading 5 Limited paid its consideration to Capital Strategies Fund Limited. 6 He confirms that the Lender regards Talisman as the owner of the 7 debt and solely entitled to collect it. 8 9
Mr. Tirman, who is also a director of Surrey Muse Trading 10 Limited, says in his second affidavit that Surrey Muse paid its 11 consideration to Capital Strategies Fund Ltd and subsequently 12 received the stated consideration from Talisman for the notes. He 13 also confirms that Surrey Muse Trading Ltd regards Talisman as 14 the owner of the debt at this time. 15 16
This uncontradicted evidence satisfies me that the consideration 17 described in each of the three assignments has passed from 18 assignee to assignor. The contention that more evidence is 19 required on this element does not amount to a real or bona fide 20 defence. In the absence of affirmative evidence from SGC that the 21 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 consideration did not pass, Talisman may rely upon these 1 acknowledgements. No authority to the contrary has been cited to 2 me. 3 4
The final objection to Talisman’s entitlement to collect on the debt 5 turns upon irregularities in the third and final assignment. 6 7
The name of the Plaintiff is “Talisman Capital Alternative 8 Investments Fund Ltd.”. The third assignment describes the 9 assignee (referred to as the “buyer”) as “Talisman Capital 10 Alternative Strategies Fund Ltd.”. Mr. David Vidal-Cordero, an 11 attorney-at-law in Washington, D.C., drafted this agreement. In his 12 affidavit evidence he attributes the difference in name to a 13 “scrivener’s error” and asserts that he intended the document to 14 identify Talisman by the name “Talisman Capital Alternative 15 Investments Fund Ltd.”. 16 17
The parties to the third assignment have entered into an Erratum to 18 the agreement dated as of August 17, 2010 containing the proper 19 description of the Plaintiff Company. 20 21 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10
I have been told in argument that no company by the name of 1 “Talisman Capital Alternative Strategies Fund Ltd.” is in existence 2 or, at least, is a part of any corporate group in which the Plaintiff is 3 involved. SGC has not presented any evidence suggesting the 4 contrary. 5 6
Mr. Vidal-Cordero’s affidavit establishes that the intent of the 7 parties was to bind the Plaintiff to the terms of the agreement to the 8 exclusion of any other entity. I am satisfied that it was the Plaintiff 9 Company which obtained rights and obligations under the third 10 assignment to the exclusion of anyone else and that any argument 11 to the contrary does not amount to a real or bona fide defence. 12 13
A further bit of confusion arises from the fact that there are three 14 slightly differing copies of the third assignment in existence. Each 15 of the three is identical except for the signatures of the parties. 16 One is signed by Mr. Tirman on behalf of Talisman and on behalf 17 of Surrey Muse Trading Ltd. He is a director of both companies. 18 A second contains Mr. Tirman’s signature on behalf of Surrey 19 Muse Trading Ltd. and no signature on behalf of Talisman. A third 20 contains Mr. Tirman’s signature on behalf of Surrey Muse Trading 21 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Ltd. and Mr. Graham Cook’s signature on behalf of Talisman. Mr. 1 Cooke is a director of Talisman. 2 3
Mr. Tirman has explained this inconsistency in his fourth affidavit: 4 5 “11. This inconsistency is explained by the fact 6 that I initially signed the Agreement on behalf 7 of both Surrey and the Plaintiff on 5 March 8 2009 in Chexbres, Switzerland. This was, 9 however, an oversight on my part, as I 10 generally prefer not to sign one document on 11 behalf of two entities. Therefore, almost 12 immediately after the original was signed, I 13 signed two further copes of the Agreement (as 14 it is my practice to execute duplicate copies of 15 all agreements between entities where I am a 16 director, in order to have backup originals) 17 and sent an electronic “PDF” file of that copy 18 (which included my signature on behalf of 19 Surrey) to Graham Cook, another director of 20 [the] Plaintiff, in order that he could sign on 21 behalf of the Paintiff. 22 23 12. Mr. Cook then printed out the PDF copy and 24 signed that document and sent it back to me in 25 PDF format. As a result, there are three 26 copies of the Agreement as follows: (i) one 27 with my original signature which was sent 28 electronically to Graham Cook (ii) one with a 29 copy of my signature and the original of 30 Graham Cook’s (a copy is at pages 4 to 7), 31 and (iii) one with only my original signature 32 (a copy is at pages 8 to 11).” 33 34 35 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10
The copy of the agreement signed by Mr. Tirman for Surrey Muse 1 Trading Ltd. but unsigned by anyone on behalf of Talisman can be 2 disregarded. The remaining two copies of the agreement are each 3 signed by individuals on behalf of both parties who, according to 4 the uncontradicted evidence, had the authority to bind those parties 5 to the rights and obligations in the agreement. The fact that one 6 copy is signed by Mr. Tirman and one by Mr. Cooke is immaterial, 7 given that both men had the necessary legal authority from the 8 relevant corporate entity. The presence of two different signatures 9 is anomalous but does not cast into doubt Talisman’s intention to 10 be bound by the assignment. This issue, also, provides no real or 11 bona fide defence. 12 13
The Plaintiff seeks an order that its costs of the action be assessed 14 on the indemnity basis pursuant to Paragraph 17 of the statement of 15 Claim which provides that “Pursuant to Clause 12.2 of the Master 16 Agreement, the Defendant agreed to indemnify the Plaintiff for all 17 attorneys” fees and expenses incurred in enforcing the Master 18 Agreement and the Term Loans”. For these reasons I grant to the 19 Plaintiff summary judgment and its costs of the action. The Cross- 20 Amended Judgment – Talisman Capital Alternative Investment Fund Ltd. v. SGC Worldwide Ltd. Cause No. 269 of 2009 17.09.10 Summons (which raises the same issues) is dismissed. The 1 Plaintiff is at liberty to apply for its costs on the indemnity basis. 2 3 Dated this 17th day of September, 2010 4 5 6 Henderson, J. 7 Judge of the Grand Court 8