Enforcement of Judgments 2020

Last Updated August 04, 2020

Bermuda

Law and Practice

Authors



Appleby is one of the world’s leading offshore law firms. Global teams of legal specialists advise public and private companies, financial institutions and private individuals. The firm is regularly recognised for its professionalism, integrity and excellent client service; values that are at the core of the business. Appleby's global presence enables it to provide comprehensive, multi-jurisdictional legal advice at the times most beneficial to clients. The firm has offices in ten highly regarded, well-regulated global locations, operating in nine and practising the laws of eight jurisdictions. The office locations include the key international jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and the Seychelles, as well as the international financial centres of Hong Kong and Shanghai. Appleby is a full-service law firm providing comprehensive, expert advice and services across corporate, dispute resolution, property, regulatory, and private client and trusts practice areas. The firm works with clients to achieve practical solutions whether from a single location or across multiple jurisdictions.

There are various options to consider in order to identify a judgment debtor’s asset position before determining which method of enforcement action may be the most effective. These options can be exercised either individually or cumulatively as the resources of the plaintiff and any pre-existing knowledge of the debtor’s assets allow. The options include the following.

  • Searches of Public Registers (either in person or, in some cases, online).
    1. The Land Registry – to confirm ownership of real property and ascertain whether there are registered charges over the property.
    2. The Bermuda Shipping and Maritime Authority Shipping Registry – to ascertain ownership of vessels and whether there are mortgages registered over the shares of the vessel.
    3. The Aircraft Registration section of the Bermuda Civil Aviation Authority and the Aircraft and Aircraft Engine Mortgage Register – to ascertain ownership of aircraft and whether there are mortgages registered over the aircraft or aircraft engine.
    4. Directors and Officers Register – to reveal the identity and addresses of the company’s directors and officers.
    5. Company Register maintained by the Registrar of Companies – the Company Register includes details of mortgages or charges registered against the assets of a company. The Company Register also details whether a company is subject to winding-up proceedings.
    6. Supreme Court Register maintained by the Registrar of the Supreme Court – the Supreme Court Register (Cause Book) can be searched by appointment to reveal details of recorded judgments and ongoing actions or proceedings.
    7. Court records – subject to documents protected by privacy restrictions (such as in certain trusts cases and proceedings relating to the enforcement of arbitral awards), the public has a right to request disclosure of specified types of document from the Registrar of the Supreme Court. For example, in respect of cases pending before the court, requests may be made for copies of originating process or orders filed in the proceedings. However, copies of evidence will not be provided.

Looking to the medium-term future, the public will soon have access to the beneficial ownership data of companies, limited liability companies and partnerships contained on the register maintained by the Bermuda Monetary Authority. Currently, under Bermuda law, this information is not available to the public and can only be accessed by governmental authorities, including revenue officers and police forces. The government of Bermuda has recently announced that within 12 months of the publication of the European Union’s 5th Anti-Money Laundering Directive in January 2022, it will bring forward legislation to establish public access to the beneficial ownership of companies held on the register. The beneficial ownership register will include details of individuals and/or entities that hold 25% of the shares, voting rights or interests in a company through direct or indirect ownership.

  • Examination of means – apart from the above publicly available information, a judgment creditor may apply to the court for an order that a judgment debtor (or the director of a company) attend court to set out the financial position under oath. The procedure involves filing an application summons supported by affidavit and is usually granted on the papers without the necessity of a court hearing.

Having first identified that a judgment debtor has, on "solid and cogent" evidence, at least some assets in Bermuda (or even outside the jurisdiction if a worldwide order is sought and appropriate), it is possible to obtain a Mareva or freezing injunction in aid of execution of a final judgment. A freezing order restrains a judgment debtor from disposing of or dissipating its assets. In conjunction with the order, the court may also make an ancillary asset disclosure order whereby the judgment debtor must produce an affidavit, usually forthwith, setting out the nature, value and location of its assets. This allows relevant parties such as banks and corporate service providers to be notified of the freezing order by the plaintiff.

There are a number of domestic judgments available from the Bermuda courts that usually follow the trial of a dispute and generally take the form of:

  • money judgments whereby the defendant is ordered to pay a sum of money;
  • judgments ordering a party to take or refrain from taking a specific action; and
  • declaratory judgments that establish the rights and/or obligations between the parties and thus resolve any uncertainty as to the status of a legal state of affairs.

The first two types of judgment are executory in nature. The latter is declaratory and cannot be enforced directly, although if a defendant acts contrary to a declaration, the plaintiff may be able to commence proceedings for damages and/or apply to restrain the infringement of its legal rights.

In addition to obtaining a final judgment following trial, it is also possible to obtain the following.

  • Interim remedies – pending a full trial, the Bermuda courts may grant various forms of interim relief, which include an interim freezing injunction, an order requiring a party to provide certain information, and declaratory relief (where appropriate to be ordered at an interlocutory stage).
  • Summary judgment – under Order 14 of the Rules of the Supreme Court (RSC), after a defendant has entered an appearance and has been served with the statement of claim, a plaintiff may apply for summary judgment, which is a judgment without a trial. The court will enter judgment in favour of the plaintiff if it appears to the court that there is no defence to all or part of the claim. This is a relatively high threshold to meet.
  • Strike-out – under Order 18, Rule 19 of the RSC, either party may, at any stage of the proceedings, apply for the strike-out of all or part of the other party’s pleadings. Pleadings may be struck out where (i) they disclose no reasonable cause of action (or defence to a cause of action), (ii) they are frivolous or vexatious, (iii) they are an abuse of the process of the court or (iv) they may prejudice, embarrass or delay the fair trial of an action. This is a relatively high threshold to meet. If a strike-out application is successful in respect of a party’s entire claim (or defence) or the substantive part of a party’s claim (or defence), the court will either require them to amend their pleadings or enter judgment against them.
  • Judgment in default – a judgment in default may be obtained where a defendant has failed to enter an appearance and/or file a defence within the prescribed time. A defendant may apply to have a regularly obtained judgment in default set aside where it can demonstrate to the court that it has a defence with a real prospect of success or where there is "some other reason" for proceeding to trial. If a default judgment has been obtained irregularly (eg, entered prematurely), it must be set aside as of right.

Where a judgment creditor has a final money judgment, this judgment may be enforced by using any of the methods set out below. In each case, an application must be made to the court with a supporting affidavit. Note that charging orders are not available in Bermuda. These methods include the following.

Writ of Fieri Facias

A writ of fieri facias, commonly known as fi fa, may be issued immediately upon the expiry of any time provided for compliance with a judgment or order of the court. The writ allows control to be taken of the defendant’s goods by a court official. The process is relatively straightforward and involves issuing a writ directed to the Provost Marshal General (an officer of the court) to seize the debtor’s assets and auction them to satisfy the debt. Upon the sealed writ being delivered to the Provost Marshal, the property of a judgment debtor within Bermuda is bound to the Provost Marshal for execution.

Writ of Sequestration

Where a judgment debtor fails to comply with an order or judgment of the court, the party seeking enforcement, with leave, may apply to have a sequester appointed (usually a local accountancy professional) to seize the judgment debtor’s assets until the defendant complies with the order or judgment.

Garnishment Order

It is also possible to obtain a garnishee order, whereby a third party, most commonly a bank or employer, will be directed to pay funds owed to the judgment debtor directly to the judgment creditor. This application is made ex parte supported by affidavit. The supporting affidavit must identify the judgment or order to be enforced, state the unpaid amount, and that the judgment debtor is indebted to the judgment creditor. A garnishee order cannot usually be obtained in relation to a joint debt or future debt owed to the judgment debtor, or where the court does not have jurisdiction (ie, where the debt is owed in another country).

Appointment of a Receiver

Under Order 51 of the RSC, the court has the power to appoint a receiver over the judgment debtor’s asserts to assist in collecting in the assets of a judgment debtor where it appears to the court to be "just and convenient" to do so. A court-appointed receiver is an officer of the court. It is important to note that the receiver’s fees and expenses will take priority over any recovery and the appointment will not affect any property already subject to an existing security. Often this type of order is a last resort but may be effective where the assets are shares (where a dividend may be due) or where a company has specific valuable assets.

Freezing Order

As discussed above, the court has the power to issue a freezing order in aid of execution of a final judgment. Such an order may be appropriate where, absent restraint pending enforcement, the court is satisfied that there is a real risk that a judgment debtor will dispose of or dissipate its assets, rendering the judgment nugatory.

Order for Committal

An application for committal may be appropriate where a judgment debtor refuses or fails to comply with a judgment or order. In this regard, an applicant can seek an order to send the judgment debtor (where the debtor is an individual) to prison for non-payment. It is important to note that a court will not grant such an order where the judgment debtor proves to the satisfaction of the court that he does not have the means to satisfy the judgment (Section 2 of the Debtors Act 1973).

In the case of a breach of an injunction, it is also open to a plaintiff to commence contempt of court proceedings, including committal to prison, sequestration of assets and imposition of a fine. Where the defendant is a company, an application can be made against the company’s directors providing that the penal notice in the injunction expressly adverts to this prospect. Contempt of court proceedings are generally reserved for serious or persistent breach of court orders due to the draconian nature of the court’s remedies.

Winding-Up/Bankruptcy Proceedings

These processes will wind up the judgment debtor company or bankrupt an individual debtor based upon non-payment of the judgment debt. In broad terms, the liquidator or trustee in bankruptcy (as the case may be) is empowered by the court order to look into the assets and affairs of the debtor and collect in those assets. The debtor’s assets will be distributed to repay the debts according to the priority of unsecured creditors based upon proof of debt. Unless the creditors are secured creditors or preferred creditors within the limited statutory categories recognised in Bermuda (such as employees for certain payments and for payment of taxes), creditors will be treated on a pari passu basis (ie, pro rata to the level of the debt).

The above insolvency processes, while similar in some respects, also entail different procedural rules. A statutory demand will be required in the case of a bankruptcy but will often not be necessary to commence liquidation proceedings. They are collective processes, where not only the interests of the judgment creditor will be taken into account, but also the interests of the general body of creditors (which will be to the fore).

Insolvency practitioners also have the power to investigate and apply to the court to reverse certain transactions (for example, fraudulent preferences and transfers of property at an undervalue or for no value). This will be important where there are concerns that the judgment debtor has moved or sold assets, or made particular payments to associated entities, in order to put those assets beyond the scope of enforcement and outside the liquidation. These remedies contain bespoke time limits and should be considered at an early stage in cases where these types of concerns arise, together with consideration of complementary strategies such as injunctive relief.

The costs and timing for enforcement are difficult to estimate and will vary depending on the circumstances and complexity of each case. Challenges to the method of enforcement (and the basis for such a challenge and whether it has merit or not) will delay proceedings and likely increase the cost of enforcement. This is especially the case where execution of a judgment involves an order for the sale of the judgment debtor’s property, such as a family home, to satisfy the judgment. By contrast, a writ of fi fa should, at least in theory, be a relatively quick and cost-effective procedure.

Where an insolvency route is taken, it is important to note that the costs of the insolvency professional will be deducted as a priority from the assets of the insolvent estate of the judgment debtor, and will therefore diminish (sometimes very considerably) the amounts available for distribution. Unsecured creditors will often only receive a small proportion of their debt.

In relation to any of the methods listed above, it is crucial that careful prior consideration be given to which enforcement method will offer the greatest prospect of success for recovery. In a high-value or particularly complex case, it may be appropriate to pursue a number of different methods simultaneously.

As discussed in 1 Identifying Assets in the Jurisdiction, a judgment creditor may make an application to the court for an oral examination of a judgment debtor. This will take place under oath. This is a particularly useful tool as the court has the power to compel a person’s attendance and order a judgment debtor to produce relevant documents related to his or her financial position.

Also, as set out earlier above, in insolvency proceedings, a liquidator or trustee in bankruptcy will investigate the assets and affairs of the judgment debtor.

The most common way to challenge the enforceability of a judgment is to appeal it and to seek a stay pending appeal. The Bermuda court has a wide discretion to stay the execution of a judgment where circumstances make it inexpedient to enforce the judgment or order (Order 47 of the RSC). This will apply, for instance, where there are concerns about the plaintiff’s ability to repay the judgment debt in the event that the appeal is successful. The court may attach conditions to the grant of a stay as it thinks fit.

An appeal may also challenge the enforcement of a judgment on technical grounds, including (i) that the court did not have jurisdiction to hear the dispute (eg, because Bermuda was not the proper forum to deal with the proceedings); (ii) that the pleadings were not properly served on the judgment debtor; or (iii) seeking to set aside a judgment obtained in default.

Judgments requiring a person to act or refrain from acting in a certain way or for the payment of money can be enforced by the courts of Bermuda (subject to any challenges to enforcement). Declaratory judgments may need to be enforced through fresh proceedings in relation to breach or by way of injunctive relief.

Domestic judgments must be enforced within 20 years of the date the judgment became enforceable under Section 26 of the Limitation Act 1984 (Limitation Act).

All civil claims above BMD25,000 fall within the jurisdiction of the Bermuda Supreme Court. Matters below that level are dealt with in the Magistrates' Court. Supreme Court judgments are recorded in the Cause Book maintained by the Registrar of the Supreme Court. Presently, this information is not available online and must be searched in person for a nominal fee. 

Note that prior to the Land Title Registration Act 2011 coming into force, a Supreme Court judgment automatically attached to any land owned by the judgment debtor. Since 2 June 2018, a judgment must be registered with the Land Title Registrar against a judgment creditor’s property to protect priority over property owned by the judgment debtor.

Bermuda has not entered into any bilateral or multilateral treaties for the reciprocal recognition and enforcement of foreign judgments. There are instead two mutually exclusive regimes for enforcement. Which procedure should be followed in each case will be determined by the identity of the country that issued the judgment.

Both regimes only apply to final moneyjudgments made under the personal jurisdiction of a superior court in the relevant jurisdiction that are for a determinable sum of money (as defined in the judgment or order to be enforced or can be calculated from it). The judgment must be conclusive between the parties. A judgment is deemed to be "conclusive" notwithstanding that there may be an appeal pending, or that the judgment can still be subject to an appeal. All other types of judgment will be unenforceable.

Statutory Regime

The Judgment (Reciprocal Enforcement) Act 1958 (1958 Act) applies to judgments issued by the countries listed in the Judgment Extension Order 1956. The Commonwealth jurisdictions to which the 1958 Act applies include England and Wales, Scotland, Northern Ireland, Barbados, British Guiana, Gibraltar, Grenada, Hong Kong, Leeward Islands, St Vincent, Jamaica, Dominica, St Lucia, the federal courts of Australia, as well as state or territory courts of New South Wales and the Northern Territory. 

Common Law Regime

Enforcement of judgments not covered by the 1958 Act, notably the USA, China and the member states of the European Union, will need to be enforced at common law.

After recognition of a foreign judgment by the Bermuda courts, the same methods of enforcement as identified in 2.2 Enforcement of Domestic Judgments may be taken to enforce it.

The rules and procedure to apply to enforce a foreign judgment are different for each regime. Under the 1958 Act, foreign judgments must be registered (either in whole or part) before they can be enforced. Following registration, which is essentially an administrative process, a foreign judgment has the same effect and force as a judgment of the Supreme Court. Thus, for example, a Bermuda court may grant an asset freezing order in support of it or appoint a receiver.

If the common law regime applies, a judgment creditor must issue fresh proceedings in Bermuda and obtain a domestic judgment, relying on the foreign judgment debt as forming the cause of action; eg, this is not a re-litigation and the judgment debtor will be treated as having no defence on the merits, as liability has already been decided and the foreign judgment cannot be impeached for any error of law or fact. Usually, a judgment creditor will apply for default judgment if no appearance is then entered, or summary judgment under Order 14 where it has been. Such an application must be supported by affidavit evidence that in effect will cover the same matters set out below under the 1958 Act.

A final and conclusive money judgment is the only foreign judgment capable of enforcement in Bermuda. The following judgments are not capable of enforcement:

  • judgments for specific performance – such judgments may be recognised by the Bermuda courts as a defence to a claim;
  • injunctions will not be enforced by the courts of Bermuda – such judgments may be recognised by the Bermuda courts as a defence to a claim; and
  • money judgments in respect of taxes or other charges of a like nature or in respect of a fine or other penalty.

A party seeking to enforce a foreign judgment under the 1958 Act must make an application to the Supreme Court by way of an originating summons supported by affidavit evidence. This affidavit must state, in so far as possible, the full name and address of the judgment debtor, that the judgment creditor is entitled to enforce the judgment, and that to the best of his knowledge and belief no grounds for a defence exist. A verified or certified copy of the judgment to be enforced is required.

No notice of registration need be given to a judgment debtor. Where an application is made ex parte, a judgment creditor is under a duty to give full and frank disclosure of all the material facts relevant to the application. The order registering the foreign judgment must be served personally or by serving it to the last known address of the judgment debtor before any practical enforcement measures are taken. A foreign judgment must be registered within six years from the date of the judgment or after the date of the last judgment in the proceedings if there has been an appeal.

For foreign judgments that fall under the common law regime, a judgment creditor must issue fresh proceedings as set out in 3.2 Variations in Approach to Enforcement of Foreign Judgments. The limitation periods in the Limitation Act will apply to the proceedings (for instance, six years for claims in contract and tort, to be calculated from the date of the foreign judgment).

The length of the enforcement process and costs will vary depending on the circumstances of each case. Under both regimes, challenges, even if ultimately unsuccessful, will delay enforcement and increase costs. Enforcement of a 1958 Act judgment cannot commence until the challenge period to set aside registration has expired.

The decision of the Supreme Court on an application to set aside, or obtained under the common law regime, is subject to a right of appeal to the Court of Appeal. Although this type of appeal is (and should be) rare, it can cause delay as the Court of Appeal sits in only three sessions spread throughout the year. The Bermuda court also retains a discretion to set aside registration of a foreign judgment, even if temporarily, to allow an appeal to be concluded.

In addition to the costs of enforcement, the RSC permits a judgment debtor to apply to obtain an order for security for costs. While a judgment creditor is not automatically required to make provision for security, one of the usual grounds upon which a court can order security is that a judgment creditor resides outside of Bermuda. Whether security will be ordered is a matter of discretion.

Grounds to challenge enforcement of a foreign judgement depend on whether the 1958 Act or common law principles apply.

Under the 1958 Act, registration of a foreign judgment is liable to be set aside if one of the five conditions listed below is established:

  • the foreign judgment is not a judgment to which the 1958 Act applies (eg, a money judgment) or the judgment was registered in contravention of the 1958 Act;
  • the judgment debtor did not receive sufficient notice of the proceedings;
  • the judgment was obtained by fraud;
  • the rights conferred by the judgment are not vested in the person seeking enforcement; or
  • the matter in dispute giving rise to the registered judgment was previously determined and subject to a final and conclusive judgment by a foreign court having jurisdiction over the matter.

In addition, a judgment debtor may also challenge enforcement on the basis that the foreign court did not properly exercise jurisdiction over the judgment debtor. The jurisdictional competence test applied by the courts of Bermuda is set out in Bacardi Ltd & Others v Rente Investments Ltd [2005] Bda LR 60. In general terms, a party is considered to have submitted to the jurisdiction of a foreign court if:

  • the defendant voluntarily appeared in the proceedings and contested them on the merits;
  • the defendant agreed prior to the start of proceedings to submit to the jurisdiction of the foreign court (ie, by way of a contractual clause); or
  • if the person counterclaimed in the proceedings before the foreign court.

At common law, a judgment debtor may challenge enforcement on the following grounds:

  • lack of jurisdiction according to Bermuda conflict of law principles;
  • the judgment was obtained by fraud; and
  • enforcement of the judgment would be contrary to public policy (see Muhl (Superintendent of Insurance of the State of New York as Liquidator) of Nassau Insurance Co v Ardra Insurance Co Limited [1997] Bda LR 36); or
  • the proceedings in which the judgment was obtained were contrary to the rules of natural justice (see Ellefsen v Ellefsen [1993] Bda LR 53).

In Bermuda, there are two separate statutory frameworks for arbitration. The International Conciliation and Arbitration Act 1993 (1993 Arbitration Act), which incorporates the UNCITRAL Model Arbitration Law (Model Law), applies to all international commercial arbitrations, unless the parties agree otherwise (Section 24 of the 1993 Arbitration Act).

The Arbitration Act 1986 (1986 Arbitration Act) primarily governs domestic arbitrations but will apply to “international” arbitrations where the parties have expressly or by implication agreed that the 1993 Arbitration Act will not apply.

The 1993 Arbitration Act provides for the enforcement and recognition of New York Convention Awards (Convention Awards). A Convention Award, with leave of the court, may be enforced by the Bermuda courts. Where leave is granted, the court will enter judgment in the terms of the award and such award is capable of enforcement in the same manner as a judgment of the Bermuda court. Accordingly, the same measures of enforcement as identified in 2.2 Enforcement of Domestic Judgments may be taken to enforce the arbitral award.

The main variation in approach relates to differences in the scope of appeal of arbitral awards. The legislative framework in Bermuda reflects the strong public policy in the finality and enforcement of arbitral awards. Specifically, under the 1993 Arbitration Act, grounds to challenge an award are very narrow, and are limited to the grounds set out in 4.6 Challenging Enforcement of Arbitral Awards. In contrast, an award under the 1986 Arbitration Act may be appealed to the Court of Appeal as to questions of law.

Bermuda is, generally speaking, a pro-arbitration jurisdiction. Both final money awards and declaratory awards can be enforced.

Most awards are capable of enforcement in Bermuda except where there are public law consequences. In terms of enforcing an arbitral award, an arbitral award must meet the requirements of that particular convention or statute. Article 31 of the Model Law provides that an award must be in writing, signed by all arbitrators, state the reasons for the award (unless otherwise agreed), and state the date and place the award was made. If an arbitral award does not meet these requirements, it cannot be enforced by the Bermuda courts. In relation to a Convention Award, the award must meet the New York Convention’s requirements, namely that the award must be in writing and signed.

Partial or Interim Awards

In addition to final awards, under Section 36 of the 1993 Arbitration Act and Section 22 of the 1986 Arbitration Act, respectively, a tribunal in an arbitration seated in Bermuda has the power to make partial or interlocutory awards. Unless otherwise agreed, an interim award shall be final and binding on the parties and capable of enforcement in the same manner as a judgment of the Supreme Court.

An arbitral award is enforceable by action or by leave of the court as a judgment of the Supreme Court.

The procedure for enforcement and recognition of arbitral awards in Bermuda courts is set out in RSC Order 73. This process involves an application for leave to the Supreme Court. An application for leave is made under Section 37 of the 1986 Arbitration Act (in respect of domestic awards), Section 40 of the 1993 Arbitration Act (in respect of Convention Awards) or Section 48 of the 1993 Arbitration Act (in respect of non-Convention Awards). The application for leave may be made ex parte; however, the court may direct a summons to be issued in the form of an originating summons.

The application for leave must be supported by affidavit evidence that:

  • exhibits the original arbitration agreement and the original award or a certified copy of the same;
  • states the name and last known address or place of business of the applicant (creditor) and person against whom it is sought to enforce the award (debtor); and
  • confirms that the award has not been complied with (or sets out the extent to which the award has not been complied with).

If leave to enforce the award is granted, the order will be served on the defendant personally or by serving a copy to his last known address. If a defendant is a body corporate, the place of service is the registered address of the body corporate. Service of the order on a person resident outside of Bermuda is permissible without the leave of the court.

Once service has been effected, a defendant has a 14-day period (unless otherwise expressed in the order) to apply to set aside the order. The award is not capable of enforcement until the expiry of this period.

An action to enforce an arbitral award in Bermuda must be made within 20 years after the date on which the cause of action accrued (Section 9 of the Limitation Act).

As set out above, the process for making an application for leave to the Supreme Court is a relatively straightforward process. The duration and costs will depend largely on whether enforcement is challenged. In addition to the costs of enforcement, under the Stamp Duty Act 1976, nominal stamp duty is payable on an arbitration award (1/4 per cent of the value up to a maximum of BMD25).

Under the 1986 Arbitration Act, subject to the consent of the parties or leave of the Supreme Court, an award can be appealed to the Court of Appeal as to questions of law arising out of a domestic award (Section 37 of the 1986 Act). In general terms, the Supreme Court will not grant leave unless the determination of a question of law would substantially affect the rights of the parties to the arbitration.

In contrast, under Section 42 of the 1993 Arbitration Act, the grounds upon which an arbitration award may be challenged are limited. There is no right to challenge an award on the merits and the appropriate remedy against the award is to set aside the award. The grounds for refusal to recognise or enforce an award are limited to the following:

  • a party to the arbitration agreement was under some incapacity;
  • the arbitration agreement was invalid under the law of the country where the award was made;
  • proper notice of the appointment of the arbitrator or the arbitration proceedings was not given;
  • the award deals with a dispute outside the scope of the arbitration agreement;
  • the composition of the arbitral tribunal or the arbitral procedure was not in accord with the agreement of the parties;
  • the subject matter of the dispute is not capable of settlement by arbitration under the laws of Bermuda; or
  • the award is in conflict with the public policy of Bermuda.

Stay of Enforcement Proceedings Pending Set-Aside Proceedings

The Supreme Court has a discretion to stay enforcement proceedings pending the conclusion of set-aside proceedings in the supervisory jurisdiction of the arbitral seat. The Bermuda court’s power to stay enforcement of a foreign award is contained in Section 7 of the 1986 Act and Section 36(2) the 1993 Act, respectively. A recent example of a stay being granted by the Bermuda court is the case of LAEP Investments Ltd v Emerging Markets Special Solutions 3 Ltd [2015] Bda LR 36. In LAEP, the Bermuda Court of Appeal held that a stay order issued by the courts in the seat of arbitration meant an arbitration award was not capable of enforcement pending the conclusion of the appeal.

The recent judgment in CAT SA v Priosma Limited [2019] Bda LR 69 makes it clear that a judgment debtor may be ordered to provide security in the full amount of the award and costs as a condition of the grant of a stay of enforcement proceedings. The Bermuda court in the exercise of its discretion will consider (i) the strength of the argument that the award is invalid and (ii) whether enforcement of the award will be more difficult if enforcement is delayed.

Appleby

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Hamilton HM EX
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Authors



Appleby is one of the world’s leading offshore law firms. Global teams of legal specialists advise public and private companies, financial institutions and private individuals. The firm is regularly recognised for its professionalism, integrity and excellent client service; values that are at the core of the business. Appleby's global presence enables it to provide comprehensive, multi-jurisdictional legal advice at the times most beneficial to clients. The firm has offices in ten highly regarded, well-regulated global locations, operating in nine and practising the laws of eight jurisdictions. The office locations include the key international jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and the Seychelles, as well as the international financial centres of Hong Kong and Shanghai. Appleby is a full-service law firm providing comprehensive, expert advice and services across corporate, dispute resolution, property, regulatory, and private client and trusts practice areas. The firm works with clients to achieve practical solutions whether from a single location or across multiple jurisdictions.

Introduction

Bermuda is a self-governing overseas territory of the United Kingdom. It has a population of over 60,000 people on a land mass of just 21 square miles. The island group is located in the Atlantic Ocean, approximately 760 miles due east of Cape Hatteras, North Carolina. Surrounded by coral reefs and the Gulf Stream, Bermuda remains a popular destination for tourists but its infrastructure, flexible and innovative corporate structures and strong regulatory environment have made it a leading offshore jurisdiction for company incorporations, including for a number of companies listed on the main New York and Hong Kong stock exchanges. Despite its small size, Bermuda has a reputation as a financial centre, including as the third-largest reinsurance centre, after London and New York, and the BSX is the leading exchange for the listing of insurance-linked securities. Bermuda is also a longstanding jurisdiction for the formation of trusts and home to a dozen or so professional trust companies. 

From an enforcement-related perspective, Bermuda offers a system of law based upon English and Welsh common law and a body of relevant statutes that will be familiar to many English and Commonwealth lawyers. The system for enforcement of foreign judgments and arbitral awards is operated under the supervision of the Commercial Court, which was established as a specialist division of the Bermuda Supreme Court in 2006. There are two dedicated Commercial Court justices at any one time and a Court of Appeal, which sits three times a year, comprises many leading English, Caribbean and Bermuda judges. The current President of the Court of Appeal is Sir Christopher Clarke, a former judge of the English Court of Appeal. Appeals from the Court of Appeal for Bermuda are to the Judicial Committee of the Privy Council in London.

2020 - A Challenging Year

2019 was a good year for Bermuda in many ways, with healthy business and tourism figures, and a growing sense of optimism about the future. To many commentators, 2020 looked all set to be a continuation of this trend. The impact of the emergency phase of COVID-19, as elsewhere, has been very significant indeed. The pandemic has led to a number of restrictions on ordinary and working life, including six weeks of strict "Shelter in Place" regulations, and a drastic change in working practices, as businesses, and the courts, have moved to remote working, and physical meetings and hearings ceased to be possible for many months. 

At the time of writing, those restrictions, originally imposed out of necessity, are being eased and life is slowly returning to a phase of “new normal”, as the Bermuda government has described it. On 1 July 2020, Bermuda entered into Phase 4 of its reopening, with government departments mostly fully operational and mandated working from home ending. It is therefore possible at this stage to now examine what the future may hold in relation to issues that may have some bearing on the enforcement of judgments and arbitral awards over the next 12 months; in terms of new models of working for the courts, changes in local legislation and identifying developing trends.

Dispute Resolution in the COVID-19 Context

Like most other small jurisdictions, such as Cayman, BVI and the Isle of Man, managing the effects of COVID-19 and the need for physical distancing measures have presented a significant challenge for the Bermuda courts, especially in a jurisdiction where entirely video-linked hearings (albeit not the giving of witness evidence remotely, which was an established practice) were unknown and the administrative workings of the court are not online, with filings taking place by hand rather than electronically. This has meant that both the Bermuda courts and Bermuda legal practitioners have had to adapt quickly in order to be able to provide a continuation of service for court users and clients alike.

In the early stages of the pandemic, the Bermuda courts suspended physical hearings and all outstanding court proceedings were adjourned administratively. The focus at the time was to deal with the listing and hearing of the most urgent matters, such as injunction applications, and dealing with less controversial applications such as validation orders in insolvency proceedings "on the papers". The Supreme Court swiftly moved to a mixture of telephone and virtual hearings, with attorneys and judges working from home. An increasing variety of cases have been dealt with in this way, and members of the Appleby Dispute Resolution team have been involved in virtual hearings for, amongst other things, an ex parte worldwide freezing order application to freeze BMD104 million of assets; a ground-breaking three-day specific discovery application in a high-value trust case in the Supreme Court, concerning multiple parties in different time zones, all represented by English leading counsel, appearing via a third-party maintained Zoom hearing with a live electronic transcript; and a convening hearing conducted by telephone and a sanction hearing by Zoom leading to the approval of a reconstruction scheme of arrangement for telecommunications company Digicel pursuant to Sections 99 and 101 of the Companies Act 1981. The Court of Appeal made arrangements to conduct the entirety of its June 2020 session remotely via Zoom with the Justices participating from their homes in England and Cayman and the hearings streamed live on YouTube. The Appleby Dispute Resolution team took part in a two-day appeal in a significant disclosure case with English leading counsel also appearing on the video link.

These types of virtual hearing also throw up considerable challenges of their own, as well as the technical aspects. They have the benefit (and downside) of parties being able to share or file documents during the hearing, including amended orders, further submissions and additional authorities. This requires careful case management from the judge and would benefit from a more detailed practice direction. There is also the logistical challenge of using an electronic bundle. Additionally, thought has to be given to the fatigue that comes from lengthy video calls; often involving more frequent breaks than would usually be the case. In summary, the Bermuda Commercial Court has acted to address these matters and ensure that the technology is available and utilised to allow commercial litigation to continue despite COVID-19.

As Bermuda enters the final phase of its exit from lockdown, the Bermuda courts have continued to utilise virtual hearings in matters where there are overseas parties and attorneys, or where English leading counsel are instructed. This is likely to continue for at least a number of months while travel globally is restricted. It remains to be seen what lasting effect this will have on court procedures as the precedent has now been set for successful interlocutory hearings to be held in cases that otherwise would have required multiple parties, lawyers and leading counsel to attend in Bermuda. Physical hearings have also resumed and the priority for the Court has changed from simply dealing with urgent matters to relisting the cases adjourned in late March 2020 and efficiently working through the backlog. The Supreme Court Registry has also reopened to the public to enable new filings and to allow inspection of the cause book by appointment. 

Overall, there is no reason to anticipate (unless there is a significant spike in the pandemic) that enforcement of a judgment or arbitral award in Bermuda will be made any more complicated, or be substantially delayed, as a result of the effects of COVID-19 restrictions.

Legislative Developments

In addition, the Bermuda government has not been idle in drafting new legislation to update Bermuda’s trust laws, including enhancements to Bermuda’s “firewall” provisions that prevent the enforcement of non-monetary judgments against a Bermuda trust (such as a variation of trust made by the English High Court in a divorce case or where a foreign court has dealt with a forced heirship claim). The Trusts (Special Provisions) Amendment Act 2020 (Bill) was passed in the House of Assembly on its second reading on 24 July 2020. The Bill will now proceed to Bermuda's upper house, the Senate, for review before passing into law.

There are no statutory mechanisms in Bermuda for the enforcement of foreign judgments in ancillary relief proceedings that purport to vary offshore trusts or to reorganise beneficial interests under them, and nor has Bermuda adopted any form of "comity" route to enforcement of ancillary relief proceedings. Indeed, Section 11 of the Trusts (Special Provisions) Act 1989 (Principal Act) prevents the enforcement of foreign judgments in matrimonial proceedings varying offshore trusts.

In summary, where a Bermuda trust is properly constituted, the so-called firewall provisions are intended to (i) protect against foreign law application relating to heirship rights, matrimonial/other familial relationship, or matters of insolvency, to the determination of any question concerning a Bermuda trust; (ii) exclude the application of foreign law to questions relating to the validity, construction, effects or administration of a Bermuda trust; and (iii) prevent the enforcement of foreign orders in relation to property held in a Bermuda trust (with the exception of immovable property outside Bermuda) that are inconsistent with Bermuda law.

The Bill enhances these protections by the following measures.

Adding a new Section 1A

The new section improves certain definitions in the Principal Act, such as “foreign court” (to cover foreign arbitration and other tribunal determinations) and “foreign order” (to include interim or final judgments, awards, orders or other decisions of a foreign court). Of particular importance in the context of firewall provisions is a new definition for ”Bermuda trust”, as it has been specifically tailored to allow for the possibility that Bermuda law may apply to a severable part of a trust only, in accordance with Section 8 of the Principal Act.

Amending Section 10

The amendment repeals and replaces Section 10 in order to enhance the effectiveness of firewall protections under that section. The revised approach as contained in the new Section 10 is intended to provide for an exclusion of foreign law where appropriate as opposed to providing for a blanket application of Bermuda law, subject to exceptions. This is accomplished by specifying the circumstances under which any foreign law shall be excluded from application to a Bermuda trust.

The new Section 10(3) will clearly state that no foreign law shall apply to the determination of any question concerning the validity, construction, effects or administration of a Bermuda trust. This will include any matters concerning the appointment of trustees, rights and duties of trustees, powers of delegation, investment and accumulation of income, duration of the trust, relationship between trustees and beneficiaries and any liability, variation or termination of the trust and distribution of trust assets. The firewall protection afforded under the new Section 10 will not apply to foreign land or in cases where foreign law has been chosen to apply to any severable aspect of a Bermuda trust in accordance with Section 8 of the Principal Act.

Amending Section 11

The amendment repeals and replaces Section 11 in order to supplement the protective measures under the new Section 10 by preventing the enforcement or recognition of any order of a foreign court where such order is in conflict with the provisions of the new Section 11.

Consequential amendments

The amendments repeal and replace Section 36G of the Conveyancing Act 1983 (Bermuda’s fraudulent transfer legislation) so as to simplify the language and to allow for consistency with the updates to the firewall provisions of the Principal Act. This will clarify that Bermuda’s fraudulent transfer legislation will not enable a creditor’s claim if the claim is precluded by Bermuda’s firewall provisions.

Standstill Agreements and Statutory Moratoria

As might be expected in a time of economic uncertainty, Bermuda has already seen an uptick in insolvency-related applications, especially in the context of restructuring. How this affects enforcement options relates principally to the effect of the statutory moratorium on the creditors of an insolvent company. The statutory moratorium in Bermuda represents a prohibition of legal proceedings being continued or commenced against the debtor company without leave of the court and occurs on the appointment of a provisional liquidator following the presentation of a winding-up petition.

This can arise in two ways. Firstly, where a petition has been presented and a petitioning creditor, often supported by a group of creditors, applies for the appointment of a provisional liquidator on the basis that there is a risk of dissipation of the company’s assets if the board of directors is left in place. In this scenario, the order of appointment removes the board, management of the company is transferred to the provisional liquidator and the moratorium automatically takes effect to protect the company from action by other creditors (albeit not secure creditors – see below).

The second means is restructuring-focused. As Bermuda has no direct equivalent to administration proceedings in England and Wales or to US Chapter 11 proceedings, this legislative gap has been filled by the practice of the Bermuda Supreme Court over the last two decades in imaginatively interpreting its power to appoint liquidators under the Companies Act to include the power to appoint provisional liquidators for restructuring purposes. This is a particularly useful option for a Bermuda company where the directors believe that the company is viable and there is a high degree of creditor support for restructuring of the company’s debt, but not all the creditors are signed up to this approach or can be persuaded to enter into a standstill agreement.

In this form of "light touch" provisional liquidation, a petition is presented by the company (exceptionally it could be by a creditor), an application is made for the appointment of a provisional liquidator, and upon that appointment, which will be with limited powers (typically to monitor and advise on restructuring options), the board of directors remains in place to deal with the day-to-day management of the company and to lead the restructuring. The scope of this form of provisional liquidation has proven to be quite wide and has been used:

  • to promote a scheme of arrangement on behalf of a company whereby the company makes a compromise or arrangement with its members and/or creditors pursuant to Section 99 of the Companies Act;
  • with very limited powers to oversee the actions of the board of directors while parallel Chapter 11 or Chapter 15 proceedings are pursued in the USA; and
  • to explore other restructuring options such as an equity injection by a "white knight investor" or a purchase of distressed debt by a third party.

Regardless of the form of restructuring, the company obtains the benefit of the statutory moratorium during the period that the provisional liquidator is in office. The benefit to creditors is that the company is now operating under the supervision of a provisional liquidator and the court. 

Whether the proceedings are company or creditor-led, the procedure is the same. A petition is filed and an urgent application, usually made without notice, is filed for the appointment of a provisional liquidator. The moratorium comes into effect on appointment. Where the petition has been filed for restructuring purposes, the proceedings will be adjourned. It should be noted, however, that the moratorium does not impact the rights of secured creditors to enforce their security against the company provided that they can rely upon "self-help" provisions contained in the relevant security documents and do not require recourse to legal proceedings to do so.

Another burgeoning trend is the use of standstill agreements between a creditor seeking to enforce a debt, including judgment debts, and the company. This works as follows: where an event of default under a loan agreement has already occurred, or where it is likely to occur in the future due to cash constraints on the company, the company and its creditors can enter into a standstill agreement to suspend either the creditor’s rights of enforcement (if the default has already occurred) or the obligations of payment (if default will otherwise occur in the near future). This will be an entirely consensual private contractual arrangement between the creditors and the debtor company. Thus the creditor will retain and protect their enforcement rights but avoid the need to immediately pursue the collective route of insolvency proceedings.

There is no particular specified form that a standstill agreement must take in Bermuda, but it will need to follow usual common law contractual principles; there will need to be mutual benefit to the parties to the agreement and the agreement must have the certainty of a specified period (the standstill period). The agreement should also fix the amount of debts owed to the creditors of the company as at a particular date (the standstill date).

From the authors' experience, standstill agreements will frequently be relatively short in duration (often two to three months), usually at the creditors’ insistence in order to allow them to maintain leverage. It is common for agreements to be extended by mutual consent where genuine progress is being made, although the negotiation of extensions is likely to involve demands from creditors for additional enhanced levels of information provision or other covenants.

Arbitration

Bermuda continues to be an arbitration and mediation-friendly jurisdiction. The jurisdiction has a modern international arbitration statute that is based on a "model law" adopted by a large number of other jurisdictions. There is also an active Bermuda branch of the Chartered Institute of Arbitrators (CIArb), and a strong local body of experienced arbitration lawyers, as well as an available pool of senior qualified arbitrators, many of whom are CIArb fellows, with extensive experience in areas as diverse as contract law, trusts, construction and insurance disputes. 

In order to promote the jurisdiction as an arbitral centre, on 24 July 2020 the Bermuda government announced plans to create an international arbitration centre in Hamilton, the capital of Bermuda. This is on the basis that the jurisdiction is well placed geographically, in light of its unique location, and proximity and easy connections to London and New York, to attract arbitration work, and has a modern legislative arbitration framework. It is hoped that this development will allow a regional arbitration centre to develop to complement Bermuda’s existing reputation for using international arbitration to resolve insurance and reinsurance contract disputes.

Turning specifically to enforcement-related issues, the Bermuda courts have continued to take a robust position in relation to challenges by defendants to the validity of awards. In the recent Supreme Court judgment in CAT SA v Priosma Limited [2019] Bda LR 69, the Chief Justice emphasised “the predisposition” in favour of enforcement of New York Convention arbitral awards contained in the Bermuda International Conciliation and Arbitration Act 1993. He described this policy as one “which favours finality in arbitration awards”. Where, as in this case, there was an appeal pending before a court in the seat of the arbitration challenging the validity of the award, the Court determined that a judgment debtor may be ordered to provide security in the full amount of the award and costs as a condition of granting a stay of enforcement proceedings in Bermuda. It was held that the Bermuda court in the exercise of its discretion will consider (i) the strength of the argument that the award is invalid, and (ii) whether enforcement of the award will be more difficult if enforcement is delayed.

Appleby

Canon’s Court
22 Victoria Street
PO Box HM 1179
Hamilton HM EX
Bermuda

+1 441 295 2244

+1 441 292 8666

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Law and Practice

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Appleby is one of the world’s leading offshore law firms. Global teams of legal specialists advise public and private companies, financial institutions and private individuals. The firm is regularly recognised for its professionalism, integrity and excellent client service; values that are at the core of the business. Appleby's global presence enables it to provide comprehensive, multi-jurisdictional legal advice at the times most beneficial to clients. The firm has offices in ten highly regarded, well-regulated global locations, operating in nine and practising the laws of eight jurisdictions. The office locations include the key international jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and the Seychelles, as well as the international financial centres of Hong Kong and Shanghai. Appleby is a full-service law firm providing comprehensive, expert advice and services across corporate, dispute resolution, property, regulatory, and private client and trusts practice areas. The firm works with clients to achieve practical solutions whether from a single location or across multiple jurisdictions.

Trends and Development

Authors



Appleby is one of the world’s leading offshore law firms. Global teams of legal specialists advise public and private companies, financial institutions and private individuals. The firm is regularly recognised for its professionalism, integrity and excellent client service; values that are at the core of the business. Appleby's global presence enables it to provide comprehensive, multi-jurisdictional legal advice at the times most beneficial to clients. The firm has offices in ten highly regarded, well-regulated global locations, operating in nine and practising the laws of eight jurisdictions. The office locations include the key international jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and the Seychelles, as well as the international financial centres of Hong Kong and Shanghai. Appleby is a full-service law firm providing comprehensive, expert advice and services across corporate, dispute resolution, property, regulatory, and private client and trusts practice areas. The firm works with clients to achieve practical solutions whether from a single location or across multiple jurisdictions.

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