An Introduction To Dispute Resolution In 2024 – Arbitration & Dispute Resolution

International business is the primary area of economic activity
in Bermuda, as a result of not just a favourable tax regime, but
also because of its political and legal stability, regulatory
framework, proximity to New York (2-hour flight) and London (7-hour
flight), talented work force, and natural beauty.

THE DISPUTE RESOLUTION LANDSCAPE

THE ECONOMY

Bermuda is a leading hub to insurance and reinsurance, banking,
and financial services industries; for many years it has been a
premier jurisdiction for trusts, family offices and other private
client structures. The latest available employment data
demonstrates job growth within relevant occupational groups:
Directors and Chief Executives (+ 111 jobs), Actuaries (+ 44 jobs),
Lawyers (+ 24 jobs), Business Analysts (+ 23 jobs).

Bermuda also has a strong tourism industry. Tourism numbers
rebounded after the lifting of Covid-19 restrictions; there is a
busy cruise ship schedule during the warmer months, and the amount
of air lift has increased. Investors are showing confidence in
Bermuda’s tourism market – they benefit from specific
legislation that ensures new hotel developments are subject to tax
incentives and other forms of relief. In October 2023, the Minister
of Home Affairs approved the re-development of the Fairmount
Southampton Hotel, which has been closed since 2020, paving the way
for a revamp of the hotel and construction of up to 250 additional
tourism and residential units. It has been reported that the
project will deliver an economic benefit of USD1.4 billion to the
local economy.

Bermuda’s closest economic ties are with the US, the UK and
Europe. Accordingly, Bermuda has not been immune to macroeconomic
factors such as inflationary pressures, international conflicts and
global minimum tax provisions. In early 2023, the rate of inflation
reached a 15-year high, leading banks to increase interest rates
(following a similar announcement by the US Federal Reserve). In
October 2023, the Bermuda government released an outline of its
proposed 15% corporate tax regime as part of a public consultation
process and in response to OECD global minimum tax rules. The
corporate income tax is expected to be enacted prior to 31 December
2023, and be effective for tax years beginning on or after 1
January 2025. The proposed tax represents a fundamental shift in
how large multinational groups with a Bermuda presence are
taxed.

PROPOSED CHANGES TO INSOLVENCY LAW

There is no new legislation from 2023 which represents a
significant change for clients litigating in Bermuda. However, a
number of legislative changes have recently been proposed by
Bermuda’s Restructuring & Insolvency Specialist Association
(RISA), including those listed below. It will be interesting to see
how much traction these proposals receive over the next 12
months.

  1. Court Appointed Restructuring Officers (ie, the creation of a
    Restructuring Officer regime akin to that introduced by the Cayman
    Islands in 2022). Bermuda companies are often restructured via the
    appointment of provisional liquidators with powers enabling them to
    assist management with the restructuring. RISA’s proposal is
    made, in part, to eliminate the mistaken perception that a company
    is being ‘liquidated’ by provisional liquidators, rather
    than undergoing a restructuring process.

  2. Reducing the thresholds for Schemes of Arrangement which is an
    alternative means of restructuring a Bermuda company that requires
    approval by a prescribed majority of creditors/shareholders;
    and

  3. Conferring upon the Bermuda court a statutory power to wind-up
    foreign companies, provided they have sufficient ties to Bermuda.
    This proposal is designed to eliminate the potential harm caused by
    a foreign domiciled company, being currently outside the scope of
    the winding-up regime, continuing operations in Bermuda
    notwithstanding that it is insolvent or that another ground for
    making a winding-up order applies.

THE COURTS

While the court system embraced the use of technology during
Covid – particularly the use of remote hearings – the
Bermuda courts have, since September 2022, reverted to in-person
hearings in most cases. In the event that a party wishes to have a
remote hearing, it needs to make an application to the relevant
Judge. We believe that Judges are receptive to requests for remote
hearings in appropriate cases; the use of remote hearings in
procedural hearings concerning timetabling and appearances etc
leads to efficiencies in terms of costs and speed. It also
facilitates participation by client representatives, and members of
the legal team, who are located overseas. This is relevant given
the international element of many cases that come before the
courts.

In our experience, remote hearings continue to be popular in the
context of arbitrations and mediations. This is not very surprising
as, currently, Bermuda does not have a dedicated
arbitration/dispute resolution centre; the Bermuda government has
announced plans to build an arbitration centre in the City of
Hamilton, one block from the commercial court, but construction has
not yet begun. Arbitrations, and mediations, tend to take place in
conference rooms at law offices or hotels adding to costs.

Returning to the courts, the commercial court has established a
formal consultative structure with its users, to ensure the
commercial court is aware of the evolving needs of its users, and
can consider changes to meet those needs. The roll-out of the
Commercial Court Users committee was delayed by the Covid pandemic,
but the first consultation occurred in 2023. Looking ahead, it is
expected that the Bermuda courts will soon adopt an electronic Case
Management System, enabling parties to file court papers (including
pleadings) and pay court fees electronically.

NOTABLE CASES

The number of cases being heard by the courts has increased now
that we have left behind the Covid-19 pandemic. Notable examples
from this year are discussed briefly below.

COURT OF APPEAL CLARIFIES ROLE OF
PROTECTORS

The Protector of a Bermuda trust is a non-trustee who is
sometimes given wide-ranging powers – particularly the powers
to give or refuse consent to the proposed use, by a trustee, of its
discretionary decision-making powers. The Protector first arose in
the offshore trust industry, to afford those who settled the trust
(living overseas) with an added level of comfort. Settlors could
appoint someone they knew and trusted (eg, personal advisor/lawyer)
as Protector to essentially monitor the offshore trustee who was in
many cases not well known to the settlors.

In February 2023, Bermuda’s Court of Appeal issued an
important judgment about the role Protectors should play when
exercising a power of consent over the exercise of discretionary
powers by a trustee: X Trusts [2023] CA (Bda) 4 Civ. The
judgment clarifies a question that has arisen in other
jurisdictions lately, as to whether the role of Protectors is a
narrow role (confined to ensuring the trustee’s decision is a
rationale and valid one), or a wider role (consistent with
Protectors enjoying an independent decision-making power of their
own). The Court of Appeal adopted the narrow role (subject to the
exact wording of the trust deed) in a comprehensive judgment that
provides detailed analysis of the role of Protectors. It is not
known if the decision is being appealed to the Privy Council.

FAIR VALUE CLAIMS

In Bermuda minority shareholders are entitled to be paid fair
value for their shares on the amalgamation or merger of public
companies. Dissenting shareholders may bring a ‘fair value’
claim against the company, contending that the price paid to them
for their shares did not represent fair value. The claim is
quantified as the difference in value between the company’s
offer for the shares, and the amount assessed by the court as the
fair value at the time of the amalgamation/merger.

A number of fair value cases are progressing through the courts
which have given rise to significant issues concerning the standing
of dissenting shareholders to bring fair value claims, the extent
to which a company can claim privilege against a shareholder in
respect of communications prior to the amalgamation/merger, and the
obligations of a company to disclose documents held by a
subsidiary, which turns on whether the parent company exercises
‘practical control’ over the subsidiary.

COURT OF APPEAL RULES ON BYELAW INDEMNITIES

Under Bermuda law it is permissible for a company to indemnify
its directors against liability to the company in respect of
wrongful conduct falling short of fraud and dishonesty (e.g.,
negligence or breach of trust, provided there is no
fraud/dishonesty involved): section 98 of the Companies Act 1981.
The provision extends to any officer of the company, or any person
employed by the company as an auditor.

In June 2023, the Court of Appeal delivered a judgment
confirming that the byelaw indemnity of Global Distressed Alpha
Capital I Limited did not apply to a claim to account for unlawful
profits or gains, even where allegations of dishonesty had been
made. The decision turned on the proper interpretation of that
company’s specific byelaws. The Court of Appeal found that the
company’s broadly drafted indemnity was inconsistent with a
(separate) waiver provision contained in the byelaws, such that it
was not possible to give the directors the benefit of a carte
blanche indemnity: Global Distressed Alpha Capital I Limited v
Herman
[2023] CA (Bda) 12 Civ.

First Published in Chambers and Partners.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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