Kenneth M Krys (as Liquidator of Fairfield Sentry Ltd (In Liquidation)) v Farnum Place LLC (Virgin Islands)

An appellate court must take account of a material change in circumstances occurring before judgment, including an event resulting from the very appeal under consideration. Where approval of a transaction is contractually conditional on a final order of another court, expressly including the possibility of appeals, pursuing such an appeal is not thereby an impermissible attempt to frustrate the contract. A liquidator’s court-supervised role does not prevent a properly authorised appeal where relevant rights remain conditional. Retrospective sanction may be granted where refusal would produce a perverse result and the appeal has substantially benefited the liquidation estate.

The liquidator of Fairfield Sentry Ltd sought sanction to pursue a second appeal in the United States concerning the sale to Farnum Place LLC of Sentry’s claim in the liquidation of Bernard L Madoff Investment Securities LLC. Bannister J refused sanction. The Eastern Caribbean Court of Appeal dismissed the appeal on 10 March 2022, holding that Bannister J had properly exercised his discretion.

Before the Court of Appeal delivered judgment, the United States Court of Appeals for the Second Circuit had allowed the proposed appeal and remanded the matter for review under section 363 of the US Bankruptcy Code. The central issues were whether that decision was a material change of circumstances and whether sanction should then be granted.

The Board advised that the appeal be allowed and that sanction be granted for the Liquidator’s actions in bringing the US Appeal.

1. Material change in circumstances. The decision of the United States Court of Appeals for the Second Circuit was a material change which the Court of Appeal had to take into account. It was the outcome of the very appeal for which sanction had been sought. It also ended the indeterminate delay on which Bannister J had relied. The Court of Appeal’s order was therefore set aside.
2. Contractual effect of the appeal process. The Trade Confirmation made completion conditional on approval by a Final Order of the US Bankruptcy Court. That definition expressly contemplated appeals. The Second Circuit held that section 363 applied and remanded the matter for a proper review. On rehearing, the Bankruptcy Court disapproved the sale. This sequence was consistent with the contract.
3. No proper basis for the original objections. Bannister J’s reasoning that the appeal would frustrate the contract contradicted the contractual terms: a step expressly contemplated by the contract could not, by being taken, be a step unavailable to Sentry. No supporting New York law evidence was identified. The related conclusion that the appeal breached the implied covenant of good faith and fair dealing was likewise unsupported and had not been argued in the US appeals.
4. Liquidator’s position and accrued rights. The reliance on Ex parte James was based on a misunderstanding. Farnum had no accrued rights to acquire the claim before a Final Order approving the assignment. The liquidator was not using a technicality to defeat accrued rights, and the court-supervised nature of the office did not justify refusing sanction on that basis.
5. Retrospective sanction and practical consequence. Once the Second Circuit had allowed the appeal, refusal of sanction would not assist Farnum, because no Final Order approving the assignment existed and none was later obtained. The Board did not resolve whether lack of sanction would invalidate the US Appeal or deprive the Liquidator of authority for later steps. It held that those points could not assist Farnum, and that denying recovery of costs from the estate despite the substantial benefit achieved would be perverse.

• Privy Council: Appeal allowed. The Board set aside the Court of Appeal’s order and advised that sanction be granted for the Liquidator’s actions in bringing the US Appeal.
• Eastern Caribbean Court of Appeal: Appeal from Bannister J’s refusal of sanction dismissed on 10 March 2022. The court held that Bannister J had properly exercised his discretion and that appellate intervention was unwarranted.
• BVI High Court: Bannister J refused sanction for the second US appeal on 22 July 2013.