Interest on Dividends: "Table A" Clarified
16 May 2012
In a recent judgment in Tempo Group Ltd v Fortuna Development Corporation (FSD 82 of 2011), Justice Henderson determined the question of whether the plaintiff was entitled to statutory pre-judgment interest on a judgment for payment of unpaid dividends.
Tempo is a minority shareholder in Fortuna Development Corporation ("Fortuna"). Tempo sued Fortuna for dividends which had been declared but not paid. Tempo had obtained judgment for about US$6m, and applied for an award of pre-judgment interest on this amount pursuant to section 34 of the Judicature Law (2007 Revision).
Fortuna resisted Tempo's application on the basis that the company's Articles contained a provision which stated that "no dividend shall bear interest against the Company". This provision is typical for Cayman Islands companies and is contained in the "Table A" Articles appended to the Companies Law (2011 Revision).
Fortuna argued that the court should give effect to the wording of the Article by declining to award any statutory interest.
Justice Henderson referred to two Hong Kong authorities and one Scottish authority on the point, which indicated that Courts had not awarded interest in similar circumstances. However, none of these cases were binding on the Cayman Islands Court. The Judge followed English authority which held that the declaration of a divided creates an enforceable debt owed by the company to shareholders. At common law, simple debts do not bear interest and damages may not be awarded for late payment. The usual Table A wording in a company's Articles therefore affirms what would be the common law rule in any event. The Judge noted that there is often a lapse of time between the declaration of a dividend and its payment. Following the Table A wording in the Articles, the Judge determined that shareholders are taken to have surrendered any right to interest during the intervening period. However, the shareholders have not surrendered their right to invoke section 34 of the Judicature Law to recover interest in litigation commenced against the company. Had the parties intended to achieve that result, more specific wording would have been included in the Articles. The Judge ruled that section 34 of the Judicature Law permits the Court to award interest on any debt for which judgment is given, and that this power is discretionary.
Therefore, the Judge ruled that Tempo had surrendered its right to interest on divided debts up to, but not past the date the litigation was commenced. The Judge awarded Tempo simple interest at the prescribed rates from the date that the action was commenced to the date of judgment, resulting in an interest award of approximately US$2m.
Maples and Calder acted for Tempo. The parties have not appealed this decision.
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