Created Date:
20 December 2023

Bermuda Court appoints a receiver over foreign assets to aid enforcement of foreign arbitral award

In a notable recent judgment, the Bermuda Supreme Court has affirmed its willingness to aid the enforcement of foreign arbitration awards (even in the absence of assets within the jurisdiction) by appointing a receiver by way of equitable execution over the operating profits of a major hotel in Panama City managed by a Bermuda company.

The decision is notable because it considers in detail the modern state of the law regarding the Court's equitable jurisdiction to appoint receivers to collect judgment debts, confirming once again that the remedy has developed incrementally into one of the most powerful and flexible tools available to judgment creditors when faced with sophisticated judgment debtors.    

Some of the key points to emerge from the judgment are as follows:

  1. The Supreme Court of Bermuda will adopt a stringently pro-enforcement policy towards enforcement of foreign arbitral awards pursuant to Bermuda's obligations under the New York Convention.
  2. The presence of assets within Bermuda is not a precondition to the recognition and enforcement of a foreign arbitral award in Bermuda.
  3. A receiver by way of equitable execution may be appointed over a judgment debtor's assets when the demands of justice require it in all the circumstances – even where the judgment debtor has no direct connection to Bermuda and has no assets in the jurisdiction.
  4. When appointing a receiver, the Court will of course be concerned to protect the interests of third parties, but the Court is nevertheless willing to countenance interference in the commercial operations of non-parties where the interests of justice demand it.  

What were the facts?

The case in the Bermuda Supreme Court is Trump Panama Hotel Management LLC & Anor v Hotel TOC Inc & Ors [2023] SC (Bda) 74 Civ. (12 October 2023).

The plaintiffs are the former managers of a hotel in Panama City now known as the JW Marriott Panama, but formerly the Trump International Hotel & Tower Panama.

The first defendant, a Panamanian company, is one of the joint owners of the hotel. The second defendant, a Bermuda company, is the current manager of the hotel. The second defendant is an affiliate of Marriott Worldwide Corporation, the global hotel management chain.

A dispute arose between the plaintiffs and the first defendant after the first defendant terminated the hotel management agreement between them. The dispute was arbitrated under the ICC Rules, and the arbitration was seated in New York (though the substantive hearing was physically held in Panama City).

The tribunal awarded the plaintiffs substantial damages for loss of profits. The first defendant failed to pay the award voluntarily.

Among other enforcement actions, the plaintiffs applied for recognition and enforcement of the award in Bermuda under the New York Convention (which has the force of law in Bermuda). Judgment was entered by the Bermuda Supreme Court in the terms of the award, and the plaintiffs were given leave to enforce the award in the same manner as a domestic judgment.  

Disclosure was sought from the second defendant, the current hotel manager, of the management agreement as between it and the first defendant. The management agreement confirmed what is standard practice in the hotel management industry, which is that the current manager maintained exclusive control over both the operating revenue and profit of the hotel. All revenues generated by the hotel are deposited into bank accounts located in Panama.

The plaintiffs applied for the appointment of a receiver by way of equitable execution over the hotel revenues and any profit available for distribution to the first defendant and the other owners of the hotel.

What was the result?

In the exercise of its broad discretion, the Court agreed to appoint a receiver over the distributable profit of the hotel but not the revenues, holding that to appoint a receiver over the revenues would be impractical and excessively interfere with the second defendant's right to manage the hotel.

Importantly, the Court rejected the arguments of the first and second defendant to the effect that the plaintiffs should have sought to enforce the award in Panama given the location of the relevant assets. The Court concluded that the plaintiffs had the right to choose, based on the New York Convention, the jurisdiction in which they considered they had the best prospects of enforcement. The Court concluded that the plaintiffs had made a legitimate choice to pursue enforcement proceedings in Bermuda because the third party which exclusively controls the award debtor's assets is incorporated on the island. 

Appointment of a receiver by way of equitable execution

The judgment contains an authoritative statement of the principles the Bermuda Court will apply when dealing with an application for the appointment of a receiver to collect a judgment debt.

The Bermuda Court reiterated that the fundamental test is whether the appointment is "just and convenient". The Court also confirmed that the interests of justice is always the primary consideration, including the policy of the law that judgments of the Court should be complied with and, if necessary, enforced.

Further, the Court held that:

  1. The equitable discretion to appoint a receiver will be exercised where execution of the judgment at common law is either prevented or impractical (and the Court will take all legal and practical circumstances into account).
  2. A receiver by way of equitable execution is an officer of the Court, not the agent of the judgment creditor.
  3. The appointment of a receiver is a highly flexible discretionary remedy capable of incremental development based on established principles.
  4. A receiver should be appointed if there is a reasonable prospect that the appointment will assist enforcement of the judgment and there is a real prospect the appointment will serve a useful purpose.
  5. A receiver may be appointed over any asset of the judgment debtor, including assets in which the debtor has a beneficial interest.
  6. A judgment creditor need only establish a good arguable case that an asset belongs to a judgment debtor in order for a receiver to be appointed over the asset. Any dispute as to the legal or beneficial ownership of the asset can be resolved by the receiver and the Court after the appointment has been made.
  7. The Court may make any mandatory ancillary orders it considers necessary to support the work of the receiver.
  8. There is no rule of law that a receiver by way of equitable execution can only be appointed over assets that are amenable to execution at common law. In fact:

a) A receiver can be appointed over assets located outside the jurisdiction (this is the case even if the courts in the jurisdiction in which the assets are located would not recognise the receivership);

b) A receiver can be appointed to collect both current and future debts; and

c) A receiver can be appointed to collect future receipts from a defined asset.

A link to the full judgment can be found here.

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