The Cayman Islands Court of Appeal has handed down its eagerly awaited judgment in the long running case of Goodman v DMS Governance Ltd, dismissing the appeal and likely sounding the death knell in what has proven to be an ill-fated piece of litigation for Mr Goodman.
Background- Grand Court Rulings
Dawn Cummings of DMS was an independent director of Tangerine Investment Management Ltd, the investment manager for funds established by Axiom which provided loans to English law firms before Axiom’s high profile collapse in 2012 amidst allegations of fraud on the part of its founders. Upon Tangerine’s liquidation, the liquidators assigned their claims against Ms Cummings and DMS to Mr Goodman. In the first bout of this litigation, Mr Goodman argued by way of preliminary issue that Ms Cummings could not rely on exoneration and indemnification provisions in Tangerine’s articles where there was no written contract between them incorporating those provisions into the terms of her appointment. The Grand Court having emphatically dismissed these preliminary issues, Mr Goodman discontinued the claim against Ms Cummings, with the case against DMS also failing at a later hearing. At first instance, Mangatal J ordered reverse summary judgment in favour of DMS against Mr Goodman, finding that Tangerine had no cause of action against DMS, and accordingly nothing to assign to Mr Goodman; Ms Cummings could not be liable to Tangerine except in cases of wilful default or neglect, under the terms of the indemnity she was entitled to rely on, and Mr Goodman’s pleadings did not amount to an allegation of wilful default or neglect. Neither were DMS vicariously liable for Ms Cummings’ acts as independent director.
Court of Appeal judgment – 27 April 2020
During the hearing of the appeal, Mr Goodman’s claim of vicarious liability was abandoned, as it was conceded that since Ms Cummings was not liable, in view of the terms of her indemnity, DMS could not be liable. Interestingly, the Court found in any event the claim of vicarious liability could not succeed, because Ms Cummings’ alleged breaches of duty were made in her capacity as director of Tangerine, and not as an employee of DMS.
The Court did not agree with Mangatal J that Mr Goodman’s pleadings did not amount to an allegation of wilful neglect or default, as they could found a claim of recklessness falling within the definition of ‘wilfulness’ set out in Weavering.
Mr Goodman’s final argument, that the case should go to trial on public policy grounds, fared no better; the alleged public policy was that the control by statute of the indemnification of directors, common in other jurisdictions, had not been, but should be, adopted in Cayman. The Court neatly disposed of this argument, saying that Cayman had chosen not to adopt statutory regulation, and that it was not for the Court to substitute its own views for those of the legislature.
This judgment will be of further comfort, both to independent directors and other service providers, in that it demonstrates the Courts’ ongoing desire to protect and preserve the indemnification regime in this jurisdiction. It will also allay the fears of the many businesses in Cayman offering the services of such directors given the Court’s recognition of the separation of the employment relationship with their employer from the role of a director. It remains to be seen whether Mr Goodman will appeal this judgment to the Privy Council.