Article

Prior History: Cruise Charter Management 1, LP v. Attorney General of Canada, No. 08-2054 (RMC), 2014 WL 3573594 (D.D.C., July 21, 2014) [USA], noted in 2015 Annual Review of International Banking Law & Practice at 395; Cruise Connections Charter Mgmt. 1, LP v. Ag. Of Can., No. 08-2054, 2013 WL 4780092 (D.D.C., Sept. 9, 2013) [USA], noted in 2014 Annual Review of International Banking Law & Practice at 430; Cruise Connections Charter Mgmt. 1, LP v. Ag. Of Can., 634 F.Supp.2d 89 (D.D.C. 2009) [USA], noted in 2010 Annual Review of International Banking Law & Practice at 476.

Note: To provide for housing for extra security personnel at the Vancouver 2010 Winter Olympics, the Royal Canadian Mounted Police (RCMP) awarded a contract to Cruise Connections Charter Management 1, LP (Broker/Applicant) to arrange berthing of two cruise ships in Vancouver harbor for CAN 54 million.

In 2008, John Sessions (Surety) obtained a “nonpayable” letter of credit of USD 50,575,000 from South Community Bank and Trust (Issuer) on behalf of Cruise Connections Charger Management GP, Inc. and Cruise Connections Charter Management 1 LP (together Broker/Applicants) for the benefit of Her Majesty the Queen in Right of Canada (Beneficiary), as required by the contract with RCMP. In a prior case, the North Carolina Judge noted that the “self-identified ‘non-payable Letter of Credit’ intimates that [Surety] never put any money at risk, which could complicate any prospective effort to collect.” 2015 Annual Review at 395. In exchange, Surety would receive USD 5,057,500 from potential contract proceeds.

When post-award negotiations broke down, Broker/Applicant sued the Canadian Attorney General, the RCMP, and Beneficiary in the U.S. federal courts in Washington, D.C. for breach of contract and deceptive trade practices under North Carolina law (hereafter “the Canadian lawsuit”). Broker/Applicants alleged they had no obligation to pay Surety. Applying British Columbia law, the United States District Court for the District of Columbia, Collyer, J., found for Broker/Applicants and ruled that Broker/Applicants were not required to deduct USD 5,057,500 as an anticipated expense of contract performance. In a separate hearing for damages, the parties settled on damages of USD 16,900,000 to be paid by Beneficiary to Broker/Applicants by 12 January 2015. Parties also entered into a forbearance and escrow agreement, which recognized a dispute between Surety and Broker/Applicants, but stated the parties to the agreement are "willing to forbear from enforcing or taking other action on the Claims until the Canada[ian] Lawsuit is resolved . . . ." The parties also agreed to deposit all proceeds arising out of the Canadian lawsuit into a trust account.

In a separate action in North Carolina state court, Surety filed a verified complaint and writ of attachment seeking damages for breach of his contract with Broker/Applicants and injunctive relief preventing the parties or their agents from disbursing the escrow funds pende lite. Following Surety’s service of discovery requests to the Broker/Applicants, dated 19 March 2016, Broker/Applicants objected on grounds of work product privilege and attorney-client privilege. Surety filed a motion to compel the requested discovery. The Forsyth County Superior Court, Burke, J., granted in part and denied in part the motion. The Judge ordered Broker/Applicants to produce all the documents withheld from production based on a claim of "work product doctrine, joint defense privilege" where the items are communications involving the Broker/Applicants themselves without the participation of counsel. Pursuant to the Broker/Applicants’ subsequent motion to stay the enforcement of the order granting in part and denying in part the motion to compel, the Court granted the stay pending disposition of the Broker/Applicants’ appeal of that order.

Subsequently, Surety filed a motion in the North Carolina appellate court to dismiss the Broker/Applicants’ appeal for lack of jurisdiction alleging the order appealed was interlocutory and did not affect a substantial right. The Court of Appeals of North Carolina, Hunter, J., granted the appeal but affirmed the lower court’s judgment, ruling that:

(1) an interlocutory order to produce was appealable because Broker/Applicants’ log described privilege related to each document; (2) findings were not required on Broker/Applicants’ privilege claim because they did not provide documents; (3) findings were not required on whether documents were prepared in advance of litigation because they were not sought; (4) Broker/Applicants did not show work product or joint defense doctrines applied because they did not show specific emails were prepared or obtained due to the prospect of litigation or exchanged for such purpose; (5) they did not show attorney-client privilege barred disclosing email subject lines because they did not show these had privileged information; (6) in camera review was not required because no request was made, and the documents were not submitted.

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