Argentine Holdings v BA Hotel

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 24 March 1997
• Court: Grand Court (Cayman Islands)
• Date: 24 March 1997

Grand Court

(Smellie, J.)

ARGENTINE HOLDINGS (CAYMAN) LIMITED

and

BUENOS AIRES HOTEL CORPORATION S.A. and SEVEN OTHERS

A. Bueno, Q.C., C.G. Quin and D.A. Harris for the plaintiff;

L.F.R. Cohen, Q.C. and H. St.J. Moses for the eighth defendant;

The other defendants did not appear and were not represented.

Cases cited:

(1) Adamson, Ex p., In re Collie, [1878] 8 Ch. D. 807, considered.

(2) Balabel v. Air India, [1988] Ch. 317; [1988] 2 All E.R. 246, dicta of Taylor, L.J. applied.

(3) Barclays Bank PLC v. Eustice, [1995] 1 W.L.R. 1238; [1995] 4 All E.R. 511.

(4) Bartlett v. Barclays Bank Trust Co. Ltd. (No. 2), [1980] Ch. 539; [1980] 2 All E.R. 92.

(5) Bullivant v. Att. Gen. (Victoria), [1901] A.C. 196; [1900-3] All E.R. Rep. 812, applied.

(6) Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853; [1966] 2 All E.R. 536, applied.

(7) Dawson, Re, Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd., [1966] 2 N.S.W.R. 211; (1966), 84 W.N. (N.S.W.) 399, applied.

(8) Gamlen Chemical Co. (U.K.) Ltd. v. Rochem Ltd.WLR[1980] 1 W.L.R. 614; [1980] 1 All E.R. 1049.

(9) Hogg v. Cramphorn Ltd., [1967] Ch. 254; [1966] 3 All E.R. 420.

(10) Home & Overseas Ins. Co. Ltd. v. Mentor Ins. Co. (U.K.), [1990] 1 W.L.R. 153; [1989] 3 All E.R. 74.

(11) International Credit & Inv. Co. (Overseas) Ltd. v. Adham, [1994] BCLC 66, dicta of Harman J. applied.

(12) International Credit & Inv. Co. (Overseas) Ltd. v. Adham, 1996 CILR 89.

(13) Kilderkin Invs. v. Player1984-85 CILR 63, applied.

(14) Minter v. Priest, [1929] 1 K.B. 655.

(15) Metzger v. D.H.S.S., [1978] 1 W.L.R. 1046; [1977] 3 All E.R. 444.

(16) Moss S.S. Co. Ltd. v. Whinney, [1912] A.C. 254; [1911-13] All E.R. Rep. 344, observations of Lord Atkinson applied.

(17) Nocton v. Ashburton (Lord), [1914] A.C. 932; [1914-15] All E.R. Rep. 45, dicta of Viscount Haldane, L.C. applied.

(18) Patten v. Burke Publishing Co. Ltd., [1991] 1 W.L.R. 541; [1991] 2 All E.R. 821.

(19) Smith (Howard) Ltd. v. Ampol Petroleum Ltd., [1974] A.C. 821; [1974] 1 All E.R. 1126.

Legislation construed:

Grand Court Rules, 1995, O.13, r.6(1): The relevant terms of this paragraph are set out at page 95, lines 13–20.

O.14, r.1: The relevant terms of this rule are set out at page 95, lines 3–9.

Civil Procedure-judgments and orders-default judgment-under Grand Court Rules, O.13, r.6(1) and O.14, r.1(1), plaintiff with claim falling outside O.13, rr. 1-4 and within O.14, r.1(2) may apply for summary judgment against defendant properly served who fails to acknowledge service or give notice of intention to defend and has no defence to claim

Attorneys-at-Law-professional privilege-conduct of company business-evidence of attorney concerning his conduct of corporate client”s business not privileged if acted in capacity as company officer rather than as legal adviser-evidence of own involvement in fraudulent dealings admissible against client

Evidence-privilege-unlawful purposes-evidence concerning events and documents arising from fraudulent scheme not privileged

Evidence-witnesses-credibility-evidence of witness testifying under civil immunity admissible-witness”s participation in defendants” fraudulent dealings relevant only to weight given to evidence

Companies-receivers-effect of receivership order-directors” powers to conduct company business lapse upon court”s appointment of receiver-business transacted by directors with notice of court order may be set aside

Companies-directors-breach of fiduciary duty-breach for directors to transfer shares despite receivership order with intention of defeating company”s creditors-transfers may be declared void

The plaintiff company brought an action against the defendants seeking declaratory relief and damages in respect of fraud and breach of fiduciary duty.

The plaintiff, a Cayman company, was the sole shareholder in the first and second defendants, both Panamanian companies. In the course of the liquidation of the BCCI group of companies, both the Grand Court and the English High Court ordered that certain companies-including that owning the plaintiff-and the assets of companies controlled by them, not be dealt with or disposed of by Ghaith Pharaon, a director and major

shareholder in the group. The plaintiff company was placed in receivership by the Grand Court.

Following the trial of related proceedings against Ghaith Pharaon and several companies under his control (reported at 1996 CILR 89) in which the receiver was instructed to collect in those companies” assets, the present proceedings were commenced. The sixth defendant, a former director and secretary of the plaintiff and the first defendant and legal adviser to companies in the BCCI group, gave evidence that following the receivership order he and the fifth and seventh defendants held meetings of those companies and passed resolutions transferring shares in the first and second defendant companies to the third and fourth defendant companies for no consideration, with the intention of defeating the creditors of the owner of the plaintiff company. He gave his evidence in exchange for immunity from liability, under an agreement with the liquidators of BCCI. His evidence included details of how, on the instructions of Ghaith Pharaon”s own attorney, company accounts had been falsified to conceal the transactions.

The plaintiff was unable to effect service of the proceedings on the third and fourth defendant companies by any practicable means, whilst the fifth and seventh defendants failed to acknowledge service or give notice of intention to defend. The plaintiff applied for summary judgment against all the defendants except the third, fourth and sixth.

The defendants submitted that (a) the plaintiff company could not obtain summary judgment against the fifth and seventh defendants since O.14, r.1 laid down that this remedy was available only against a defendant who had issued notice of intention to defend within the prescribed time; (b) the plaintiff could not show that the defendants had no defence to its claims, since its cause of action was founded upon evidence of communications between the sixth defendant and the companies to which he was legal adviser, which was subject to legal professional privilege and therefore inadmissible; (c) alternatively, such evidence was protected from disclosure by reason of the confidential relationship between the companies as employers and the sixth defendant as employee; and (d) in any event the evidence was unreliable since the sixth defendant was induced by the promise of immunity from liability and had breached undertakings given to his former employers, in reliance on which they had not sought injunctions to restrain him from testifying.

The plaintiff submitted in reply that (a) since the remedies it sought were equitable, it was entitled under the Grand Court Rules, O.13, r.6(1) to proceed against the fifth and seventh defendants as if they had given notice of intention to defend, and could therefore properly apply for summary judgment against them and all other defendants upon whom service had been effected; (b) the evidence of the sixth defendant could not be challenged as privileged and inadmissible, since he had been acting at the material time not as a legal adviser but as an officer of the plaintiff and first defendant companies and, indirectly, upon the advice of Ghaith Pharaon”s own attorney; (c) moreover, communications between

an employer and its employee were not subject to privilege under any circumstances; (d) privilege could not, in any event, attach to documents and communications (such as the relevant share transfers and company accounts) which had come into being in furtherance of an unlawful scheme; and (e) the sixth defendant”s motives for giving his evidence did not affect its admissibility, but were relevant only to its weight and in the present case, the court had before it corroborative evidence from independent sources.

Held, granting the declarations and awarding the damages sought:

(1) Since the plaintiff claimed relief which fell within the scope of O.13, r.6(1)-namely, outside rr. 1-4-and within O.14, r.1(2) of the Grand Court Rules, it was entitled, as against those defendants whom it had proved had been served with process, to proceed as if they had given notice of intention to defend the proceedings, and to apply for summary judgment against them under O.14, r.1(1) (page 95, lines 1–34; page 96, lines 22–34).

(2) An examination of the merits of the plaintiff”s application, without which the court could not grant declaratory relief, revealed that the sixth defendant”s evidence was admissible to show that the defendants had no defence to the action. Since it did not arise from his role as legal adviser to the defendant companies or Ghaith Pharaon but from his role as a company officer, his evidence did not attract professional privilege. Nor was there any reason for the evidence to be withheld merely because it concerned communications between an employer and its employee (page 94, lines 30–33; page 105, lines 31–37; page 106, line 20 – page 107, line 24).

(3) In any event, since the events described in his affidavit and the documents created at that time came into existence as part of an unlawful scheme to defraud the creditors of the companies concerned, the defendants could not claim that that evidence was privileged (page 105, line 38 – page 106, line 19).

(4) Whilst the civil immunity agreement between the liquidators of BCCI and the sixth defendant (under which he had given evidence in several other jurisdictions in respect of the group”s business affairs) was a factor affecting the weight to be given to his evidence, it did not affect its admissibility (page 107, lines 25–41).

(5) Since the plaintiff was a Cayman Islands incorporated company, the power of its directors to conduct business on its behalf was governed by Cayman...