Banco Provincial Intl v Windsor Invs Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 03 September 1997
• Date: 03 September 1997
• Court: Grand Court (Cayman Islands)

Grand Court

(Smellie, J.)

BANCO PROVINCIAL INTERNATIONAL N.V.

and

WINDSOR INVESTMENTS LIMITED and DEPOSIT GUARANTEE AND BANK FUND OF VENEZUELA

A.J. Jones for the plaintiff;

A. Hochhauser, Q.C. and J.R. McDonough for the intervenor;

The defendant did not appear and was not represented.

Cases cited:

(1) Bank voor Handel en Scheepvaart N.V. v. Slatford, [1953] 1 Q.B. 248, distinguished.

(2) Bankers Trust Intl. Ltd. v. Todd Shipyards Corp., The Halcyon Isle, [1981] A.C. 221; [1980] 3 All E.R. 197.

(3) Colonial Bank v. CadyELR(1890), 15 App. Cas. 267; 63 L.T. 156, dicta of Lord Herschell applied.

(4) Colorado, The, [1923] P. 102; (1923), 128 L.T. 759, dicta of Atkin, L.J. applied.

(5) Erie Beach Co. Ltd. v. Att.-Gen. (Ontario), [1930] A.C. 161; (1929), 142 L.T. 156, applied.

(6) Kahler v. Midland Bank Ltd., [1950] A.C. 24; [1949] 2 All E.R. 621, considered.

Conflict of Laws-companies-shares-competing interests in shares-nature of interests to be determined by lex causae of transactions creating interests-priority of interests to be determined by lex fori

Conflict of Laws-companies-shares-lex situs of shares is law of jurisdiction where shares registered

The intervenor applied for the discharge of a charging order made in favour of the plaintiff.

The plaintiff, a Venezuelan bank, obtained judgment in default in the British Virgin Islands against the defendant, a company registered there, in respect of a debt owed by the defendant”s parent company. The plaintiff was then granted a charging order by the Grand Court over shares in a Cayman company which were held by the defendant.

The intervenor, a financial institution charged by the Venezuelan Government with giving aid to banks in financial difficulties, claimed a prior secured interest in the shares under the terms of a financial aid contract it had made with the defendant”s associated company.

The intervenor submitted that under Venezuelan law (a) its financial aid contract with the associated company made the defendant jointly and severally liable with the aided company for the repayment of the moneys loaned under it, and the defendant”s assets (including the shares) had become fixed as security for the debt, at the latest, upon the issue of a decree by the Venezuelan banking authority allowing it to take over the associated company”s affairs; and (b) the intervenor”s interest in the defendant”s assets ranked second only to those of mortgagees and employees and, accordingly, took priority over the plaintiff”s interest, which had been, at the relevant time, as yet unsecured by the charging order.

The plaintiff submitted in reply that (a) the intervenor had no secured interest in the defendant”s Cayman-registered shares, but at best only an unsecured lien, since neither the terms of the financial aid contract, nor Venezuelan law by which it was governed, operated to give fixed security over the assets of financially-aided companies or their associated companies; (b) under the law of the registration of the shares, namely that of the Cayman Islands, the plaintiff had acquired a fixed interest in the shares when the court made the charging order over them, which took

priority over the intervenor”s interest; alternatively (c) the court could not recognize the intervenor”s interest at all, since the decree of the Venezuelan banking authority under which it had ultimately intervened in the running of the defendant”s associated company was an act of a foreign governmental agency purporting to affect ownership rights in shares registered outside its jurisdiction.

Held, dismissing the application:

(1) Venezuelan law (the lex causae) governed the contractual relationship between the intervenor and the defendant”s associated company. Once the nature of the respective interests of the plaintiff and the intervenor in the defendant”s assets had been established by that law, the order of priority to be applied to determine the appropriate remedies would be decided by the law of the court hearing the application (the lex fori), which in this case was necessarily that of the Cayman Islands as the jurisdiction in which the shares were located (page 395, lines 17–21; page 396, lines 3–11; lines 21–29).

(2) Venezuelan law operated to create an unsecured lien over the assets of financially-assisted companies and their associated companies. However, the intervenor had not taken the necessary steps in any jurisdiction to secure its interest in the assets of the defendant as a company domiciled outside Venezuela and had therefore acquired no fixed interest in them (page 396, line 44 – page 397, line 7).

(3) Accordingly, under Cayman law, the plaintiff”s interest in the shares under the foreign default judgment, now secured by a charging order granted by the Grand Court, took priority over the intervenor”s unsecured lien, and the intervenor”s application to discharge the charging order would be dismissed (page 397, lines 8–15; page 399, lines 18–21).

SMELLIE, J.: This is FOGADE”S application to discharge a charging
order absolute made over certain shares and an order for the sale of those
shares. Those orders were respectively made by this court on December
17th, 1996 and April 2nd, 1997. FOGADE applies pursuant to the Grand
5	Court Rules, O.50, r.7 as ‘a person interested in the subject matter’ of the
charging order. The ground of FOGADE”S application is that it has and, at
all material times, had a prior secured interest in the shares. FOGADE”S
application is opposed by the plaintiff (‘BPI’) in whose favour the
charging order and the order for the sale of the shares were made.
10
The Electrofinance shares
The shares are held by the defendant, Windsor Investments Ltd.
(‘Windsor’), a British Virgin Islands company, in Electrofinance Ltd., a
Cayman Islands company doing business in Venezuela. They are
15	5,111,790 shares with a book value of some US$10m. and represent 29%
of the issued share capital of Electrofinance Ltd. The shares have come to
be the subject of the present dispute in the following manner.
Windsor is the maker of a promissory note for some US$8.68m. dated
June 10th, 1993, payable to Banco Latino N.V. BPI has claimed, in
20	proceedings brought against Windsor in the British Virgin Islands, to be
the assignee (from Banco Latino N.V.) of that promissory note and thus to
be entitled to the sum of the debt which it secures. BPI and Banco Latino
N.V. are affiliates of Venezuelan banks and are licensed to do business in
the Netherlands Antilles.
25	The assignment between the two Venezuelan affiliate banks was not
examined or propounded in the evidence before me and so little is known
about it. This background is of marginal significance so I mention it only
in passing. I gather-I trust correctly-that it came about as a result of
the indebtedness (or part of it) of Windsor”s parent company, Fondo
30	Fiveca C.A. (‘Fiveca C.A.’), to Banco Latino N.V. being transferred to
BPI, with BPI being assigned the promissory note originally issued by
Windsor to Banco Latino N.V. as security. Thus it is by way of Windsor”s
promissory note that BPI claims against the shares in Electrofinance
registered in Windsor”s name.
35	At the time of the filing of BPI”s writ in the British Virgin Islands, the
debt owed by Windsor was claimed to be US$10.6m. BPI obtained a
default judgment in that action and, using that judgment to ground its
cause of action here, instituted proceedings in this court against Windsor.
Again, since no defence to BPI”s writ was filed here, BPI obtained
40	judgment in default against Windsor on September 30th, 1996. BPI then
moved to secure that judgment by obtaining the aforementioned charging
order and order for sale of the shares. The jurisdiction of this court to
make those orders is acknowledged as Electrofinance is a Cayman
company and the shares are registered in and transferable on its books
45	here: see Erie

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