Bankamerica Trust v Trans-World Telecom Holdings

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 15 March 1999
• Court: Grand Court (Cayman Islands)
• Date: 15 March 1999

Grand Court

(Smellie, C.J.)

BANKAMERICA TRUST AND BANKING CORPORATION (CAYMAN) LIMITED

and

TRANS-WORLD TELECOM HOLDINGS LIMITED and HELLENIC TELECOMMUNICATIONS ORGANISATION S.A.

Mrs. A.L. Peccarino for the applicant bank;

S.R. Andrew for the first claimant;

J.R. McDonough and A. Walters for the second claimant.

Cases cited:

(1) Ellerine Bros. (Pty.) Ltd. v. Klinger, [1982] 1 W.L.R. 1375; [1982] 2 All E.R. 737, not followed.

(2) Halki Shipping Corp. v. Sopex Oils Ltd., [1998] 1 W.L.R. 726; [1998] 2 All E.R. 23, not followed.

(3) Investors” Compensation Scheme Ltd. v. West Bromwich Bldg. Socy., [1998] 1 W.L.R. 896; [1998] 1 All E.R. 98.

(4) Mannai Inv. Co. Ltd. v. Eagle Star Life Assur. Co. Ltd., [1997] A.C. 749; [1997] 3 All E.R. 352, followed.

(5) Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei G.m.b.H., [1977] 1 W.L.R. 713; [1977] 2 All E.R. 463, applied.

(6) Phoenix Timber Co. Ltd.”s Application, In re, [1958] 2 Q.B. 1; [1958] 1 All E.R. 815, applied.

(7) Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 1 W.L.R. 989; [1976] 3 All E.R. 570.

Legislation construed:

Arbitration Law (1996 Revision) (Law 2 of 1974, revised 1996), s.6: The relevant terms of this section are set out at page 120, lines 8–19.

s.7: The relevant terms of this section are set out at page 120, lines 20–25.

Foreign Arbitral Awards Enforcement Law (1997 Revision) (Law 30 of 1975, revised 1997), s.3: The relevant terms of this section are set out at page 122, lines 6–7.

s.4: The relevant terms of this section are set out at page 120, lines 28–39.

Grand Court Rules, O.17, r.8:

‘Subject to the foregoing rules of this Order, the Court may in or for the purposes of any interpleader proceedings make such an order as to costs or any other matter as it thinks just.’

Arbitration-foreign arbitral award-stay of Cayman proceedings-interpleader proceedings-Foreign Arbitral Awards Enforcement Law (1997 Revision), s.4 applies with Arbitration Law (1996 Revision), s.7 to application to stay interpleader proceedings involving competing claims by parties to foreign arbitration agreement

Arbitration-foreign arbitral award-stay of Cayman proceedings-under Foreign Arbitral Awards Enforcement Law (1997 Revision), s.4 onus on party opposing stay of local proceedings to show no real or genuine dispute to be referred to arbitration-suitability of dispute for trial and costs considerations normally irrelevant

Arbitration-foreign arbitral award-stay of Cayman proceedings-scope of dispute-construction of provisions for claims under contractual warranties may be ‘dispute’ for purposes of Foreign Arbitral Awards Enforcement Law (1997 Revision), s.4

The applicant bank applied for interpleader relief in respect of moneys held in the accounts of the second claimant.

The second claimant, OTE, entered into a contract with TWT for the purchase of a national telephone company, containing warranties given by TWT and secured by a charge over the assets of the first claimant, its Cayman-registered parent company, TWTH. The contract also contained provisions for the reference of ‘any claim, dispute or difference’ to arbitration in the United Kingdom. Any claim by the OTE under the warranties was to be notified to TWT, TWTH, TWTA (a US subsidiary) and the bank, with an estimate of loss relating to the claim, before a specified release date.

A notice of claim dated three days before the release date was faxed to TWT and TWTA, but the fax number given in the contract for TWT was inoperative. Fax cover-sheets referring to the notice of claim and stating the amount of the claim were sent to the bank and to TWTH, but OTE omitted in each case to attach the notice itself. Both also received a hard copy the day before the release date, but once again only a covering letter had been dispatched and the notice was absent. TWTA was closed for

business on that day and received its copy two days after the release date. TWT”s copy was further delayed for other reasons.

The bank, considering itself to have been put on notice of a claim, refused to release to TWTH funds from the accounts containing moneys allocated for the payment of claims. Both TWTH and OTE threatened proceedings against the bank, which sought interpleader relief under the Grand Court Rules, O.17. Once the arbitration process was commenced, OTE applied for the interpleader proceedings to be stayed.

The court ordered an interim stay of the interpleader proceedings and an injunction restraining the claimants from taking further proceedings against the bank pending its decision on whether there was a dispute which should be referred to arbitration.

TWTH submitted that (a) since OTE had given no proper notice of its claim, its obligations to OTE had been discharged on the release date and there was no real or genuine dispute to be referred to arbitration; (b) accordingly, for the purposes of s.6 of the Arbitration Law (1996 Revision), OTE could show no sufficient reason for a stay of the interpleader proceedings to allow the matter to be so referred and the court should not exercise its discretion under s.7 to order the contract to be complied with; (c) the removal of the need to show a genuine dispute for resolution by arbitration, which had occurred in English law since the enactment of the Arbitration Law (1996 Revision) here, was not a part of Cayman law; and (d) the court should proceed to deal with the matter by summary judgment under O.14.

OTE submitted in reply that (a) since both TWTH and the bank had been notified of the existence and magnitude of the claim by the fax cover sheet and covering letters which they had received before the release date, there was at least an arguable dispute as to whether a claim had been made, which according to the contract should be referred to arbitration; (b) since the Foreign Arbitral Awards Enforcement Law, s.4 (rather than the Arbitration Law, s.6) applied when the arbitration was not a domestic one, the court was obliged to stay the interpleader proceedings unless satisfied by TWTH that there was no dispute to be referred.

Held, ordering a stay of the interpleader proceedings:

(1) Since the agreement specified that arbitration was to take place in the United Kingdom, the Foreign Arbitral Awards Enforcement Law (1997 Revision), s.4 and not s.6 of the Arbitration Law (1996 Revision) governed whether the court should stay proceedings in the Cayman Islands to allow the arbitration to go ahead. In interpleader proceedings (in the absence of a parallel provision in the Foreign Arbitral Awards Enforcement Law) this applied together with s.7 of the Arbitration Law, conferring a discretion on the court to order that the opposing claimants” dispute be determined in accordance with the contract (page 122, line 45 – page 122, line 7).

(2) Under s.4 and in contrast to s.6, the onus lay on TWTH to show

that there was no dispute between the parties, failing which the court was obliged (rather than having a discretion as under s.6) to impose a stay. In common with s.6, however, only a real or genuine dispute would suffice for these purposes and, in practice under either statute, a stay would be granted unless no such dispute existed. The discretion under s.7 was to be exercised in the same way. Neither the suitability of the particular dispute for trial by a court nor considerations of costs were usually relevant to the court”s decision. Developments in English law under the 1996 Arbitration Act were not part of Cayman law (page 119, lines 8–33; page 121, lines 19–44; page 122, lines 8–15; page 123, line 8 – page 124, line 3).

(3) There was a real and genuine dispute as to whether a claim under the warranties had been made by OTE, since TWTH and the bank had had actual notice before the release date of the existence and amount of such a claim, and the contract did not express the form of the notice to be crucial to the payment of a claim from retained funds. The failure to notify TWT was partly the result of its having provided an inoperative fax number and, in the light of the above, was arguably not strictly necessary. It was quite possible, therefore, in the interests of giving commercial effect to the parties” intentions at the time of the contract and in line with recent practice in the English courts, that an English arbitrator would construe the notice provisions broadly. Accordingly, the court would stay the interpleader proceedings pending the outcome of the arbitration and grant an injunction restraining the claimants from bringing further proceedings against the bank (page 124, lines 6–25; page 125, lines 9–18; page 125, line 31 – page 126, line 2).

SMELLIE, C.J.: Even when set in the context of the usual interna
15	tional scope of litigation coming before this court, the present matter
could hardly be described as commonplace. The national telephone
company of Armenia, owned jointly by the Armenian Government and
Trans-World Telecom Ltd. (‘TWT’), a Guernsey company, was bought
by the Hellenic Telecommunications Organisation (‘OTE’). Certain of
20	the representations and warranties given under the purchase agreement to
OTE by TWT were guaranteed and secured by a charge over assets of
TWT”s parent company (‘TWTH’), a Cayman Islands company which
also owns another interested subsidiary in the United States (‘TWTA’).
Of pivotal importance to the present application are the provisions in the
25	share purchase and guarantee and charge agreements for the reference of
any disputes arising to arbitration by the International Chamber of
Commerce in London.
The issue before me now is whether competing claims between OTE
and TWTH under these agreements give rise to a dispute which should be
30	referred to that process of arbitration.
Interpleader relief
The matter comes before this court on the bank”s application for

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