Barclays Bank Plc v Kenton Capital Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 06 October 1995
• Court: Grand Court (Cayman Islands)
• Date: 06 October 1995

Grand Court

(Smellie, J.)

BARCLAYS BANK PLC

and

KENTON CAPITAL LIMITED, ETOILE LIMITED and HIGHLANDER LIMITED

D.M. Murray for the plaintiff;

C.G. Quin for the first defendant;

R.L. Nelson for the second and third defendants;

N.R.F.C. Timms for the Securities Exchange Commission.

Cases cited:

(1) Barnes v. AddyELR(1874), L.R. 9 Ch. App. 244; 43 L.J. Ch. 513, considered.

(2) Diplock, In re, Diplock v. WintleELRUNK, [1948] Ch. 465; [1948] 2 All E.R. 318; on appeal, sub nom. Ministry of Health v. Simpson, [1951] A.C. 251; [1950] 2 All E.R. 1137, applied.

(3) Hallett, In re, Knatchbull v. HallettELR(1880), 13 Ch. D. 696; [1874–80] All E.R. Rep. 793, followed.

(4) J.R.P. Plastics Ltd. v. Gordon Rossall Plastics Ltd., [1950] 1 All E.R. 241; (1950), 94 Sol. Jo. 114.

(5) Karak Rubber Co. Ltd. v. Burden (No. 2), [1972] 1 W.L.R. 602; [1972] 1 All E.R. 1210, distinguished.

(6) Mersey Docks & Harbour Bd., Ex p., [1899] 1 Q.B. 546; (1899), 68 L.J.Q.B. 540.

(7) Royal Brunei Airlines Sdn. Bhd. v. Tan Kok Ming, [1995] 2 A.C. 378; [1995] 3 All E.R. 97, applied.

(8) Schemmer v. Property Resources Ltd., [1975] Ch. 273; [1974] 3 All E.R. 451, followed.

(9) Selangor United Rubber Estates Ltd. v. Cradock (No. 3), [1968] 1 W.L.R. 1555; [1968] 2 All E.R. 1073, distinguished.

(10) Sinclair v. Brougham, [1914] A.C. 398; [1914–15] All E.R. Rep. 622, applied.

(11) Spiliada Maritime Corp. v. Cansulex Ltd., The Spiliada, [1987] A.C. 460; [1986] 3 All E.R. 843, followed.

(12) Stutts v. Premier Benefit Capital Trust, 1992–93 CILR 605, followed.

Legislation construed:

Grand Court Rules, 1995, O.17, r.7: The relevant terms of this rule are set out at page 498, lines 6–8.

Conflict of Laws-jurisdiction-forum conveniens-Cayman Islands appropriate forum for suit involving offshore investment if relevant contracts governed by Cayman law, Cayman company solicited investments, money held in Cayman Islands and proceedings further advanced in Cayman Islands

Equity-tracing action-beneficiary”s right to trace-investor making payment to intermediary for offshore investment venture subsequently cancelled for alleged illegality, under contract expressly stating that intermediary is bare trustee pending investment, entitled to trace and recover funds if reasonably identifiable and tracing not unjust

Banking-banker and customer-banker as constructive trustee––bank only liable as constructive trustee for knowing assistance in breach of trust if acted dishonestly

The plaintiff bank applied by interpleader summons for relief from competing claims by the defendants Kenton, Etoile and Highlander, to funds deposited in the bank in the name of Kenton.

Kenton was a Cayman company which solicited investments from, inter alia, the United States. 12 investors deposited money with Kenton for investment, signing standard form agreements which were expressed to be governed by Cayman law. Each investor”s contribution was covered by a surety bond obtained by Kenton and paid for out of the deposits. The Securities Exchange Commission of the United States alleged that the solicitation of the investments was in breach of US law and obtained an order in the Washington District Court that Kenton pay all the funds invested to a bank account nominated by that court, with the objective that all investors be fully compensated. Over half of the investors, including Etoile and Highlander, expressed a wish that their money be returned to them directly in the Cayman Islands and consequently the bank brought the present proceedings to resolve the competing claims. All the investors were served with notice of the proceedings but only Etoile and Highlander chose to join in.

Kenton submitted that the court should stay the proceedings, either under the Grand Court Rules, O.17, r.7 or its inherent jurisdiction, on the basis that the United States was the forum conveniens, because Kenton”s

offices were in the United States, the deposits had been made in US currency and channelled through a US bank and the investments were intended to be made through the United States.

Etoile and Highlander submitted that (a) the court should refuse to stay the proceedings on the ground of forum conveniens because (i) the agreements were expressly governed by Cayman law, Kenton was a Cayman company, the money was being held in the Cayman Islands and the Cayman proceedings were further advanced than those in the United States; (ii) staying the proceedings would essentially give effect to orders from foreign penal proceedings, which were unenforceable in the Cayman Islands; and (iii) the Grand Court Rules, O.17, r.7 only applied to situations in which, whilst an action was pending, a defendant applied for interpleader relief in that action, and moreover it did not apply to an application for a stay on the ground of forum non conveniens; (b) they were entitled to recover their deposits in the Cayman Islands, either in contract because of a total failure of consideration, or on the basis that, by the express terms of the agreements, Kenton was merely the trustee of the money pending investment and as beneficiaries they were entitled to trace their money, taking priority over Kenton itself; and (c) the bank, having notice of their claims as beneficiaries, would be liable to them as constructive trustee if it paid the money to the US court in accordance with Kenton”s mandate.

Held, permitting recovery by Etoile and Highlander:

(1) The Cayman Islands were the more appropriate forum for the hearing of the suit because (i) all of the agreements between Kenton and the investors were expressed to be governed by Cayman law; (ii) Kenton was a Cayman company; (iii) the money deposited was held in the Cayman Islands; and (iv) the proceedings were further advanced in the Cayman Islands than in the United States, with the likely consequence that the cost of resolving the claims would be much less in the Cayman Islands. In addition, since the US proceedings were penal and therefore orders emanating from them were not enforceable in the Cayman Islands, it would be inappropriate to stay the Cayman proceedings. Finally, the Grand Court Rules, O.17, r.7 was not relevant as it applied only to situations in which, while an action was pending, a defendant applied for interpleader relief in that action, and in any case it did not apply to an application for a stay on the ground of forum conveniens (page 496, line 39 – page 497, line 7; page 497, lines 26–33;page 498, lines 4–14).

(2) Etoile and Highlander could not recover their deposits in contract because, as the deposits had been mixed in a single fund with their knowledge, they only had an action in personam against Kenton and no proprietary right in the money itself. However, the provisions of the agreements expressly stated that, pending investment, Kenton was trustee for the depositors, and Etoile and Highlander therefore had an equitable proprietary right in their money as beneficiaries. Moreover, since the

money was reasonably identifiable and the provision of a remedy would not work injustice, Etoile and Highlander were entitled to trace and recover their investments in the Cayman Islands and take priority over Kenton itself, which was obliged to meet their claims and those of all other investors who had not made a clear demand that their deposits be remitted to the US court. All payments were to be pro-rated according to the size of the respective deposits and would reflect rateable deductions such as the bank”s administrative costs. Kenton would then be free to transfer the remainder of the funds to the US court (page 498, lines 37–40;page 499, lines 3–19;page 500, lines 1–29;page 502, lines 35–45).

(3) The bank would not be liable to Etoile and Highlander as constructive trustee if it were knowingly to assist Kenton in its breach of trust by honouring its mandate and paying the money to the US court unless it acted dishonestly in doing so. However, the question was immaterial because the bank, having brought the interpleader summons, had become amenable to the jurisdiction of the court and was therefore unable to comply with Kenton”s mandate and obliged to comply with the orders of the court (page 501, lines 18–26;page 502, lines 5–14).

10	SMELLIE, J.: In this matter the bank applies for relief, by way of
interpleader summons, from competing claims with which it is faced. The
claims relate to moneys which it received on accounts in the name of
Kenton. The competing claims come from Kenton itself, from Etoile and
Highlander and from 10 other persons or entities, as depositors to the
15	account.
The Securities Exchange Commission of the United States (‘the SEC’)
was allowed to make representations in these proceedings as amicus
curiae. It has brought a claim to the funds in the account in the context of
proceedings ongoing before the Washington District Court in the United
20	States.
Factual background
The factual background is undisputed as between the present parties.
Kenton is a company incorporated in the Cayman Islands and maintains its
25	registered office in George Town, but its main office had been kept in
Little Rock, Arkansas, until May 1995, when it ceased operations there as
a result of the actions of the SEC.
During March and April 1995, Kenton approached various investors
within and outside the United States inviting them to invest with it. It
30	offered to place the pool of investment capital through what is referred to
as a standard form joint venture agreement, into one or more ‘offshore
trading programs.’ The joint venture was promoted by Kenton as offering
potentially exorbitant returns. None the less, a total of 12 investors or
groups participated, each entering into the standard form of agreement.
35	Eventually they deposited by international bank transfers

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