Bonotto v Boccaletti

• Jurisdiction: Cayman Islands
• Judge: (Graham, J.)
• Judgment Date: 09 May 2000
• Court: Grand Court (Cayman Islands)
• Date: 09 May 2000

Grand Court

(Graham, J.)

BONOTTO

and

BOCCALETTI and FOUR OTHERS

S.E. Phillips and D. MacF. Murray for the plaintiff;

I.L. Croxford, Q.C. and Ms. C.J. Bridges for the first, second, fourth and fifth defendants;

The third defendant, Swiss Bank & Trust Corp. Ltd., did not appear and was not represented.

Cases cited:

(1) Alexander v. Rayson, [1936] 1 K.B. 169; (1935), 105 L.J.K.B. 148.

(2) Bowmakers Ltd. v. Barnet Instruments Ltd., [1945] K.B. 65; [1944] 2 All E.R. 579.

(3) Feret v. HillENR(1854), 15 C.B. 207; 139 E.R. 400; 23 L.J.C.P. 185.

(4) Mansouri v. Singh, [1986] 1 W.L.R. 1393; [1986] 2 All E.R. 619, applied.

(5) Muckleston v. Brown(1801), 6 Ves. 52; 31 E.R. 934; [1775–1802] All E.R. Rep. 501, distinguished.

(6) Taylor v. Chester(1869), L.R. 4 Q.B. 309; 10 B. & S. 237.

(7) Tinsley v. Milligan, [1994] 1 A.C. 340; [1993] 3 All E.R. 65, applied.

(8) United City Merchants (Invs.) Ltd. v. Royal Bank of Canada, [1983] 1 A.C. 168; [1982] 2 All E.R. 720, applied.

(9) Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, [1996] A.C. 669; [1996] 2 All E.R. 961, applied.

(10) Wilson, Smithett & Cope Ltd. v. Terruzzi, [1976] Q.B. 683; [1976] 1 All E.R. 817, applied.

Legislation construed:

Articles of Agreement of the International Monetary Fund (Bretton Woods Agreement) (Washington, December 27th, 1945; 2 U.N. Treaty Series 39), art. VIII, s.2(b): The relevant terms of this paragraph are set out at page 153, lines 42–45.

Contract-illegal contracts-exchange contracts-agreement unenforce-able under Bretton Woods Agreement, art. VIII, s.2(b) if concerned with exchange of currency and contrary to exchange control regulations of member state-substance rather than form of contract relevant

Contract-illegal contracts-effect of illegality-beneficial interest created by express trust of company shares enforceable even though trust assets acquired under illegal contract, since no reliance on illegality

The plaintiff sought, inter alia, a declaration that the shares in a company were held on trust by the first defendant for the plaintiff and his family, or, in the alternative, damages.

The plaintiff, an Italian businessman, paid large sums in Italian currency to the first defendant, a Cayman resident, for investment in property in the Islands. The payments consisted of trading profits undeclared to the Italian tax authorities and were made in deliberate contravention of Italian exchange control laws. They were placed in a Swiss bank account with the third defendant bank. A Cayman shell company (the second defendant) was set up, to which the funds were transferred and which purchased, inter alia, a villa. The company”s nominee shareholders made a declaration of trust in favour of the plaintiff and his family as beneficial owners of the shares. The first defendant acted as the plaintiff”s representative in dealing with the legal aspects of the purchase and the management of the company, since the plaintiff spoke no English.

Some time later the first defendant arranged for the transfer of the shares in the company into his own name and was appointed its director. No provision was made for the transfer of the beneficial interest. The relationship between the parties later soured and the first defendant withdrew all moneys from the company”s bank account.

The plaintiff commenced the present proceedings to recover the moneys. The first defendant alleged that all moneys in the account had been the proceeds of his own legitimate business activities and that, in any event, the beneficial interest in the assets of the company had been transferred to him by the plaintiff as repayment for the purchase of the Cayman villa. The court accepted the plaintiff”s evidence.

The defendants submitted that (a) since, on the plaintiff”s own account, the moneys paid to the first defendant in Italy were the subject of tax fraud, and their transfer to the Cayman Islands was in breach of Italian

exchange control legislation, any contract existing between the parties was unenforceable under Italian law (the proper law of such a contract); (b) furthermore, under the Bretton Woods Agreement, to which both jurisdictions were parties at the relevant time, a contract for the exchange of currency was unenforceable in the Cayman Islands if in breach of exchange control regulations in Italy; and (c) the plaintiff was not entitled to the relief he sought, since he relied on this illegal contract as the basis of his claim to the beneficial interest in the Cayman company.

Held, giving judgment for the plaintiff:

(1) The plaintiff and first defendant were parties to a contract for the exchange of currency the proper law of which was Italian law. That contract was unenforceable under Italian law, being made in pursuance of the illegal purposes of tax evasion and the export of Italian currency contrary to the exchange control laws. Moreover, the Grand Court was prohibited from enforcing such a contract here under the Bretton Woods Agreement, art. VIII, s.2(b), since it was satisfied that the particular agreement was, in substance, concerned with the exchange of one currency for another. The form of the contract was irrelevant (page 153, line 15 – page 154, line 17).

(2) Nevertheless, the plaintiff was entitled to a declaration that the first defendant held the shares in the Cayman company on trust for him and his family, since he did not seek to enforce the illegal contract in order to assert his claim to beneficial ownership. The shares were held on a bare trust on the basis of the declaration made by the nominee shareholders of the second defendant upon its incorporation. That declaration satisfied the three certainties of intent, subject-matter and object of the trust. Having no beneficial interest in the shares, the nominees passed none to the first defendant when legal title passed. The plaintiff did not rely on a resulting trust. Accordingly, he had acquired an enforceable proprietary interest in the shares independently of the contract, and relied on the contract only as evidence of his claim to that interest. The defendants would be ordered to account for all moneys received from the company”s bank account (page 154, line 18 – page 155, line 21; page 156, lines 14–43).

GRAHAM, J.:
The background
Cesare Bonotto (‘P’), is an Italian national residing in Italy and is now
25	in late middle age. He is an extremely rich man, having on one occasion
told a witness who gave evidence on his behalf that it would take several
generations even to spend the interest on his accumulated capital. Gianni
Boccaletti, the first defendant (‘D’), is an Italian national residing in both
Germany and the Cayman Islands. He is now aged 65. He has consid
30	erable assets in the Cayman Islands, Germany and Hungary but is a
financial pygmy in comparison with the vast wealth of P. As this
judgment unfolds, it will become clear that a time came when D decided
to redress this perceived imbalance in his favour.
P”s business interests were varied and diverse but, for purposes of this
35	action, centred on an Italian company called Frabo S.N.C. (‘Frabo’). In
essence, this company imported various types of clothing from overseas
and sold them into the retail trade in Italy. As I have indicated, this was but
one of P”s many business enterprises and interests. D”s business interests
were wholly centred on the clothing trade through entities such as
40	Boccaletti Sportswear S.A. and Gipapagi (‘Gipa’), both Italian companies.
The clothing trade provided the setting for the meeting and subsequent
dealings between the protagonists P and D. Their business relationship
subsisted until its final breakdown in November 1994. At that time, the
close friendship which had previously developed between the Bonotto
45	and Boccaletti extended families over 30 years came to an end.

P and his family first came to the Cayman Islands in 1981. He did this
at the suggestion of D, who had owned a condominium in Grand
Cayman for some years. He next visited the Islands at Easter 1985 and
looked at some property with a view to its possible purchase for
5	holidays and by way of investment. P and his wife tragically lost their
son in a climbing accident in the summer of 1985 and came to the
Cayman Islands at Christmas 1985 at the suggestion of D and his wife.
They were seeking to assist them in coming to terms with that terrible
personal tragedy. At that stage P and D were genuine, trusting friends.
10	P”s account is that on that holiday he and his wife became very close to
D and his wife, who showed them great kindness and sympathy in
dealing with their personal problems. Although they did not stay with D
and his wife, the two families, in effect, spent the holiday in each other”s
company.
15	P was then in a

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