Contadora Enterprises v Chile Holdings (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Kerr and Collett, JJ.A.)
• Judgment Date: 15 April 1999
• Court: Court of Appeal (Cayman Islands)
• Date: 15 April 1999

Court of Appeal

(Zacca, P., Kerr and Collett, JJ.A.)

CONTADORA ENTERPRISES S.A.

and

CHILE HOLDINGS (CAYMAN) LIMITED

RHONE DEVELOPMENTS S.A. and LOIRE DEVELOPMENTS S.A.

and

ARGENTINE HOLDINGS (CAYMAN) LIMITED

J.H. Malins, Q.C., M. Scott and N.W. Levy for the appellants;

L.F.R. Cohen, Q.C., E.A. McQuater and Mrs. M. Jaffa Bodden for the respondents.

Cases cited:

(1) Abidin Daver, The, [1984] A.C. 398; [1984] 1 All E.R. 470.

(2) Australian Comm. Research & Dev. Ltd. v. ANZ McCaughan Merchant Bank Ltd., [1989] 3 All E.R. 65, distinguished.

(3) El Ajou v. Dollar Land Holdings PLC, UNK[1993] 3 All E.R. 717; [1993] BCLC 735; on appeal, [1994] 2 All E.R. 685; [1994] 1 BCLC 464, observations of Millett J. followed.

(4) Guaranty Trust Co. of New York v. Hannay & Co., [1915] 2 K.B. 536; [1914–15] All E.R. Rep. 24, distinguished.

(5) Kuwait Oil Tanker Co. S.A.K. v. Al Bader, [1997] 1 W.L.R. 1410; [1997] 2 All E.R. 855, applied.

(6) Lhasa Invs. Ltd. v. International Credit & Invs. Co. (Overseas) Ltd., 1994–95 CILR 293, dicta of Georges J.A. applied.

(7) Metall & Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc., [1990] 1 Q.B. 391; [1989] 3 All E.R. 14, applied.

(8) Qatar Petroleum Producing Auth. v. Shell Intl. Petroleum Maatschappij B.V., [1983] 2 Lloyd”s Rep. 35, applied.

(9) Société Comm. de Réassurance v. Eras Intl. Ltd., The Eras Eil Actions, [1992] 1 Lloyd”s Rep. 570, applied.

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

Legislation construed:

Grand Court Rules, O.2, r.1(2):

‘…[T]he Court may, on the ground that there has been such a failure as is mentioned in paragraph (1) and on such terms as to costs or otherwise as it thinks just … exercise its powers under these Rules … to make such order (if any) dealing with the proceedings generally as it thinks just.’

O.11, r.1(1): The relevant terms of this paragraph are set out at page 200, lines 33–35; page 201, lines 5–8; page 201, line 44 – page 202, line 1.

r.4(2): ‘No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order.’

Civil Procedure-service of process-service out of jurisdiction-for purposes of Grand Court Rules, O.11, r.1(1)(f), loss not sustained within Islands merely because applicant for leave is Cayman company

Conflict of Laws-trusts-constructive trusts-proper law of non-contractual claim for unjust enrichment concerning movables is law of place where enrichment occurs-constructive trust arising from conspiracy to defeat Cayman receivership order by fraudulent transfer of foreign shares abroad not governed by Cayman law

Civil Procedure-service of process-service out of jurisdiction-may set aside service on ground of lis alibi pendens if Cayman proceedings abuse of process-no abuse if foreign proceedings purely to secure foreign assets against which to enforce Cayman judgment

Conflict of Laws-jurisdiction-forum conveniens-burden on plaintiff seeking leave for service out of jurisdiction to show Cayman Islands forum conveniens

The respondents brought proceedings in the Grand Court relating to the transfer of assets to the appellants.

In separate actions, the respondents, both Cayman companies in liquidation, sought to have set aside the transfer of shares in three Panamanian companies, by directors of the respondents to the appellants, also Panamanian companies. The transfers took place in Panama and in France. The respondents claimed that the transfers were void and of no effect, since they had been made with the intention of defeating their creditors, and that the shares therefore remained vested in them. Alternatively, they sought a declaration that no beneficial title had passed and an order that the directors were liable to them for damages for breach of their fiduciary duties.

The respondents were given leave to serve the appellants and the defendant directors outside the jurisdiction under O.11, r.1(1) of the Grand Court Rules, and did so. Summary judgment was entered against two of the directors. They also commenced proceedings for injunctive relief against the appellants in the Panama courts. The appellants applied to the Grand Court to set aside service on them abroad and the order giving the respondents leave to serve them. They also sought a stay of the Cayman proceedings on the ground of lis alibi pendens and an order that Panama was the forum conveniens for the trial of the actions. The actions were consolidated.

The Grand Court (Graham, J.) dismissed the applications on the grounds that the claims against the appellants satisfied sub-paras. (c), (f) and (j) of O.11, r.1(1), and that the Cayman Islands were the appropriate forum for the trial of the issues. The proceedings in the Grand Court are noted at 1998 CILR N–9.

On appeal, the appellants submitted that (a) the respondents had failed to satisfy para. (c) of O.11, r.1(1), since the appellants were not ‘necessary or proper parties’ to the actions for damages against the directors, and leave to serve them outside the jurisdiction should not have been granted when the directors themselves had not yet been served; (b) furthermore, the Grand Court should not have validated retrospectively the leave erroneously granted under sub-para. (c) on the ground that the respondents had followed local practice in ignorance of the Grand Court Rules; (c) nor was the condition under sub-para. (f) met, since the financial damage sustained by the respondents had not occurred within the jurisdiction or resulted from an act committed here; (d) sub-para. (j) did not apply, since the alleged constructive trust arising from the fraudulent transfers was governed by the law of the place where the unjust enrichment occurred, which was not the Cayman Islands; (e) the respondents should not be permitted to pursue their actions in two jurisdictions, since their aim was merely to obtain declarations from the

Grand Court to be used in evidence in the Panama proceedings; and (f) since the actions concerned the transfer abroad of shares in Panamanian companies to other Panamanian companies, the respondents had failed to show that the Cayman Islands was the jurisdiction with which the proceedings had the most real and substantial connection.

The respondents submitted in reply that (a) the appellants were necessary and proper parties to the proceedings against the directors within the meaning of r.1(1)(c), since they had been part of the overall conspiracy to defraud, for which damages from the directors was only one remedy sought; (b) the Grand Court had, under O.2, r.1(2), properly given retrospective leave to serve the appellants outside the jurisdiction after the directors had been duly served as required by sub-para. (c), since local attorneys had been unfamiliar, at the commencement of proceedings in 1996, with this requirement of the newly-introduced Grand Court Rules; (c) the commencement of proceedings in Panama had been purely for the purpose of obtaining interim injunctive relief; and (d) the issues to be resolved were matters of Cayman company law which were best resolved in the Grand Court. The respondents abandoned their reliance on sub-paras. (f) and (j) of O.11, r.1(1).

Held, dismissing the appeal:

(1) The Grand Court had erred in finding that it had had jurisdiction to grant leave to serve the appellants on the basis of O.11, r.1(1)(f), since the respondents had failed to demonstrate that they had a claim in tort, fraud or breach of duty founded on damage sustained in the Islands or caused by an act committed here. Since a company (or individual) did not suffer economic loss within the jurisdiction merely by reason of being registered (or resident) here, the fact that the respondents were incorporated here was insufficient, and the relevant transfers of shares had occurred in Panama and France (page 200, line 33 – page 201, line 4).

(2) Furthermore, the respondents had also failed to satisfy r.1(1)(j). The Grand Court had wrongly found that Cayman law would govern a constructive trust arising from a conspiracy to defeat a Cayman receivership order by the fraudulent transfer of foreign assets from a Cayman company. Rather than assessing where the ‘centre of gravity’ of the case lay, the proper test for the law governing a claim based on unjust enrichment such as this, involving movables and having no contractual element, was where the enrichment occurred. Since that place was certainly not the Cayman Islands, sub-para. (j) did not apply (page 201, lines 5–41).

(3) However, since the Grand Court had correctly held that the respondents had satisfied r.1(1)(c), the absence of other qualifying grounds was irrelevant. The appellants were necessary and proper parties to the claims made against the defendant directors, since they could have been joined in the same proceedings had they all been within the Islands.

They had participated in the conspiracy by the directors, and the respondents” aim of recovering their assets (to which the claim for damages against the directors was secondary) could only be achieved if the appellants were joined. Furthermore, although the respondents had failed to serve process on the directors before applying for leave to serve the appellants outside the jurisdiction, the Grand Court had properly exercised its discretion to validate the leave retrospectively, under O.2, r.1(2). In this case, the local attorneys” failure to observe a new procedural rule which had not yet been highlighted by judicial interpretation was excusable, though it would not be so readily excused in future. In the absence of any demonstrable prejudice to the appellants, the judge”s approach was correct (page 202, line 5 – page 203, line 23; page 205, line 35 – page 206, line 7).

(4) Once satisfied that one of the conditions in r.1(1) had been met, the...