Eckhardt Marine GmbH v BCCI (Overseas) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Georges and Rowe, JJ.A.)
• Judgment Date: 17 August 2000
• Court: Court of Appeal (Cayman Islands)
• Date: 17 August 2000

Court of Appeal

(Zacca, P., Georges and Rowe, JJ.A.)

ECKHARDT MARINE G.m.b.H.

and

BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LIMITED

T.W.G. Lowe and Mrs. L.D. DaCosta for the appellant;

Ms. S. Dobbyn for the respondents.

Cases cited:

(1) Ayerst (Inspector of Taxes) v. C. & K. (Constr.) Ltd., [1976] A.C. 167; [1975] 2 All E.R. 537, dicta of Lord Diplock applied.

(2) Bank of Credit & Commerce Intl. S.A., Re, [1992] BCLC 570; [1992] BCC 83, considered.

(3) Chaturbhuj Piramal v. Chunilal Oomkarmal(1933), L.R. 60 Ind. App. 211; A.I.R. 1933 Privy Council 150.

(4) International Tin Council, In re, [1987] Ch. 419; [1987] 1 All E.R. 890, dicta of Millett J. applied.

(5) Jabbour (F. & K.) v. Custodian of Israeli Absentee Property, [1954] 1 W.L.R. 139; [1954] 1 All E.R. 145, dicta of Pearson J. applied.

(6) Oriental Inland Steam Co., In re, Ex p. Scinde Ry. Co.ELR(1874), L.R. 9 Ch. App. 557; 43 L.J. Ch. 699, followed.

(7) Russian Bank for Foreign Trade, In re, [1933] Ch. 745; (1933), 102 L.J. Ch. 309; [1933] B. & C.R. 157, followed.

(8) Wagg (Helbert) & Co. Ltd., In re, [1956] Ch. 323; [1956] 1 All E.R. 129.

Legislation construed:

Insolvency Rules 1986 (S.I. 1986/1925), r.4.82(2):

‘If the liquidator rejects a proof in whole or in part, he shall prepare a written statement of his reasons for doing so, and shall send it forthwith to the creditor.’

r.4.83(1): ‘If a creditor is dissatisfied with the liquidator”s decision with respect to his proof … he may apply to the court for the decision to be reversed or varied.’

Conflict of Laws-recognition of foreign governmental acts-effect on property rights-Grand Court will recognize as valid foreign governmental act purporting to affect private property right within own territory, if effective by lex situs

Companies-compulsory winding up-creditors-creditor of foreign branch of international bank in Cayman liquidation may prove for balance of debt not recovered in foreign country-assets of bank worldwide impressed with trust for benefit of creditors

Conflict of Laws-companies-compulsory winding up-lex situs of debt-situs changes from place of origin to debtor”s place of liquidation when winding-up order made-since only lex situs may alter title to debt, subsequent transfer of liability in country of origin ineffective

The appellant applied to the Grand Court to set aside the rejection of its proof of debt by the liquidators of the respondent.

The appellant entered a contract of sale, the performance of which was guaranteed by the Bangladesh branch of BCCI (Overseas). When the purchaser defaulted on the contract, the appellant demanded payment from the bank on the guarantee. In the meantime, however, the Government of Bangladesh had closed the bank. When the bank did not honour the guarantee, the appellant began proceedings in Bangladesh to enforce it. Under a reconstruction scheme imposed by the Bangladesh Bank, all of BCCI (Overseas)”s liabilities were vested in a new entity, the Eastern Bank Ltd. Specifically, all legal proceedings pending against BCCI (Overseas) were deemed to be against the new bank.

The liquidators of BCCI (Overseas) in the Cayman Islands wrote to all creditors of the bank including the appellant advising them to contact the Eastern Bank for the payment of claims. They added that creditors were also entitled to file a proof of debt in the Cayman Islands but that any moneys received from the Eastern Bank would be taken into account. They later informed the appellant that the Eastern Bank was liable to meet its claim and that if the claim were not satisfied it could prove for any outstanding balance in the Cayman Islands.

The respondent”s liquidators rejected the appellant”s proof of debt on the basis that all claims against the Eastern Bank had been satisfied, and there could be no remaining claim against BCCI (Overseas). The appellant applied to set aside the rejection on the grounds of a mistake of fact by the liquidators resulting in a decision which was wrong in law.

The Grand Court (Murphy, J.) dismissed the application, stating that the appellant”s claim was bound to fail in the Cayman Islands, since under Bangladesh law-the law of the situs of the debt and therefore the proper law to be applied-the claim had been extinguished.

On appeal, the appellant submitted that even if the lex situs of the guarantee giving rise to the debt was Bangladesh, the law of that country had no bearing on the respondent”s liability, since (a) the Bangladesh authorities had not contemplated the local branch”s assuming the liabilities of other foreign branches; (b) on the liquidation of BCCI (Overseas), control of its liabilities worldwide had become vested in the Cayman liquidators; and (c) accordingly, the debt had become payable here under Cayman law.

The liquidators submitted in reply that there could be no recourse to them if the Eastern Bank failed to satisfy the debt, since (a) the debt was situated in Bangladesh, as the place where it was properly recoverable; (b) the lex situs of the debt could change only if the debtor changed its place of residence; and (c) Bangladesh legislation had transferred liability to the Eastern Bank, and that legislation was recognized here.

Held, allowing the appeal:

The appellant was entitled to prove in the Cayman liquidation for what it was unable to recover in Bangladesh, i.e. the whole amount of the debt. Had the debt been located in Bangladesh at the time of the reconstruction scheme, that scheme would have been recognized by the Grand Court as

transferring liability to the Eastern Bank, being a governmental act purporting to affect a private right to movable property within its own territory, effective in Bangladesh. However, since the scheme post-dated the winding up of BCCI (Overseas), it had no effect on the debt owed under the guarantee. When the Cayman winding-up order impressed the assets of BCCI (Overseas) everywhere with a trust for the benefit of creditors, the situs of the debt became the place of liquidation, and only the lex situs of a debt, rather than the proper law of the place of its contractual origin, could alter title to the liability. The liquidators” decision to reject the proof of debt would be set aside (page 330, line 25 – page 331, line 17; page 332, lines 2–6; page 333, line 32 – page 334, line 29; page 334, line 45 – page 335, line 32).

ROWE, J.A.: On January 14th, 1992 the Grand Court of the Cayman

Islands ordered that the Bank of Credit and Commerce International (Overseas) Ltd. (‘BCCI(O)’) be wound up and the respondents be appointed official liquidators. The appellant alleges that BCCI(O) was

indebted to it in the sum of Tk 83,038,611.78 at the time of the
liquidation and that it was entitled to prove its debt in the liquidation in
the Cayman Islands for that sum. The respondents as official liquidators
refused the proof of debt.
5	The appellant claims that pursuant to an agreement between itself and
one S.L. Steel Ltd. for the sale of a motor vessel at a price of
US$2,275,602, BCCI(O), through its Bangladesh branch, agreed to
provide a guarantee of performance. The appellant says that the purchaser
of the vessel failed to perform its contract and a demand was made on
10	BCCI(O) on July 21st, 1991 for payment on the guarantee. Payment was
not made and in about February 1992, the appellant commenced
proceedings in Bangladesh against BCCI(O) for the amount of the
guarantee, then Tk 83,038,611.78 together with interest and costs. That
action has not proceeded to judgment.
15	Following the collapse of BCCI(O), the Government of Bangladesh
closed BCCI(O) on July 6th, 1991 and pursuant to s.77 of the Bangladesh
Banking Companies Ordinance, 1991, appointed an observer to oversee
the local operation. Then, on August 19th, 1992, the Bangladesh Bank,
pursuant to the Banking Ordinance, imposed the BCCI(O) reconstruction
20	scheme (‘the scheme’). The scheme established the Eastern Bank Ltd.
and by cl. 6 of the scheme, the entire business, assets, cash and liabilities
of BCCI(O) were vested in the Eastern Bank. Clause 7 of the scheme
provided that all suits, appeals, and legal proceedings pending against
BCCI(O) on the establishment of the Eastern Bank ‘shall be deemed to
25	be suits, appeals, and other legal proceedings pending by or against the
bank.’ As a consequence of this scheme, the appellant substituted the
Eastern Bank as the defendant in the Bangladesh proceedings.
The respondents wrote an open letter to creditors of BCCI(O), a copy
of which was received by the appellant on March 28th, 1993, in which
30	creditors were advised that the branches of BCCI(O)

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