Grupo Torras SA v Bank of Butterfield Intl (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Henderson, Ag. J.)
• Judgment Date: 08 November 2002
• Court: Grand Court (Cayman Islands)
• Date: 08 November 2002

Grand Court

(Henderson, Ag. J.)

GRUPO TORRAS S.A.

and

BANK OF BUTTERFIELD INTERNATIONAL (CAYMAN) LIMITED and NINE OTHERS

AL-SABAH

and

GRUPO TORRAS S.A., PICTET BANK AND TRUST (CAYMAN) LIMITED and PICTET TRUSTEE COMPANY S.A.

A. -Popplewell, Q.C. and G.F. Ritchie for the plaintiff, Grupo Torras, and the trustee in bankruptcy;

R.H. Hildyard, Q.C. and D. MacF. Murray for the fifth and sixth defendants;

N. Joseph for the Comfort Trust.

Cases cited:

(1) Brink”s Mat Ltd. v. Elcombe, [1988] 1 W.L.R. 1350; [1988] 3 All E.R. 188, applied.

(2) Carter & Kenderdine”s Contract, In re, [1897] 1 Ch. 776; (1897), 66 L.J. Ch. 408, referred to.

(3) Grupo Torras S.A. v. Al-Sabah, Queen”s Bench Division, July 29th, 1994, unreported, referred to.

(4) Hall v. WoolfUNK(1908), 7 C.L.R. 207; 15 Argus L.R. 60, referred to.

(5) Hart, In re, Ex p. Green, [1912] 3 K.B. 6; (1912), 81 L.J.K.B. 1213, referred to.

(6) Hughes v. Hannover Ruckversicherungs-Aktiengesellschaft, [1997] 1 BCLC 497; [1997] BCC 921, referred to.

(7) Osborn, Re, Ex p. Trustee[1931–32] B. & C.R. 189, referred to.

(8) Paramount Airways Ltd., In re, [1993] Ch. 223; [1992] 3 All E.R. 1, referred to.

(9) Reilly, In re, [1942] I.R. 416, referred to.

(10) Springfield Acres Ltd. v. Abacus (Hong Kong) Ltd., [1994] 3 NZLR 502, referred to.

Legislation construed:

Bankruptcy Law (1997 Revision) (Laws of the Cayman Islands, 1964, cap. 7, revised 1997), s.107(1): The relevant terms of this sub-section are set out at para. 15.

s.156: The relevant terms of this section are set out at para. 21.

Bankruptcy Act 1914 (4 & 5 Geo. V, c.59), s.122: The relevant terms of this section are set out at para. 27.

Cayman Islands (Constitution) Order 1972 (S.I. 1972/1101), s.57(1):

‘All Acts, ordinances, rules, regulations, orders and other instruments made under or having effect by virtue of the Order of 1965 and having effect as part of the law of the Islands immediately before the appointed day [of this Constitutional Order, i.e. August 22nd, 1972] shall on and after the appointed day have effect as if they had been made under or by virtue of this Constitution.’

Colonial Laws Validity Act 1865 (28 & 29 Vict., c.63), s.2:

‘Any colonial law which is or shall be in any respect repugnant to the provisions of any Act of Parliament extending to the colony to which such law may relate . . . shall, to the extent of such repugnancy, but not otherwise, be and remain absolutely void and inoperative.’

Bankruptcy Act (Statute Law of The Bahamas, 1987, cap. 59), s.71: the relevant terms of this section are set out at para. 16.

Bankruptcy and Insolvency-assistance to foreign court-enforcement of foreign bankruptcy order-Bahamian Supreme Court is ‘court in bankruptcy’ under Bankruptcy Law (1997 Revision), s.156, for purposes of Grand Court”s recognition and enforcement of foreign appointment of trustee in bankruptcy-not limited to mutual assistance by ‘British’ courts-Grand Court may grant foreign trustee in bankruptcy powers under Cayman law to deal with Cayman assets

Bankruptcy and Insolvency-assistance to foreign court-enforcement of foreign bankruptcy order-inherent jurisdiction to recognize and enforce foreign appointment of trustee in bankruptcy as matter of comity if bankrupt subject to foreign court”s jurisdiction and foreign court willing to reciprocate-may grant foreign trustee in bankruptcy powers under Cayman law to deal with Cayman assets

Bankruptcy and Insolvency-assistance to foreign court-enforcement of foreign bankruptcy order-non-disclosure-may set aside ex parte order made under Bankruptcy Law (1997 Revision), s.156 for non-disclosure of material aspects of foreign or domestic law or inadequate factual background-foreign-appointed trustee in bankruptcy to disclose whether could instead have invoked foreign legislation

Bankruptcy and Insolvency-assistance to foreign court-enforcement of foreign bankruptcy order-avoidance provisions-foreign-appointed trustee in bankruptcy, recognized under Bankruptcy Law (1997 Revision), s.156, may seek avoidance of Cayman settlement under s.107-forum-shopping and foreign aspects of claim to be considered at trial-court”s powers under s.156 contemplate foreign elements

The parties sought orders with respect to the Grand Court”s recognition

of the appointment of a foreign trustee in bankruptcy for the purpose of recovering Cayman assets.

On the petition of Grupo Torras S.A. (‘GT’), a company owned by the Kuwaiti government, the Bahamian Supreme Court made an order of bankruptcy against Sheikh Fahad Mohammed Al-Sabah, on the basis of judgment against him in the English High Court for the repayment of funds he had obtained by fraud from GT. To assist in the recovery of assets held by Cayman trusts of which the bankrupt was the settlor and primary beneficiary, the Bahamian court obtained, by letters of request, an ex parte order from the Grand Court (Smellie, C.J.) recognizing the appointment of a trustee in bankruptcy and granting him the common law and statutory powers accorded to a trustee in bankruptcy in the Cayman Islands and, in particular ‘the powers under s.107 of the Bankruptcy Law (1997 Revision)’ (see In re Al-Sabah, 2002 CILR 148).

The order was granted under s.156 of the Cayman Bankruptcy Law (1997 Revision), by which ‘all the Courts in bankruptcy’ were to assist one another, and by which an order made by one court in bankruptcy could, on application to another, be made an order of that court. Since the English Parliament had conferred power on Jamaica, in 1863, to legislate for the Cayman Islands, the Bankruptcy Law of 1871, s.64, which was identical to the modern s.156, had applied here until the local legislature was established, and ultimately passed the modern Bankruptcy Law in 1964.

The court also identified another potential source of jurisdiction for its order, namely, the English Bankruptcy Act 1914, s.122, which had re-enacted the provisions of s.64 of the Bankruptcy Act 1869. That Act had enabled all British courts, including those of The Bahamas and Jamaica to assist each other in the same way. The 1914 Act remained in effect here despite its repeal in England by the Insolvency Act 1986, since the new regime established under that Act had no direct application to the Cayman Islands.

GT, in 1995, commenced an action in the Grand Court against Al-Sabah and others, bringing proprietary tracing claims against Bank of Butterfield International (Cayman) Ltd., the trustee of one of the Cayman trusts settled by Al-Sabah. It now applied for leave, inter alia, to further amend its statement of claim to add the Bahamian trustee as a defendant and to seek declarations that the settlements were void under s.107 of the local Bankruptcy Law (1997 Revision), on the basis that they would defeat Al-Sabah”s creditors. Al-Sabah”s wife and son, defendants in the tracing actions, sought leave to apply for judicial review of the Chief Justice”s order recognizing the trustee.

They submitted that (a) s.156 of the Bankruptcy Law was a procedural provision directed only at co-operation between domestic bankruptcy courts, and did not envisage assistance to the Bahamian Supreme Court; (b) neither s.156 of the Bankruptcy Law nor s.122 of the English Act conferred jurisdiction on the Grand Court to make orders vesting property rights in a foreign trustee in bankruptcy under Cayman legislation, but only to enforce rights already established by an order of the foreign court;

(c) s.107 therefore could not be invoked by a foreign trustee in bankruptcy to request the court to avoid a Cayman trust; (d) s.426 of the Insolvency Act 1986, under which English courts could apply substantive provisions of domestic insolvency law in aid of a foreign court, did not apply here; (e) the trustee in bankruptcy had failed to disclose to the Grand Court these statutory limitations on the scope of its discretion to grant assistance, when obtaining the order; (f) the trustee had been forum-shopping and had not revealed that Bahamian legislation also contained an avoidance provision on which he chose not to rely because it required proof that Al-Sabah had been a ‘trader’ when he had settled property on trust; (g) the court had also been given insufficient information about the tenuous link between the Cayman Islands and the trusts into which it was alleged that Al-Sabah originally transferred the proceeds of fraud; and (h) the trustee had failed to disclose all relevant matters to the Bahamian Supreme Court when applying for letters of request to be sent to the Grand Court.

The plaintiff submitted that it should be permitted to amend its claims to include applications for relief under s.107, since that section contained no limitation on the location of the property or the circumstances of the relevant settlement, and any foreign elements would be considered by the court in the exercise of its discretion according to equitable principles.

Held, making the following rulings:

(1) The Grand Court had power under s.156 of the Bankruptcy Law (1997 Revision) to grant assistance to a foreign trustee in bankruptcy in response to letters of request from a foreign court exercising bankruptcy jurisdiction. The wording of s.156, which had probably been taken from s.64 of the Jamaican Bankruptcy Law 1871, was appropriate to that jurisdiction where several local courts exercising bankruptcy jurisdiction were required to assist one another, but not to the Cayman Islands, where the Grand Court had exclusive jurisdiction. The Cayman legislature could not have enacted s.156 with the same intention as the Jamaican legislature. However, by preferring the broad language of the Jamaican Law to that of s.122 of the Bankruptcy Act 1914, which then applied directly to the Islands and mandated mutual assistance by British courts, it must have intended that the Grand Court extend its assistance to all courts exercising bankruptcy...