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

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 06 October 2000
• Court: Grand Court (Cayman Islands)
• Date: 06 October 2000

Grand Court

(Smellie, C.J.)

GRUPO TORRAS S.A. and TORRAS HOSTENCH LONDON LIMITED

and

BANK OF BUTTERFIELD INTERNATIONAL (CAYMAN) LIMITED and FIVE OTHERS

G.F. Ritchie and Mrs. R.C. Whittaker-Myles for the plaintiffs;

H. St.J. Moses and N. Joseph for the first to fourth defendants;

D. MacF. Murray for the fifth and sixth defendants.

Cases cited:

(1) Abacus (C.I.) Ltd., In re, 2000 JLR 165.

(2) Bankers Trust Co. v. Shapira, [1980] 1 W.L.R. 1274; [1980] 3 All E.R. 353.

(3) Cobra Golf Inc. v. Rata, [1996] F.S.R. 819.

(4) Crest Homes PLC v. Marks, [1987] A.C. 829; [1987] 2 All E.R. 1074.

(5) Esteem Settlement, In re, 2000 JLR 119; on appeal, 2000 JLR N–41, considered.

(6) Fortex Group Ltd. v. MacIntosh, [1998] 3 NZLR 171, con-sidered.

(7) Grupo Torras S.A. v. Al-Sabah, Queen”s Bench Division, July 29th, 1994, unreported; further proceedings, [1999] CLC 1, 469, con-sidered.

(8) Home Office v. Harman, [1983] 1 A.C. 280; [1982] 1 All E.R. 532.

(9) Hoyes v. Gas Monitoring Inc., 1994–95 CILR 504.

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

(11) Private Trust Corp. v. Grupo Torras S.A., (1997–98) 1 O.F.L.R. 443, considered.

(12) Riddick v. Thames Board Mills Ltd., [1977] Q.B. 881; [1977] 3 All E.R. 677, applied.

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

Legislation construed:

Trusts Law (1998 Revision) (Law 6 of 1967, revised 1998), s.90:

‘All questions arising in regard to a trust which is for the time being governed by the laws of the Islands or in regard to any dis-position of property upon the trusts thereof … are to be determined according to the laws of the Islands, without reference to the laws of any other jurisdictions with which the trust or disposition may be connected…’

Trusts (Jersey) Law 1984, art. 10(2):

‘A trust shall be invalid-

…

(b) to the extent that the court declares that-

…

(ii) the trust is immoral or contrary to public policy.’

art. 47(2): ‘The court may, if it thinks fit-

(a) make an order concerning-

(i) the execution or the administration of any trust …

(b) make a declaration as to the validity or the enforceability of a trust …’

Trusts-tracing actions-discovery-use in related foreign proceedings-permitted only exceptionally, e.g if otherwise risk of deception of foreign court-relevance of information primary consideration-permission justified if foreign proceedings based on same cause of action and assistance given previously-not if foreign proceedings merely contemplated and to be based on new cause of action

Trusts-tracing actions-discovery-use permitted to support new cause of action if commenced with same objective as existing proceedings in which discovery given and arguable in law

Trusts-tracing actions-discovery-use in related foreign proceedings-applicant to specify relevant documents-leave refused if merely ‘fishing’-not to use Cayman proceedings to generate discovery to support foreign proceedings

The plaintiffs brought proceedings against a trust to recover, by way of proprietary tracing claims, moneys stolen by the trust settlor.

The plaintiffs were companies owned by the Kuwaiti Government”s overseas investment office, which was run from England by the settlor, a member of the Kuwaiti Royal Family. They alleged that the settlor had engaged in fraud on an international scale and had placed large sums of money stolen from them in nine separate trust funds around the world, including in the Cayman Islands, Jersey and The Bahamas. The plaintiffs brought proprietary tracing claims against the first defendant trustee here and obtained discovery and an injunction restraining the settlor from dealing with the Cayman trust assets. Judgment was entered against the settlor in England, and the plaintiffs sought to enforce the English judgment against the Cayman trust. They now applied for leave to use the discovered material in existing proceedings seeking non-proprietary remedies in Jersey and proprietary tracing claims in The Bahamas. They also sought leave to use the information to bring new claims for non-proprietary relief here and in The Bahamas. The Jersey claims relied on the equitable concepts of remedial constructive trust and lifting the veil on the express trusts, and on local statute.

They submitted that (a) the material was valuable as similar fact evidence of the settlor”s use of various trusts to retain de facto control of

the assets of which he had defrauded them and to render himself judgment-proof; (b) the information was particularly relevant to the non-proprietary claims, which relied on the argument that it would be unconscionable for the settlor to retain the benefit of the assets rather than on proof that the assets were the direct proceeds of fraud; (c) the court should recognize the equitable concepts relied on in those claims as giving rise to viable causes of action.

The fifth and sixth defendants submitted in reply that (a) the court could only give leave to use the information disclosed in support of an existing cause of action, not to assist in initiating proceedings which were merely contemplated; (b) the material should not be used in aid of tracing actions or non-proprietary claims elsewhere, since they were reliant on particular factual circumstances in each jurisdiction, to which the events in the Cayman Islands were irrelevant; (c) the settlor had no legal interest in the assets in question, and the courts could not ‘lift the veil’ of the trusts as they might with companies; and (d) only a small proportion of the assets in the Cayman trust were proved to be the proceeds of fraud.

Held, ordering disclosure as follows:

(1) The plaintiffs were required to show exceptional circumstances why the court should release them from their implied undertaking not to use the discovered material for purposes other than the conduct of the action in which it was obtained. Such circumstances included a party to the proceedings taking advantage of the undertaking, to deceive another court. Leave would be given to use the information in aid of the existing proprietary tracing claims in The Bahamas, since the court had already assisted the plaintiffs in obtaining Mareva relief in those proceedings. The court would not give leave to use the material to initiate non-proprietary claims there. Those claims would be based on factual circumstances in The Bahamas and since the relevance of the evidence could not be established until they had been commenced and pleaded, the application in respect of them was premature (page 461, lines 7–28; page 470, lines 7–27; page 471, lines 11–15).

(2) However, leave would be granted to use the material discovered to amend the Cayman pleadings to add non-proprietary claims similar to those already commenced in Jersey. The court regarded those claims as arguable for the present purposes and using the information in this way was within the original purpose of the discovery-to recover the plaintiffs” money in the Cayman Islands. Granting leave now would save the plaintiffs the expense of making a further application. Whether the non-proprietary claims were sustainable as a matter of Cayman law would be determined once they had been pleaded (page 461, line 31 – page 462, line 6).

(3) Leave would not be given to use the information in the Jersey proceedings to support non-proprietary claims. The non-proprietary claims relying on the equitable concepts of ‘lifting the veil’ on the

settlor”s trusts and the creation of remedial constructive trusts were not based on established legal principles, but in the light of recent findings by the Jersey courts and dicta in the English and Bahamian courts, they were certainly to be regarded as arguable. However, the court had not relied on non-proprietary concepts in ordering the relevant discovery and its primary consideration on this application was the relevance of the information to the foreign proceedings. Even if the discovered informa-tion demonstrated the settlor”s control over the Cayman trust, that would not assist the investigation into the workings of a separate foreign trust. The information related to a specific sum of money which had been traced to the Cayman trust as the proceeds of four fraudulent transactions by the settlor (page 463, lines 4–19; page 464, line 1 – page 466, line 45).

(4) The plaintiffs had not identified any specific documents that would assist them, even though they had received the discovered material three years ago. Since the ‘fishing’ nature of an application was a sufficient reason to refuse discovery, it also justified refusal to allow use of discovery overseas. If, when the pleadings on the Jersey non-proprietary claims had been settled, the plaintiffs were able to specify relevant documents, the Jersey court could seek discovery of them by letter of request directed to the Grand Court (page 467, line 39 – page 468, line 7; page 472, lines 1–23).

(5) Furthermore, since only the Grand Court had jurisdiction to enquire into the nature of a Cayman trust, the plaintiffs would not be permitted to use the information to instigate an examination by the Jersey court of the validity of the Cayman trust and whether non-proprietary claims were sustainable against it, and so also against the Jersey trusts. To accede to the plaintiffs” application would allow them to use the proceedings here as a means of generating discovery for use elsewhere in non-proprietary claims which in turn they would then be able to cite as a precedent for similar claims here. Weighing these and other factors against the proved fact that the settlor had perpetrated a massive fraud against the plaintiffs, the court concluded that as regards the Jersey actions, the plaintiffs had shown no exceptional circumstances to justify releasing them from the undertaking (page...