Hutchinson Ltd v Cititrust

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Douglas, Ag. J.)
• Judgment Date: 30 January 1998
• Date: 30 January 1998

HUTCHINSON LIMITED, CRAIN CREEK LIMITED, MOUNTAIN DEW LIMITED and FORUM LIMITED

and

CITITRUST (CAYMAN) LIMITED and TEN OTHERS

(Douglas, Ag. J.)

Grand Court

Civil Procedure-service of process-service out of jurisdiction-application to set aside service-Grand Court Rules, O.12, r.8(1) satisfied by filing application within time-limit for service of defence-re-service with supporting affidavit within general time-limit for service under O.32, r.3(2) satisfies r.8(3)

Civil Procedure-service of process-service out of jurisdiction-court may retrospectively validate leave to serve process outside jurisdiction granted contrary to Grand Court Rules, O.11, r.1(1)(c) if writ still valid and all conditions of leave later met

Civil Procedure-service of process-service out of jurisdiction-under Grand Court Rules, O.11, r.1(1)(f) plaintiff seeking leave to serve tortfeasor outside jurisdiction to show significant damage sustained within Islands if no tortious act committed here-liquidation of non-trading holding companies insufficient

Conflict of Laws-trusts-constructive trusts-knowing assistance-court may impose constructive trust over foreign assets of Cayman company even if acts giving rise to trust occurred outside jurisdiction-unlike knowing receipt based claims, knowing assistance claims governed by Cayman law

Companies-directors-de facto/shadow director-under Grand Court Rules, O.11, r.1(1)(ff), plaintiff seeking leave to serve corporate director of Cayman company outside jurisdiction to specify whether acted as de facto or shadow director-need not plead distinction if defendant is individual

Held, discharging the leave to serve the defendants outside the jurisdiction:

(1) The defendants had not, by acknowledging service, submitted to the jurisdiction of the court for the purposes of O.12, r.8(6), since they had applied for the discharge of the court”s leave to serve them outside the jurisdiction by filing their summons within the time specified by r.8(1). Rule 8(3) required only that affidavit evidence in support of the application be served with the summons, and since their summons had been re-served, together with supporting evidence, within the general time-limit for service under O.32, r.3(2), there was no irregularity. Furthermore, the defendants” withdrawal of their application for an extension of time for service was not inconsistent with their challenge to the court”s jurisdiction (page 51, line 32 – page 52, line 14; page 53, lines 8–25).

(2) Although the plaintiffs had failed to serve the Cayman defendants before applying to serve the others outside the jurisdiction, contrary to O.11, r.1(1)(c), the court had power to grant retrospective leave during the currency of the writ, which had been extended. If granted, the plaintiffs need not re-apply for leave. However, the court would not validate the leave, since the plaintiffs had not shown that the Cayman Islands were the proper forum for the hearing of the proceedings (page 56, lines 11–16; page 56, line 33 – page 57, line 2; page 69, lines 28–35; page 70, lines 9–21).

(3) Since no tortious act had been committed within the Islands, the plaintiffs were required to show, for the purposes of O.11, r.1(1)(f), that they had sustained significant damage here. However, as holding companies, they had not carried on business in the jurisdiction and it was therefore doubtful that the insolvency and eventual winding up of the four companies would suffice. Accordingly, whilst the actions of the defendants abroad, when viewed as elements of a conspiracy to defraud, might have founded a claim in tort, and whilst they were clearly in breach of their fiduciary duties to the plaintiffs in preferring one creditor (Mrs. N.) over others (for which purposes no intention to injure the plaintiffs

need be proved), the court should not have granted leave under r.1(1)(f) (page 57, line 38 – page 58, line 6; page 58, lines 37–45; page 59, line 38 – page 60, line 6; page 60, line 41 – page 61, line 7; page 61, line 19 – page 62, line 3; page 68, line 44 – page 69, line 5).

(4) Whilst the court would not impose a constructive trust over foreign assets on the basis of Citibank”s knowing receipt of funds (since such a claim would be governed by the law of Switzerland, where the proceeds of the English share sales were received), a claim based on the defendants” knowingly assisting each other would be governed by Cayman law. Since the law here did not require that the acts giving rise to a constructive trust should have occurred within the jurisdiction, the plaintiffs had raised triable issues for the purposes of obtaining leave under O.11, r.1(1)(j) (page 63, lines 14–26; page 64, line 25 – page 65, line 2).

(5) The plaintiffs were not required, for the purposes of O.11, r.1(1)(ff), to specify whether the Swiss nationals had acted as shadow or de facto directors when instructing Citibank to transfer funds to Mrs. N. Such a distinction need only be pleaded when the alleged director was a company. Accordingly, if it could be shown that those defendants had acted in person, there was a triable issue as to their participation in the conspiracy (page 66, line 36 – page 67, line 2).

(6) However, since under arts. 149(2) and 165 of the Swiss Federal Act on Private International Law, the Swiss courts would not recognize or enforce a judgment of the Grand Court based on claims in tort, unjust enrichment or company law against defendants domiciled in Switzerland, it would be futile for the court to assume jurisdiction over the matters pleaded. Furthermore, by failing to reveal the existence of parallel proceedings in England against two of the defendants, the plaintiffs had breached their duty to make full and frank disclosure of relevant facts. It would be inequitable for the defendants to be held liable in respect of the same assets in two jurisdictions and therefore leave to serve them outside the jurisdiction would be discharged (page 54, lines 1–9; page 62, lines 6–26; page 65, lines 12–36; page 67, lines 5–25; page 68, lines 15–20; lines 36–39; page 69, lines 10–25).

Cases cited:

(1) -Barings PLC v. Coopers & Lybrand, [1996] T.L.R. 498; (1996), 140 Sol. Jo. (L.B.) 210; on appeal, [1997] 1 BCLC 427; [1997] BCC 498.

(2) -Broken Hill Pty. Co. Ltd. v. Xenakis, [1982] Lloyd”s Rep. 304; [1982] Com. L.R. 152.

(3) -Carmel Exporters (Sales) Ltd. v. Sea-Land Services Inc., [1981] 1 W.L.R. 1068; [1981] 1 All E.R. 984, considered.

(4) -Chaplin v. Boys, [1971] A.C. 356; [1969] 2 All E.R. 855, applied.

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

(6) -Fidelity & Guar. Intl. Ltd. v. Hakemian, 1992–93 CILR N–6, distinguished.

(7) -Gulf East Intl. v. Parvoz Carder, English Queen”s Bench Division, March 23rd, 1994, unreported.

(8) -Hydrodam (Corby) Ltd., ReUNK, [1994] 2 BCLC 180; sub nom. Re Hydrodan (Corby) Ltd.UNK[1994] BCC 161, considered.

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

(10) -Lawson v. Midland Travellers Ltd., [1993] 1 W.L.R. 735; [1993] 1 All E.R. 989, followed.

(11) -Lonrho PLC v. Fayed, [1992] 1 A.C. 448; [1991] 3 All E.R. 303, applied.

(12) -Prospect Properties Ltd. v. McNeill, 1990–91 CILR 171, followed.

(13) -R. v. Kensington Income Tax Commrs, ex p. Princess Edmond de Polignac, [1917] 1 K.B. 486, dicta of Viscount Reading applied.

(14) -Royal Brunei Airlines Sdn. Bhd. v. Tan, [1995] 2 A.C. 378; [1995] 3 All E.R. 97, applied.

(15) -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.11, r.1(1): The relevant terms of this paragraph are set out at page 55, lines 39–41; page 57, lines 30–32; page 62, lines 30–34; and page 65, line 41 – page 66, line 2.

O.12, r.8:

‘(1) A defendant who wishes to dispute the jurisdiction of the Court in the proceedings by reason of any irregularity [in any order giving leave to serve the writ out of the jurisdiction] . . . shall give notice of intention to defend the proceedings and shall within the time limited for service of a defence, apply to the Court for-

(a) -an order setting aside the writ or service of the writ on him;

. . .

(c) -the discharge of any order giving leave to serve the writ on him out of the jurisdiction. . . .

(3) An application under paragraph (1) must be supported by an affidavit verifying the facts on which the application is based and a copy of the affidavit must be served with the notice of motion or summons by which the application is made.’

(6): The relevant terms of this paragraph are set out at page 51, lines 27–31.

O.32, r.3(2):

‘. . . [U]nless the Court otherwise orders or any of these Rules otherwise provides-

(a) -a summons must be served on every other party not less than four days before the day specified in the summons for the hearing of the application;

(b) -any evidence relied on in support of the application must be served with the summons.’

The plaintiff companies, in liquidation, brought proceedings against the defendants to recover moneys paid to creditors by way of fraudulent preferences.

The plaintiffs were Cayman companies owned by Cititrust (Cayman) Ltd. as trustee for the two N. family trusts, and were debtors of Mrs. N. Mountain Dew Ltd., the third plaintiff, paid the proceeds of the sale of shares in three English companies into a Swiss account with Citibank. At Mrs. N.”s request, the officers and nominee shareholders of Mountain

Dew instructed Citibank to pay sums from this account into Mrs. N.”s account as full repayment of its debt to her. These payments were later ratified by Mountain Dew”s corporate directors in a Board meeting in The Bahamas.

When the payments had been made, Mountain Dew was unable to pay its debts...