International Credit & Inv Company (Overseas) Ltd v Adham

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Schofield, J.)
• Judgment Date: 22 May 1995
• Date: 22 May 1995

INTERNATIONAL CREDIT AND INVESTMENT COMPANY (OVERSEAS) LIMITED (in liquidation) and FINANCE AND INVESTMENT INTERNATIONAL LIMITED

and

ADHAM and FIVE OTHERS

(Schofield, J.)

Grand Court

Trusts-resulting trusts-purchase in another”s name-nominee unable to rebut presumption of resulting trust by evidence of contrary intention disclosing dishonesty

Conflict of Laws-recognition of foreign proceedings-criteria-judgment to be final and conclusive decision of court of competent jurisdiction involving no breach of natural justice-recognition not dependent on defendant”s submission to jurisdiction of foreign court

Civil Procedure-fair trial-non-joinder of parties-no breach of natural justice in failure to join interested party if given notice of proceedings and chooses not to intervene

Tort-causation-economic loss-tortious act must cause loss not merely create opportunity for loss to occur

Companies-legal proceedings-action in respect of corporate wrong-banking company is proper plaintiff if economic tort causes losses by insolvent trading-implication of company officers and loss to investors immaterial

Tort-conspiracy-degrees of complicity-conspirators need not all have same degree of complicity, be involved at every stage of conspiracy, or benefit from every resulting transaction

Tort-damages-remoteness of damage-fraudulent tortfeasor liable for all direct or indirect losses caused by tort, whether or not foreseeable

Held, granting the declarations sought:

(1) On the facts as found, there was an intention that the first three defendants should retain a proportion of the FIIL shares beneficially as payment for their assistance in the original conspiracy. They could not, however, be permitted to rely on evidence of their own dishonest scheme to rebut the presumption that they held the shares on a resulting trust for ICIC, which had supplied the funding for the acquisitions, and there would accordingly be a declaration that ICIC was the beneficial owner of the FIIL shares (page 97, line 44 – page 98, line 9).

(2) With regard to the ownership of the AOC shares, the judgment of the English court (as it was elucidated at the further hearing) would be recognized by the Cayman court as binding upon the parties, as the final and conclusive judgment of a court of competent jurisdiction over the issue. Such recognition did not depend upon the parties” submission to

the jurisdiction of the English court (page 99, line 43 – page 100, line 14; page 101, lines 12–28; page 103, lines 4–7).

(3) Nor did the judgment of that court involve any breach of natural justice justifying non-recognition, since Concorde had been given notice of the proceedings and chosen not to intervene, and Falcon had, acting upon judicial advice, obtained legal representation. They could therefore be regarded as privy to and bound by the English court”s decision and there would be a declaration that FIIL (and consequently ICIC) was the beneficial owner of the AOC shares (page 101, line 28 – page 102, line 2; page 103, lines 1–3).

(4) The defendants, by their participation in the conspiracy to disguise ICIC”s ultimate ownership of AOC involving granting loans out of the bank”s funds and concealment by false accounting, were a substantial cause of the losses incurred by ICIC. Their actions went beyond negligently giving the opportunity for losses to occur, causing direct loss for which the defendants could offer no alternative explanation supported by evidence. Consequently the plaintiffs had proved causation (page 113, lines 7–24; lines 34–37).

(5) Further, the dishonesty of ICIC”s own officials, which was implicit in the conspiracy to disguise the acquisition of AOC, was no bar to the bank bringing the present proceedings, nor was the fact that ICIC”s depositors had lost money as a result of the scheme. The bank itself, which had suffered vastly increased losses by its continued insolvent trading, was the proper plaintiff (page 114, lines 12–27).

(6) The plaintiffs were therefore entitled to damages for conspiracy to defraud them of the assets of FIIL and AOC, since they had established that the defendants had combined to effect an unlawful purpose. They had proved the conspiracies notwithstanding that not all the participants in each dishonest scheme had been parties to it at its inception and at each stage of its development, or benefited from every transaction in-volved, and even though they played varying central or more peri-pheral roles in the conspiracies. All were liable for the whole of the losses sustained by the plaintiffs as a result of the scheme. The knowledge of the officers of the corporate defendants (including that of Pharaon) sufficed to implicate the fourth and fifth defendants in the original conspiracy as recipients of FIIL shares following the liquidation of ICIC, and the fourth, fifth and seventh defendants in the subsequent scheme to deprive FIIL of the AOC shares (page 103, lines 31–41; page 104, lines 13–16; lines 38–39; page 105, lines 17–27; page 106, lines 44–45; page 107, lines 7–14; lines 25–27; lines 36–42; page 108, lines 12–24; page 115, lines 1–7).

(7) The dishonest assistance by all the defendants except Concorde in the scheme to conceal the bank”s ownership of AOC also amounted to

participation in breaches of trust by ICIC officers, and Pharaon”s breach of trust in ordering the transfer of AOC shares from FIIL was assisted by the ultimate recipients, Lhasa and Concorde (page 115, lines 25–35).

(8) Having recovered the shares in FIIL and AOC, the plaintiffs were also entitled to recover damages for-

(a) any depreciation in the value of the shares which would not have taken place had they remained throughout in the possession of the beneficial owners; whilst the mere suspicion that the assets of either company had been dissipated was insufficient in itself to establish such depreciation, a clear inference could be drawn that AOC”s expenditure in bringing legal proceedings in Pakistan must have caused a reduction in value both of its own shares and those of its shareholder, FIIL (page 109, lines 13–20);

(b) the value of dividends payable by AOC to FIIL which were not received by FIIL as a consequence of the defendants” removing the AOC shares from its control (page 109, lines 21–26);

(c) the expenses involved in investigating the conspiracies (page 109, lines 27–43);

(d) the losses sustained as a result of ICIC”s continued trading, which would have ceased much earlier had it not been for the concealment of the bank”s deficit by false accounting, since the accurate presentation of the assets and liabilities would probably have prompted regulatory action by the Cayman banking authorities and the reduction of the company”s losses (page 111, lines 38–45);

(e) knowing assistance by all the defendants save Concorde in breaches of fiduciary duty by the officers and agents of ICIC, and breach of trust (on the part of Pharaon) and knowing assistance (on the part of Lhasa and Concorde) in the breach of trust against FIIL (page 115, lines 25–36); and

(f) since the plaintiffs had established fraud on the part of the defendants, all other losses directly or indirectly resulting from the conspirators” acts or omissions, whether or not they could have been foreseen (page 113, line 40 – page 114, line 11).

The plaintiffs could not recover damages for the costs of bringing and defending proceedings in the English and Pakistan courts, since each of those jurisdictions had in place a system of taxation of costs which would take account of that expenditure (page 109, line 44 – page 110, line 10).

Cases cited:

(1) -Belmont Fin. Corp. v. Williams Furniture Ltd. (No 2), [1980] 1 All E.R. 393, dicta of Buckley, L.J. applied.

(2) -British Motor Trade Assn. v. Salvadori, [1949] Ch. 556; [1949] 1 All E.R. 208, dicta of Roxburgh J. applied.

(3) -Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853; [1966] 2 All E.R. 536; (1966), 110 Sol. Jo. 425.

(4) -Doyle v. Olby (Ironmongers) Ltd., [1969] 2 Q.B. 158; [1969] 2 All E.R. 119, dicta of Lord Denning, M.R. applied.

(5) -Galoo Ltd. v. Bright Grahame Murray, [1994] 1 W.L.R. 1360; [1995] 1 All E.R. 16, distinguished.

(6) -Gascoigne v. Gascoigne, [1918] 1 K.B. 223, followed.

(7) -London United Inv. PLC v. Mitchell, Queen”s Bench Division (England), February 10th, 1994, unreported, followed.

(8) -Nana Ofori Atta II v. Nana Abu Bonsra II, [1958] A.C. 95; [1957] 3 All E.R. 559.

(9) -Quartz Hill Consol. Gold Mining Co. v. EyreELR(1883), 11 Q.B.D. 674.

(10) -R. v. Robertson(1978), ACLC 30, 090.

(11) -Schebsman, In re, ex p. Official Receiver, Trustee v. Cargo Superintendents (London) Ltd., [1944] Ch. 83; (1943), 170 L.T. 9.

(12) -Tinsley v. Milligan, [1994] 1 A.C. 340; [1993] 3 All E.R. 65, dicta of Lord Browne-Wilkinson applied.

(13) -Wilsher v. Essex Area Health Auth., [1988] A.C. 1074; [1988] 1 All E.R. 871, distinguished.

The plaintiffs sought declarations as to the extent of the ownership by the first plaintiff (ICIC) of the second plaintiff (FIIL) and of FIIL”s ownership of the Attock Oil Company (AOC), and damages against all the defendants (except the first and second) for conspiracy to defraud them of the assets of both companies and for breach of fiduciary duty, breach of trust, and assistance and participation in the same.

Directors of ICIC, a Cayman-registered bank controlled by BCCI, conspired with the first, second and third defendants (Adham, Al Fulaij

and Pharaon) to acquire the share capital of AOC through FIIL, a Cayman company set up for the purpose with Pharaon as a director. In doing so, they wished to conceal ICIC”s ownership of both companies, since investment in a non-liquid asset in the high-risk oil industry was incompatible with ICIC”s status as a bank. A dishonest scheme involving false accounting was used to hide the situation from the banking authorities and so avoid the...