International Credit & Inv Company (Overseas) Ltd v Adham

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

Grand Court

(Schofield, J.)

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

and

ADHAM and FIVE OTHERS

L.F.R. Cohen, Q.C., E.A. McQatar and H. St.J. Moses for the plaintiffs;

R.D. Alberga, Q.C., E. Sibley and Mrs. L.D. Chisholm for the fifth and seventh defendants.

The first, second, third, fourth and sixth defendants did not appear and were not represented.

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.

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

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 possibility of the revocation of the bank”s licence.

Adham, Al Fulaij and Pharaon purchased shares in FIIL using funds from ICIC which were recorded as loans in ICIC”s accounts and ‘migrated’ through other BCCI companies to conceal their origin. The loans were in fact non-recourse (non-repayable) loans, the intention being that the defendants would retain a proportion of the FIIL shares beneficially in exchange for their part in the scheme, and hold the remainder on trust for ICIC.

FIIL borrowed a large proportion of the purchase price of AOC from Pharaon, which money was later repaid. When ICIC went into liquidation, the AOC shares were transferred upon Pharaon”s instructions and without the authority of FIIL to Adham, Al Fulaij and Pharaon”s Cayman company, Lhasa Investments Ltd., the fifth defendant, for ‘Nil’ consideration. Lhasa”s shares in AOC were then transferred to Falcon Ltd., a subsidiary of Concorde S.A., the seventh defendant, a Panamanian company also owned and run on behalf of Pharaon. These transfers were carried out in pursuance of a second conspiracy to defraud the creditors of ICIC. The FIIL shares held by Al Fulaij and Pharaon had already been transferred to the fourth defendant, Pharaoh Ltd., a Bahamian company again wholly owned by Pharaon, and when that company went into liquidation, to Lhasa. All Lhasa”s assets were ultimately transferred to Concorde.

The present proceedings were begun by ICIC, initially including FIIL as a defendant and seeking orders relating to the ownership of all the FIIL shares. The court later ruled and the defendants acknowledged that ICIC was entitled to the majority of the shares. Lhasa and Concorde, however, claimed beneficial ownership of a proportion of FIIL in reliance on purported agreement between the parties inaccurately declaring the extent of each party”s shareholding and setting out how far ICIC had funded the acquisition.

Parallel proceedings were commenced in England to determine ownership of AOC (which was an English incorporated company now in liquidation) in which the defendants relied on the assertion that Pharaon”s loan for the purchase of the large majority of AOC shares had not been repaid by FIIL. Other proceedings were issued in the Bahamas by ICIC against Pharaoh, Concorde (as the successor in title to Pharaoh) and Pharaon, and in Pakistan where AOC held majority shareholdings in two oil companies.

In the English proceedings, Falcon made various interlocutory applications, both before and after it was placed in receivership. The

receivers later sought guidance from the Bahamian court as to how they should proceed when the company was joined as a defendant to the action. Acting upon that court”s advice, they instructed counsel to represent Falcon and Pharaoh in the English proceedings, putting the plaintiffs to strict proof of their case. Since Falcon at the time held the AOC shares, Concorde, its parent company, was not joined as a defendant, although it had notice of the proceedings.

The English court held that Adham, Al Fulaij and Falcon held their shares in AOC on constructive trust for FIIL, but failed to state categorically that FIIL was the beneficial owner. Upon the plaintiffs” application for orders that Lhasa and Falcon should account for their dealings in the shares, the English court took the opportunity to clarify its earlier judgment and specifically declared FIIL to be the beneficial owner of the shares.

In connection with the English proceedings, Adham undertook that he would not claim title to the AOC shares in any jurisdiction, and executed stock transfers in favour of ICIC”s liquidators. Al Fulaij later reached a separate settlement with ICIC. Neither contested the current proceedings and damages were not claimed against them.

The plaintiffs submitted that (a) since ICIC had funded the purchase of all the FIIL shares, it was to be presumed that the defendants held their shares upon a resulting trust for ICIC; they should not be permitted to rebut that presumption by relying on evidence of a contrary intention implicating them in a dishonest scheme-namely that the first three defendants should retain a proportion of the shares in recognition of their part in the conspiracy; (b) the ruling of the English court as to the beneficial ownership of AOC was binding on the parties to those proceedings as the judgment of a court of competent jurisdiction which was final and conclusive on the merits of the case, notwithstanding the later clarification made by the court, and should accordingly be recognized by the Cayman court; (c) there had been no breach of natural justice to invalidate the judgment or its recognition in respect of either Falcon (the proper defendant as holder of the AOC shares) which was legally represented and had submitted to the court”s jurisdiction by its involvement earlier in the proceedings, or Concorde, which had had notice of the proceedings but had declined to intervene to challenge the court”s jurisdiction; (d) the defendants had actually caused direct loss to ICIC by their participation in the making of non-repayable loans out of the bank”s funds, and also indirect losses of various kinds, and had therefore not merely ‘given the opportunity for losses to occur.’ In the absence of any evidence of an alternative cause which could be established by the defendants, they were liable in damages for contributing to ICIC”s deficit at the time of its liquidation; (e) ICIC was not precluded by the involvement of its officers in the original dishonest scheme from being itself the victim of the conspiracy instead of its customers, and was therefore the proper plaintiff in the present proceedings; (f) each of the defendants had combined to effect an

unlawful purpose resulting in loss to the plaintiffs. Even though different defendants had participated in the two conspiracies to different extents and not all were present...