Johnson v Cook-Bodden

JurisdictionCayman Islands
Judge(Kellock, Ag. J.)
Judgment Date02 July 1999
CourtGrand Court (Cayman Islands)
Date02 July 1999
Grand Court

(Kellock, Ag. J.)

JOHNSON
and
E. COOK-BODDEN, A. COOK-BODDEN and S. COOK-BODDEN

Mrs. A.R.M. Hernandez-Wong for the plaintiff;

N.W. Hill, Q.C. and J.S. Jackson for the defendants.

Cases cited:

(1) Ashmore v. British Coal Corp., [1990] 2 Q.B. 338; [1990] 2 All E.R. 981.

(2) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233; 37 Sol. Jo. 99.

(3) Bradlaugh v. NewdegateELR(1883), 11 Q.B.D. 1; 52 L.J.K.B. 454, applied.

(4) Brownton Ltd. v. Edward Moore Inbucon Ltd., [1985] 3 All E.R. 499; (1985), 129 Sol. Jo. 204.

(5) Cole v. BookerUNK(1913), 29 T.L.R. 295, considered.

(6) Cook-Bodden v. Kirkconnell, 1990–91 CILR N–17; on appeal, 1992–93 CILR 89; further proceedings, 1994–95 CILR 27.

(7) Giles v. Thompson, [1994] 1 A.C. 142; [1993] 3 All E.R. 321, considered.

(8) Glegg v. Bromley, [1912] 3 K.B. 474; (1912), 81 L.J. Ch. 1081, considered.

(9) James v. KerrELR(1889), 40 Ch. D. 449; 58 L.J. Ch. 355, considered.

(10) Kok Hoong v. Leong Cheong Kweng Mines Ltd., [1964] A.C. 993; [1964] 1 All E.R. 300, applied.

(11) Martell v. Consett Iron Co. Ltd., [1955] Ch. 363; [1955] 1 All E.R. 481, considered.

(12) Trendtex Trading Corp. v. Crédit Suisse, [1982] A.C. 679; [1981] 3 All E.R. 520, followed.

(13) Trepca Mines Ltd.(No. 2), In re, [1963] Ch. 199; [1962] 3 All E.R. 351, considered.

Legislation construed:

Fraudulent Dispositions Law (1996 Revision) (Law 15 of 1989, revised 1996), s.2:

‘In this Law-

“creditor” means a person to whom an obligation is owed;

“intent to defraud” means an intention of a transferor wilfully to defeat an obligation owed to a creditor;

“obligation” means an obligation or liability (which shall include a contingent liability) which existed on or prior to the date of a relevant disposition and of which the transferor had notice….’

s.4: ‘(1) Subject to this Law, every disposition of property made with an intent to defraud and at an undervalue shall be voidable at the instance of a creditor thereby prejudiced.

(2) The burden of establishing an intent to defraud for the purposes of this Law shall be upon the creditor seeking to set aside the disposition’

s.6: The relevant terms of this section are set out at page 427, lines 23–26.

Grand Court Rules, O.18, r.3: The relevant terms of this rule are set out at page 409, lines 37–38.

O.18, r.8: The relevant terms of this rule are set out at page 409, lines 40–44.

O.20, r.3: ‘(3) Where an amended defence is served on the plaintiff by a defendant-

(a) the plaintiff, if he has already served a reply on that defendant, may amend his reply….

….

(6) Where a party has pleaded to a pleading which is subsequently amended and served on him under paragraph (1), then, if that party does not amend his pleading under the foregoing provisions of this

rule, he shall be taken to rely on it in answer to the amended pleading….’

Registered Land Law (1995 Revision) (Law 21 of 1971, revised 1995), s.3:

‘Except as otherwise provided in this Law, no other Law and no practice or procedure relating to land shall apply to land registered under this Law so far as it is inconsistent with this Law:

Provided that, except where the contrary intention appears, nothing in this Law shall be construed as permitting any dealing which is forbidden by express provisions of any other law or as overriding any other law requiring the consent or approval of any authority to any dealing.’

s.140(1): ‘…[T]he court may order rectification of the register … where it is satisfied that any registration … has been obtained, made or omitted by fraud….’

Civil Procedure-pleading-matters to be pleaded-res judicata to be specifically pleaded in defence or any subsequent pleading

Estoppel-res judicata-issues available in previous proceedings-no estoppel by default judgment in respect of defence in subsequent action unless necessary element of earlier judgment, i.e. direct traverse of plaintiff”s case, not confession and avoidance

Land Law-transfers-fraudulent transfers-provisions of Fraudulent Dispositions Law, ss. 4 and 6 not repealed by Registered Land Law, ss. 3 and 140-s.6 applies only to dispositions of several items of property, not transfer of single parcel of land

Contract-illegal contracts-agreements contrary to public policy-maintenance and champerty-third party may fund litigation if has commercial interest in success of action for benefit of assisted party-litigant may lawfully assign proceeds of cause of action

The plaintiff applied for the setting aside of a transfer of land made by the first defendant to the second and third defendants.

The first defendant was sole administrator of his grandfather”s large and complex estate, which consisted mainly of land. He encountered financial problems, having been forced to finance from his own funds estate litigation in which costs had been awarded against him. The plaintiff, a chartered accountant and insolvency practitioner, who had been a close friend of the first defendant”s late mother, agreed to lend him money to finance further litigation on behalf of the estate, prepared estate accounts and introduced him to an attorney, who assessed his prospects of success in proceedings brought on behalf of the estate and on his own account. It was agreed on an informal basis that the first defendant would repay the plaintiff with (unspecified) interest when in funds. The litigation was largely unsuccessful, and costs were awarded against the first defendant in several actions, which the plaintiff lent him money to pay. He was ultimately removed as administrator of the estate.

The first defendant later transferred land registered in his own name to his sons, the second and third defendants, ‘out of natural love and affection.’ The plaintiff brought proceedings to recover the moneys he had lent to the first defendant. The court granted a Mareva injunction restraining the first defendant from dealing with any of his assets and later placed an inhibition over the title to the land.

The first defendant filed no defence, and judgment in default was entered against him. The plaintiff commenced the present proceedings, seeking the setting aside of the transfer under s.4 of the Fraudulent Dispositions Law (1996 Revision) as a disposition made with intent to place funds beyond his reach as a creditor. The defence stated that the land had been beneficially owned by the first defendant”s elderly mother, but registered in his name. Having been hospitalized due to failing health, the first defendant carried out his mother”s expressed wish that the property be passed to her grandsons, the second and third defendants, and transferred the land ‘out of an abundance of caution’ to them. The defence was later amended to include the allegation that the judgment in the plaintiff”s favour related to a loan agreement tainted by champerty and therefore void as contrary to public policy.

The plaintiff submitted that (a) he had agreed on an informal basis to lend the first defendant money to finance litigation because of his long friendship with the first defendant”s late mother, his intention being to bill the estate for his professional services; (b) the transfer of the land had occurred almost a year after the first defendant”s hospitalization, for no consideration (and therefore at an undervalue), and for the purpose of defeating his claim for repayment; (c) ss. 3 and 140 of the Registered Land Law did not override or repeal s.4 of the Fraudulent Dispositions Law (1996 Revision); (d) the loan agreement was not champertous, since (i) it was lawful to maintain another person in litigation on charitable grounds, (ii) the moneys had been lent in respect of a cause of action which could only benefit the estate and not the first defendant personally, and the plaintiff could not have expected to share in the proceeds, (iii) even if the first defendant”s other litigation were taken into account, he, the plaintiff, had merely been assigned for valuable consideration the benefit of legal proceedings in which he had a genuine commercial interest, and the plaintiff could recover that consideration; and (e) the default judgment was an answer to the allegation of champerty affecting the loan agreement and he was not obliged to amend his reply to this defence to plead estoppel per rem judicatam, since his reply did not admit the allegation.

The defendants submitted that (a) the plaintiff”s motivation in funding the litigation had been his belief that the first defendant”s circumstances would improve if the cause of action succeeded, and his desire to be appointed as a paid administrator of the estate in the event of the first defendant”s own removal; (b) the transfer of the land had been made for valid consideration, namely, natural love and affection, and therefore was not a disposition which could be set aside under s.4(1) of the Fraudulent Dispositions Law (1996 Revision); (c) in any event, since the provisions of that Law were subject to s.3 of the Registered Land Law (1995 Revision) in respect of land, the transfer could be set aside on the ground of fraud by means of the rectification of the Land Register under s.140; (d) since the plaintiff had maintained the first defendant in litigation in which he had no personal interest, in the expectation of reimbursement from the

recovery of estate assets, the judgment in his favour was unenforceable on the public policy ground that the loan agreement was champertous; and (e) the plaintiff was required by the Grand Court Rules, O.18, rr. 3 and 8 to amend his reply to their defence if he wished to plead that they were estopped from alleging champerty on the basis of the default judgment.

Held, setting aside the transfer of land:

(1) The plaintiff was a creditor within the meaning of the Fraudulent Dispositions Law (1996 Revision), in whose favour judgment in default had validly been entered. The first defendant had failed to...

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