Kelly v Manus

JurisdictionCayman Islands
Judge(Murphy, J.)
Judgment Date20 December 1999
CourtGrand Court (Cayman Islands)
Date20 December 1999
Grand Court

(Murphy, J.)

KALLEY (as Trustee of E.B. Trust and P.B. Trust), E. BRAATHEN and P. BRAATHEN
and
MANUS and FIVE OTHERS

D. MacF. Murray for the plaintiff;

R.L. Nelson for the first, second, third and fourth defendants.

Cases cited:

(1) Abouloff v. Oppenheimer & Co.ELR(1882), 10 Q.B.D. 295; 52 L.J.Q.B. 1, not followed.

(2) Att.-Gen. (Duchy of Lancaster) v. London & N.W. Ry. Co., [1892] 3 Ch. 274, dicta of Lindley, L.J. applied.

(3) Boga v. Chamberlen, [1936] 1 D.L.R. 660; (1936), 9 M.P.R. 565.

(4) de Lasala v. de Lasala, [1980] A.C. 546; [1979] 2 All E.R. 1146.

(5) Hollender v. FfoulkesUNK(1894), 26 O.R. 61; 16 P.R. 175.

(6) House of Spring Gardens Ltd. v. Waite, [1991] 1 Q.B. 241; [1990] 2 All E.R. 990, applied.

(7) Huntington v. Attrill, [1893] A.C. 150; (1892), 68 L.T. 326.

(8) Jacobs v. BeaverUNK (1908), 17 O.L.R. 496; sub nom. Jacobs v. Beaver Silver Cobalt Mining Co., 12 O.W.R. 803, followed.

(9) Jefferson Ltd. v. Bhetcha, [1979] 1 W.L.R. 898; [1979] 2 All E.R. 1108.

(10) Jet Holdings Inc. v. Patel, [1990] 1 Q.B. 335; [1989] 2 All E.R. 648, not followed.

(11) Keele v. Findley(1990), 21 NSWLR 444.

(12) Manolopoulos v. Paniffe, [1930] 2 D.L.R. 169; (1930), 1 M.P.R. 366.

(13) Owens Bank Ltd. v. Bracco, [1992] 2 A.C. 443; [1992] 2 All E.R. 193, distinguished.

(14) Owens Bank Ltd. v. Etoile Comm. S.A., [1995] 1 W.L.R. 44; [1994] 3 LRC 696, followed.

(15) Schemmer v. Property Resources Ltd., [1975] Ch. 273; [1974] 3 All E.R. 451, followed.

(16) Stutts v. Premier Benefit Capital Trust, 1992–93 CILR 605, followed.

(17) Svirskis v. Gibson, [1977] 2 NZLR 4, followed.

(18) Syal v. Heyward, In re Foreign Judgments (Reciprocal Enforcement) Act, 1933, [1948] 2 K.B. 443; [1948] 2 All E.R. 576, not followed.

(19) US v. Inkley, [1989] Q.B. 255; [1988] 3 All E.R. 144, considered.

(20) Vadala v. LawesELR(1890), 25 Q.B.D. 310; 63 L.T. 128, not followed.

(21) Wentworth v. Rogers (No. 5)(1986), 6 NSWLR 534, followed.

(22) Woodruff v. McLennan(1887), 14 O.A.R. 242.

(23) Young v. Holloway, [1895] P. 87; (1894), 64 L.J.P. 55, dicta of Jeune, P. applied.

Legislation construed:

Grand Court Rules, O.18, r.19(1):

‘The Court may at any stage of the proceedings order to be struck out or amended any pleading … or anything in any pleading … on the ground that-

(a) it discloses no reasonable … defence …; or

(b) it is scandalous, frivolous or vexatious; or

(d) it is otherwise an abuse of the process of the court….’

Conflict of Laws-recognition of foreign proceedings-enforcement of judgment debt-not enforcement of foreign penal law if no assertion of foreign sovereignty, proceedings personal in nature, and benefit only private individual-may enforce foreign judgment giving private law remedy based on statutory breach

Conflict of Laws-recognition of foreign proceedings-enforcement of judgment debt-no defence that consent judgment against debtor obtained under fear of criminal prosecution, since may not benefit from own wrongdoing

Conflict of Laws-recognition of foreign proceedings-enforcement of judgment debt-judgment tainted by fraud-debtor estopped from pleading fraud if consented to judgment-foreign judgment impeachable for fraud only on basis of newly discovered material facts

The plaintiffs sought to enforce an order of a foreign court against the defendants.

The plaintiffs brought proceedings against the defendants in Florida in relation to illegal dealings in securities. They alleged, inter alia, common law fraud, violations of various federal and local statutes, and the breach of an injunctive order made by a New York court in proceedings brought by the US Securities & Exchange Commission against the first defendant. The defendants” applications to strike out the claims were dismissed, and they filed defences. On the alleged advice of their US attorneys that criminal proceedings might be commenced by the Commission for breach of the New York order if they incriminated themselves in the Florida proceedings, the first defendant refused to answer questions, relying on the Fifth Amendment protection, and his wife, the second defendant, relied on the privilege relating to spousal communications. Summary judgment was entered against both defendants. Having been further advised that once a civil judgment against them had been obtained, the prosecuting authorities would not initiate criminal proceedings, neither defendant objected to judgment being entered.

The plaintiffs were unable to enforce judgment against the first and second defendants” US assets which had been placed beyond the reach of

creditors. They commenced proceedings in the Grand Court to obtain execution against assets held in the Cayman Islands. The defendants filed defences arguing that the Florida judgment should not be enforced, since they had submitted involuntarily to the jurisdiction of the Florida court and had been compelled to accept judgment against them out of fear of a criminal prosecution of the first defendant. Accordingly, the Florida court had lacked jurisdiction and they had been denied natural justice. Furthermore, the judgment was unenforceable in the Cayman Islands as it was based on the provisions of a foreign penal statute, and when criminal proceedings were contemplated, civil proceedings should be stayed pending their outcome.

The plaintiff applied to have the defendants” defences struck out under the Grand Court Rules, O.18, r.19. The defendants applied to amend their defences to allege fraud by the plaintiffs in making false allegations against them in the US proceedings.

Held, giving judgment for the plaintiffs:

(1) The court would strike out, under O.18, r.19(1)(a) of the Grand Court Rules, the defendants” bald assertion that the Florida judgment was unenforceable and its challenge to the Florida court”s jurisdiction as disclosing no reasonable defence. The former added nothing to the other parts of the defence, and the latter was without merit. The court also had powers under paras. (b) and (d) to strike out any part of a pleading which it found to be frivolous, vexatious, or otherwise an abuse of process. To be frivolous or vexatious a pleading had to be so frivolous that to put it forward would be an abuse of the court”s process. The categories of abuse of process were not closed (page 574, lines 3–25; page 577, lines 17–23).

(2) Execution in the present circumstances did not amount to enforcement of a foreign penal law, since the US proceedings had involved no assertion of foreign sovereignty, were regarded by all as personal in nature, and benefited only the plaintiffs as private individuals. Penal laws were usually those under which taxes, fines or other penalties were payable to the foreign state and were refused enforcement by the Grand Court on public policy grounds. The rule did not apply to enforcing a judgment obtained in proceedings by an individual alleging statutory breaches giving rise to a private law remedy (page 574, line 38 – page 575, line 22).

(3) The defendants had not been compelled in any legal sense to accept the jurisdiction of the Florida court or the entering of judgment against them. They had been represented by counsel throughout, had at no stage raised this issue of compulsion, and had not, in fact, faced criminal proceedings of any kind. The logic of consenting to the entering of civil judgment against them in order to avoid future criminal proceedings was doubtful, and if they had genuinely feared prosecution, they could not

rely on this as a defence, since that would permit them to benefit from their own wrongdoing. Their allegations of breaches of natural justice relied on the same non-existent threat of criminal prosecution. Even if such proceedings were contemplated, the defendants would not be entitled to an automatic stay of the civil proceedings against them in any event. Under US and Cayman law the defendants were estopped, by having consented to the Florida judgment in full knowledge of all relevant circumstances, from challenging it now on evidentiary or procedural grounds. These parts of the defence would be struck out as an abuse of process (page 575, lines 23–36; page 576, line 30 – page 577, line 16; page 577, line 24 – page 578, line 12).

(4) The defendants” allegation of fraud amounted to no more than that consenting involuntarily to judgment in Florida had denied them the opportunity to dispute the plaintiffs” claims. That allegation had been answered. Furthermore, since this defence was not pleaded in good faith, it would be an abuse of process for the court to refuse to enforce the Florida judgment on the basis of it. If fraud had been pleaded ab initio, it would have been struck out. In any event, a foreign judgment allegedly tainted by fraud on the part of the judgment creditor was impeachable in the Grand Court only on the basis of newly discovered material facts which were not before the foreign court. By contrast, the approach of the English courts was that enforcement could be refused even though the issue of fraud had been raised before and rejected by the foreign court. The defendants would be refused leave to amend their defences (page 578, line 45 – page 579, line 10; page 579, lines 33–43; page 582, line 31 – page 583, line 12; page 583, line 40 – page 584, line 25).

MURPHY, J.: I have before me (a) an application by the first plaintiff,
brought by a summons dated September 9th, 1999, seeking to have paras.
2, 3 and 4 of the defence of the first and second defendants struck out, and
judgment against them in the sum of US$1,075,000, together with interest
35 and costs; and (b) a cross-application by the first and second defendants
(part of the relief sought in a summons dated October 19th, 1999), for
leave to amend their defence by the addition of a lengthy allegation of
fraud (together with a corresponding counterclaim).
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