Re Euro Bank Corporation

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 31 October 2001
• Court: Grand Court (Cayman Islands)
• Date: 31 October 2001

Grand Court

(Smellie, C.J.)

IN THE MATTER OF EURO BANK CORPORATION

N.R.F.C. Timms and C.D. McKie for the liquidators;

A.R. Mitchell, Q.C. and A. Akiwumi, Crown Counsel, for the Crown;

G.F. Ritchie and Mrs. R.C. Whittaker-Myles for the receiver.

Cases cited:

(1) A.J., In re, English Court of Appeal, December 9th, 1992, unreported.

(2) Bank Mellat v. Nikpour, [1982] Com. L.R. 158; [1985] F.S.R. 87.

(3) Brinks Mat Ltd. v. Elcombe, [1988] 1 W.L.R. 1350; [1988] 3 All E.R. 188.[1988] 1 W.L.R. 1350; [1988] 3 All E.R. 188.

(4) C Corp. v. P, 1994–95 CILR 189, applied.

(5) Joachimson v. Swiss Bank Corp., [1921] 3 K.B. 110; (1921), 90 L.J.K.B. 973, applied.

(6) K, In re, [1990] T.L.R. 629.

(7) Kidston v. Empire Marine Ins. Co. Ltd.ELR(1866), L.R. 1 C.P. 535; on appeal (1867), L.R. 2 C.P. 357; 36 L.J.C.P. 156.

(8) McCorkle, In re, 1998 CILR 224, applied.

(9) Metcalfe, In re, English Court of Appeal, Criminal Appeal No. 199905420/24, May 18th, 2001, unreported, followed.

(10) W, In re, [1990] T.L.R. 726, followed.

Legislation construed:

Proceeds of Criminal Conduct Law (2000 Revision) (Law 15 of 1996,

revised 2000), s.2: The relevant terms of this section are set out at para. 46.

s.3(1): The relevant terms of this sub-section are set out at para. 50.

(3): The relevant terms of this sub-section are set out at para. 50.

(9): The relevant terms of this sub-section are set out at para. 50.

s.5: The relevant terms of this section are set out at para. 32.

s.6(2): The relevant terms of this sub-section are set out at para. 51.

(3): The relevant terms of this sub-section are set out at para. 51.

(4): The relevant terms of this sub-section are set out at para. 51.

(7): The relevant terms of this sub-section are set out at para. 51.

s.9(1): The relevant terms of this sub-section are set out at para. 15.

(2): The relevant terms of this sub-section are set out at para. 15.

(4)(a): The relevant terms of this paragraph are set out at para. 22.

(b): ‘[T]he court shall discharge the order if proceedings in respect of the offence are not instituted within seven days of the application for an order under section 10(1) or 11(1).’

s.10(1): The relevant terms of this sub-section are set out at para. 14.

(5): The relevant terms of this sub-section are set out at para. 14.

(7): The relevant terms of this sub-section are set out at para. 10.

s.14(2): The relevant terms of this sub-section are set out at para. 55.

s.17: The relevant terms of this section are set out at para. 58.

s.22(1): The relevant terms of this sub-section are set out at para. 34.

Proceeds of Criminal Conduct Law (2001 Revision) (Law 15 of 1996, revised 2001), s.9(2):

‘Those powers are also exercisable where-

(a) the court is satisfied that proceedings will be instituted against a person within twenty-one days of the granting of an order under section 10(1) or 11(1) or such longer period as the court may grant. . .’

Criminal Procedure-proceeds of criminal conduct-restraint order-discharge-order discharged under Proceeds of Criminal Conduct Law (2000 Revision), s.9(4)(b) if proceedings not instituted against relevant defendant within permitted period-relevant defendant is person having dealings with property restrained and likely to be convicted

Criminal Procedure-proceeds of criminal conduct-confiscation order-since no definition in Proceeds of Criminal Conduct Law (2000 Revision) of minimum amount by which defendant to have benefited from offence for making of order under s.5(2), may consider amount under equivalent English legislation, e.g. Criminal Justice Act 1988, s.71

Criminal Procedure-proceeds of criminal conduct-confiscation order-for purposes of Proceeds of Criminal Conduct Law (2000 Revision), s.5(3), bank benefits from deposited funds as owner of property, whether regarded as proceeds of depositor”s offence or of bank”s money laundering-benefits to value of all funds remaining, not merely profit made

Criminal Procedure-proceeds of criminal conduct-restraint order-discharge-discharged under Proceeds of Criminal Conduct Law (2000 Revision), s.17(2) if proceeds belong to company in liquidation when order made-irrelevant whether proceeds of company”s offence or third party”s-no conflict with s.6 permitting consideration by criminal court of fraud victims” claims in making confiscation order

The applicants applied for the court”s approval of a deed of release and assignment and for the discharge of two restraint orders.

In June 1999, under the Proceeds of Criminal Conduct Law, s.10, the Grand Court restrained T and his wife, the alleged perpetrators of a large-scale US credit card fraud, from dealing with the funds in a Cayman bank account in their names, containing some of the proceeds of the fraud. No one had at that time been charged in the Cayman Islands in connection with the fraud, but one of T”s alleged co-conspirators and a Cayman company under his control were charged eight days later. T was charged in February 2000. In November 2000 a restraint second order was made, against the bank”s liquidators, relating, inter alia, to the same account.

Charges were laid against the bank for money laundering offences some five days later.

T was convicted of offences in the United States and a receiver was appointed over his assets and those of US companies in his control.

The liquidators now sought the court”s approval of a deed of release and assignment that it proposed to enter with the receiver. As a corollary to this application, the receiver applied for the variation or discharge of the two restraint orders, so that payments could be made to him by the bank”s liquidators and, in turn, the victims of the fraud could be compensated pursuant to an order of the US court.

Under the deed, the liquidators would be required to admit to proof the claims of the receiver to the value of the Cayman bank accounts in the names of T and his wife and his Cayman companies. The bank would in turn be released, along with the Cayman companies (now controlled by the liquidators), from other possible claims by the receiver or the creditors of the US companies. Signing the deed would allow the liquidators to identify all the creditors for whom provision needed to be made for the purposes of dividends and to limit potential adverse claims against the liquidation estate.

The Crown also asserted a claim to the funds in the account on the basis that they would be subject to confiscation as the proceeds of crime from which T and other persons-including the bank-had benefited, if those persons were in future convicted in the Cayman Islands.

T was due to be sentenced in the United States and no request had been made for his extradition to the Cayman Islands.

The receiver submitted that the June restraint order should be discharged under s.9(4)(b) of the Proceeds of Criminal Conduct Law (2000 Revision), since (a) T had not been charged with any offence in the Cayman Islands either before or within seven days of the order, as required by s.9(1) and (2)(a), and none of the other persons charged had dealt with the relevant account; and (b) even though T had now been charged, he was unlikely to be prosecuted here given that he had been convicted and was likely to be imprisoned in the United States, and therefore no Cayman confiscation order would be made against him. In respect of the November order, (c) the receiver”s claim to the funds in the account was a prior obligation within the meaning of s.3(3), deductible from the realisable property in the account that could be confiscated by the Grand Court; (d) in any event, since the bank had already been placed in liquidation when the November order was made, it was invalid and should be discharged under s.17(2); (e) the Crown had failed to disclose to the court when applying for the November order the material fact that the US court had appointed a receiver; and (f) any doubt that the funds in the account would be used to repay the victims if released could be assuaged by provisions in the deed of release and assignment to this effect.

The receiver and the liquidators submitted that (a) although charges had been laid against the bank within seven days of the November order, there were no reasonable grounds for believing that a confiscation order

would be made against it, since it had not benefited from the offence by the minimum amount as required by s.5(2)(b)-entitled, as it was, only to the interest from the account and its own fees and charges, and not to the funds themselves; and (b) if not discharged, the November order should be varied to permit the payment of a dividend in the liquidation to which the receiver was justly entitled.

The Crown submitted in reply that (a) the June restraint order was valid, since proceedings had been commenced against relevant defendants involved in the fraud within the ‘permitted period’ under s.9(2), as properly construed in accordance with the Interpretation Law, s.8; (b) when making the November order, the court had had reasonable grounds to believe a confiscation order would be made, since the bank had committed an offence under s.22(1) of the Law and, as the proprietor of all the funds remaining in the relevant account, had benefited from that offence by more than the ‘minimum amount’ prescribed in the equivalent English legislation; (c) all the funds in the account were realisable property and therefore liable to confiscation, and the receiver”s civil claim was not a deductible prior obligation within the meaning of s.3(3); (d) s.17(2) of the Law permitted the liquidators to consider the receiver”s proof of debt and declare dividends due to him on the account; the restraint orders merely prevented payment out pending the trial of the charges against the bank and any dividends declared would be held in escrow until then, no longer being part of the liquidation estate; and (e) since the Grand Court...