Re Euro Bank Corporation

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 30 November 2001
• Court: Grand Court (Cayman Islands)
• Date: 30 November 2001

Grand Court

(Smellie, C.J.)

IN THE MATTER OF EURO BANK CORPORATION

ATTORNEY GENERAL

and

EURO BANK CORPORATION and CRYSTAL LIMITED

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

A. Malek, Q.C. and C.D. McKie for the liquidators of Euro Bank;

M.T.F. Briggs, Q.C. and D.A. Magner for the intervenor.

Cases cited:

(1) Associated Leisure (Phonographic Equip.) Ltd. v. Associated Newsp. Ltd.ELR, [1970] 2 Q.B. 450; sub nom. Associated Leisure Ltd. v. Associated Newsp. Ltd., [1970] 2 All E.R. 754, considered.

(2) Ayerst (Inspector of Taxes) v. C. & K. (Constr.) Ltd., [1976] A.C. 167; [1975] 2 All E.R. 537, applied.

(3) Bank of S. Australia (No. 2), In reELR, [1895] 1 Ch. 578; (1895), 64 L.J. Ch. 397; sub nom. In re Bank of S. Australia Ltd., Ex p. Union Bank of Australia Ltd., 11 T.L.R. 265, followed.

(4) Bonotto v. Boccaletti, 2000 CILR 147.

(5) Burrows (J.) (Leeds) Ltd., In re, [1982] 1 W.L.R. 1177; [1982] 2 All E.R. 882.

(6) Chavasse, Ex p., In re GrazebrookENR(1865), 4 De G.J. & S. 655; 46 E.R. 1072; 34 L.J. Bcy. 17.

(7) Chun Wo Constr. Co. Ltd., Re, [1991] HKC 445, dicta of Ribeiro J. applied.

(8) Curtis v. Perry(1802), 6 Ves. 739; 31 E.R. 1285.

(9) Dyster, Ex p., In re MolineENR(1816), 1 Mer. 155; 35 E.R. 632.

(10) Food Controller v. Cork, [1923] A.C. 647; (1923), 92 L.J. Ch. 587.

(11) General Rolling Stock Co., In re, Joint Stock Discount Co.”s Claim(1872), L.R. 7 Ch. App. 646; 41 L.J. Ch. 732.

(12) Gordon v. Metropolitan Police Chief Commr., [1910] 2 K.B. 1080; (1910), 79 L.J.K.B. 957, followed.

(13) Holman v. Johnson (alias Newland)ENR(1775), 1 Cowp. 341; 98 E.R. 1120, dicta of Lord Mansfield applied.

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

(15) Lines Bros., Re, [1983] 1 Ch. 1; [1982] 2 All E.R. 183.

(16) Linkrealm Ltd., Re, [1998] BCC 478, applied.

(17) Lubin, Rosen & Associates Ltd., In re, [1975] 1 W.L.R. 122; [1975] 1 All E.R. 577.

(18) Muckleston v. Brown(1801), 6 Ves. 52; 31 E.R. 934; [1775–1802] All E.R. Rep. 501.

(19) National Employers Mutual Gen. Ins. Assn., Re, [1995] 1 BCLC 232; [1995] BCC 774, not followed.

(20) Pascoe (No. 2), In re, Ex p. Trustee of Bankrupt v. Lords Commrs. of H.M. Treasury, [1944] Ch. 310; [1944] 1 All E.R. 593, applied.

(21) R. v. Simpson, [1998] 2 Cr. App. R. (S.) 111; [1998] Crim. L.R. 292, followed.

(22) Saunders, In reELRUNK, [1997] Ch. 60; [1997] 3 All E.R. 992; sub nom. Bristol & West Bldg. Socy. v. Saunders, [1997] BCC 83, dicta of Lindsay J. applied.

(23) Singh v. Ali, [1960] A.C. 167; [1960] 1 All E.R. 269, followed.

(24) Smith, Knight & Co., In re, Weston”s CaseELR(1868), L.R. 4 Ch. App. 20; 38 L.J. Ch. 49, applied.

(25) Tinsley v. Milligan, [1994] 1 A.C. 340; [1993] 3 All E.R. 65, followed.

(26) Trent & Humber Ship-Bldg. Co., In re, Bailey & Leetham”s CaseELR(1869), L.R. 8 Eq. 94; 38 L.J. Ch. 485, followed.

(27) Webb v. Chief Const. (Merseyside Police), [2000] Q.B. 427; [2000] 1 All E.R. 209, followed.

(28) Wilson v. Banner Scaffolding Ltd., [1982] T.L.R. 325, not followed.

Legislation construed:

Companies Law (2001 Revision) (Laws of the Cayman Islands 1963, cap. 22, revised 2001), s.161: The relevant terms of this section are set out at para. 13.

Grand Court Rules, O.102, r.17: The relevant terms of this rule are set out at para. 20.

Proceeds of Criminal Conduct Law (2000 Revision) (Law 15 of 1996, revised 2000), s.3(1): The relevant terms of this sub-section are set out at para. 75.

s.5(2): ‘The Grand Court may make such an order against an offender where-

(a) he is found guilty of any offence to which this Law applies; and

(b) it is satisfied that-

(i) he has benefited from that offence . . . and which is not a drug trafficking offence; and

(ii) his benefit is at least the minimum amount.’

s.17(1): The relevant terms of this sub-section are set out at para. 73.

(2): The relevant terms of this sub-section are set out at para. 73.

(3): The relevant terms of this sub-section are set out at para. 73.

(4): The relevant terms of this sub-section are set out at para. 73.

s.22(1): ‘. . . [W]hoever enters into or is otherwise concerned in an arrangement whereby-

(a) the retention or control by or on behalf of another (A) of property which is the proceeds of A”s criminal conduct is facilitated . . .

knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct, is guilty of an offence.’

Insolvency Rules (S.I. 1986/1925), r.12.3(1): The relevant terms of this paragraph are set out at para. 81.

r.12.3(2)(b), as amended by the Insolvency (Amendment) Rules 1989 (S.I. 1989/397): The relevant terms of this sub-paragraph are set out at para. 81.

r.13.12(1): ‘“Debt”, in relation to the winding up of a company, means . . . any of the following-

(a) any debt or liability to which the company is subject at the date on which it goes into liquidation;

(b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and

(c) any interest provable as mentioned in Rule 4.93(1).’

Companies-winding up under court”s supervision-proceedings against company-may grant leave to prosecute even if penalties unenforceable against company in supervised liquidation-if solvent after creditors paid, Crown may seek compulsory winding up on basis of debt created by penalty imposed-English Insolvency Rules, r.12.3(2)(b) inapplicable

Companies-winding up under court”s supervision-proceedings against company-grant of leave to continue existing proceedings validates retrospectively charges laid without leave-leave may include conditions to protect interests of creditors

Criminal Procedure-proceeds of criminal conduct-liquidation assets-duty of liquidators of bank holding alleged proceeds of crime to prevent account-holders from benefiting from crime-in assessing proof of debt to consider (i) whether contract of deposit invalidated by ex turpi causa rule, (ii) whether victims of crime assert better title than claimant, and (iii) principle that debt arising from illegality not provable in liquidation-relevant whether claimant relies on illegality to assert title

Criminal Procedure-proceeds of criminal conduct-restraint order-discharged under Proceeds of Criminal Conduct Law (2000 Revision), s.17(2) if proceeds belong to company in liquidation when order made-company”s assets impressed with statutory trust and ineligible for confiscation under Law

The Attorney General sought to bring criminal charges against a bank being wound up under the supervision of the court.

The bank was placed in controllership by the Governor on the recommendation of the Monetary Authority, and then entered into voluntary liquidation under the supervision of the court. Having brought criminal charges against several employees and officers of the bank in respect of money laundering offences, the Attorney General required the bank itself to answer charges. The court ruled that the Crown required leave under s.101 of the Companies Law (2000 Revision) to institute criminal proceedings

against the bank (in proceedings reported at 2001 CILR 156), since it was already in voluntary liquidation under the supervision of the court.

The Crown applied for retrospective leave to prosecute the bank. The bank”s liquidators opposed the granting of leave and sought directions as to what conditions should be imposed, and as to the declaration and payment of dividends pending the disposal of the charges against the bank. They also challenged the validity of a restraint order made by the court over specific accounts held in the name of the intervenor, account-holder C Ltd. The restraint order had been discharged by the court on the ground that the allegations of criminal conduct against C Ltd. and its principals could not be substantiated, but further objections to its validity were raised.

The Crown submitted that (a) leave should be granted since the criminal acts of the bank”s directors and employees were imputable to the bank itself; (b) a fine or confiscation order could be an effective sanction against the bank if it was convicted, since the Crown could petition for compulsory winding up on the basis of the debt owed to it arising prior to that winding up, and which would be recoverable under the Companies Law, s.161 after the payment of creditors in the supervised winding up; (c) furthermore, the Crown”s costs would be payable by the bank in priority to other claims, notwithstanding that they had arisen after the commencement of the supervised winding up; (d) the bank”s creditors would not be prejudiced by the grant of retrospective leave, since leave would be conditional, and a fine or confiscation order would be enforceable only after their claims had been met; (e) the liquidators had a duty to the court not to allow the proceeds of suspected crime to be restored to the criminals and therefore were obliged to reject proofs of debt submitted by claimants implicated in criminal conduct pending the trial of the bank; and (f) the bank had benefited from the full value of the funds in C Ltd.”s account, and the restraint order operated at least to restrain payment of the dividends already declared in respect of the account.

C Ltd. submitted that the restraint order in respect of its account was null and void, since s.17(2) of the Proceeds of Criminal Conduct Law prevented the making of an order against realisable property held by a company in liquidation.

The liquidators submitted in reply that (a) leave should not be granted, since the institution of criminal proceedings would interrupt the orderly liquidation of the bank under the court”s supervision, to the detriment of its creditors and to no avail, there being no realistic expectation of a criminal penalty being imposed on the bank; (b) a fine or confiscation order...