Re Al Sabah

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Rowe and Taylor, JJ.A.)
• Judgment Date: 01 October 2003
• Date: 01 October 2003
• Court: Court of Appeal (Cayman Islands)

Court of Appeal

(Zacca, P., Rowe and Taylor, JJ.A.)

IN THE MATTER OF AL SABAH

B.A. and M.R. AL SABAH

and

GRUPO TORRAS S.A.

R.H. Hildyard, Q.C., A. Beltrani and D. MacF. Murray for the appellants;

A. Mann, Q.C. and G.F. Ritchie for the respondent.

Cases cited:

(1) Bank of Credit & Comm. Intl. S.A. (No. 9), Re, [1994] 1 W.L.R. 708; [1994] 3 All E.R. 764; [1994] 2 BCLC 636, considered.

(2) Dallhold Estates (UK) Pty. Ltd., Re, [1992] BCLC 621; [1992] BCC 394, referred to.

(3) Hughes v. Hannover Ruckversicherungs-A.G., [1997] 1 BCLC 497; [1997] BCC 921, dicta of Morritt, L.J. applied.

(4) Maxwell Communications Corp. PLC, ReECAS(1996), 93 F. 3d 1036, distinguished.

(5) Ukley v. Ukley, [1977] V.R. 121, distinguished.

Legislation construed:

Bankruptcy Law (1997 Revision) (Laws of the Cayman Islands, 1964, cap. 7, revised 1997), s.107(1): The relevant terms of this sub-section are set out at para. 11.

s.156: The relevant terms of this section are set out at para. 7.

Bankruptcy Act 1869 (32 & 33 Vict., c.71), s.74: The relevant terms of this section are set out at para. 30.

Bankruptcy Act 1914 (4 & 5 Geo. V., c.59), s.122: The relevant terms of this section are set out at para. 5.

Cayman Islands (Constitution) Order 1972 (S.I. 1972/1101), s.57(1):

‘All Acts, ordinances, rules, regulations, orders and other instruments made under or having effect by virtue of the Order of 1965 and having effect as part of the law of the Islands immediately before the appointed day [of this Constitutional Order, i.e. August 22nd, 1972] shall on and after the appointed day have effect as if they had been made under or by virtue of this Constitution.’

Colonial Laws Validity Act 1865 (28 & 29 Vict., c.63), s.2:

‘Any colonial law which is or shall be in any respect repugnant to the provisions of any Act of Parliament extending to the colony to which such law may relate … shall, to the extent of such repugnancy, but not otherwise, be and remain absolutely void and inoperative.’

Insolvency Act 1985 (c.65), s.235: The relevant terms of this section are set out at para. 40.

s.236: The relevant terms of this section are set out at para. 40.

Insolvency Act 1986 (c.45): s.426: The relevant terms of this section are set out at para. 40.

Bankruptcy Law, 1871 (Jamaica, No. 25 of 1871), s.64: The relevant terms of this section are set out at para. 31.

s.65: The relevant terms of this section are set out at para. 34.

s.66: The relevant terms of this section are set out at para. 34.

Bankruptcy and Insolvency-assistance to foreign court-enforcement of foreign bankruptcy order-Bahamian Supreme Court is ‘court in bankruptcy’ under Bankruptcy Law (1997 Revision), s.156, for purposes of recognition and enforcement of foreign appointment of trustee in bankruptcy-under s.156, Grand Court may assist all British bankruptcy courts, i.e. UK courts exercising bankruptcy jurisdiction, courts of independent Commonwealth countries retaining s.122 of Bankruptcy Act 1914 and British dependencies having similar provisions

Conflict of Laws-recognition of foreign proceedings-appointment of foreign trustee in bankruptcy-avoidance provisions-under Bankruptcy Law (1997 Revision), s.156, Grand Court may authorize foreign trustee in bankruptcy to apply under s.107 to avoid Cayman trust-court may apply either Cayman or foreign bankruptcy law and application of Cayman law based on hypothesis of Cayman bankruptcy-trustee not treated as forum shopping since request intended by judicial assistance provisions

The parties sought orders with respect to the Grand Court”s recognition of the appointment of a foreign trustee in bankruptcy for the purpose of recovering Cayman assets.

On the petition of Grupo Torras S.A. (‘GT’), a company owned by the Kuwaiti Government, the Bahamian Supreme Court made an order of bankruptcy against Sheikh Fahad Mohammed Al Sabah, on the basis of judgment against him in the English High Court for the repayment of funds he had obtained by fraud from GT. To assist in the recovery of assets held in Cayman trusts, of which the bankrupt was the settlor and primary beneficiary, the Bahamian court obtained, by letters of request, an ex parte order from the Grand Court (Smellie, C.J.) recognizing the appointment of a trustee in bankruptcy and granting him the powers accorded to a trustee in bankruptcy in the Cayman Islands, including ‘the powers under s.107 of the Bankruptcy Law (1997 Revision).’ The proceedings are reported at 2002 CILR 148.

The order was granted under s.156 of the Bankruptcy Law (1997 Revision), by which ‘all the Courts in bankruptcy’ were to assist one another, and by which an order made by one court in bankruptcy could, on application to another, be made an order of that court. The English Parliament had conferred the power on Jamaica, in 1863, to legislate for the Cayman Islands, and s.64 of the Jamaican Bankruptcy Law of 1871, which was identical to the modern s.156, had applied in the Cayman Islands until the Cayman Bankruptcy Law was passed in 1964. Both provisions referred to ‘Courts,’ although there was only one bankruptcy court in the Cayman Islands, in contrast to Jamaica, where there were several and where a purely domestic meaning was therefore possible.

The Grand Court identified the English Bankruptcy Act 1914, s.122, as another potential source of jurisdiction for its order. Section 122 imposed on all British courts, including those of The Bahamas and Jamaica, the duty to assist each other in bankruptcy matters. The 1914 Act had been repealed in England and replaced by a new regime, which did not have effect in the Cayman Islands.

In 1995, GT commenced an action in the Grand Court against Al Sabah and others, bringing proprietary tracing claims against the Bank of Butterfield International (Cayman) Ltd., the trustee of one of the Cayman trusts settled by Al Sabah. It applied for leave to seek declarations, inter alia, that the trusts were void under s.107 of the Cayman Bankruptcy Law (1997 Revision), on the basis that they would defeat Al Sabah”s creditors. Al Sabah”s wife and son, defendants in the tracing actions, sought judicial review of the Chief Justice”s order.

On review, the Grand Court (Henderson, Ag. J.) upheld the Chief Justice”s order and allowed the trustee in bankruptcy to apply for relief under s.107 of the Bankruptcy Law. It ruled that the Grand Court had the power, under s.156 of the Bankruptcy Law, to respond to requests from any bankruptcy court in the world. Dismissing the appellants” claim that the Bahamian trustee in bankruptcy should be denied the benefit of Cayman statutory bankruptcy provisions because he was forum shopping, it held that by giving the court power to apply either Cayman law or that of the requesting jurisdiction, s.156 authorized the application of law other than that most closely connected with the bankrupt or bankruptcy, in the interests of justice. Although the trustee in bankruptcy was authorized to make an application under s.107(1) to avoid the trusts, the court exercised its discretion to defer its determination of that claim until all the evidence was available. Those proceedings are reported at 2002 CILR 550.

On appeal, the appellants submitted that (a) s.156 of the Bankruptcy Law only applied to domestic courts and did not authorize the Grand Court to respond to a request from a foreign court; (b) the requirements of s.122 of the 1914 Act were invalidly included in s.156 of the Cayman Bankruptcy Law as the Cayman legislature did not have the power to impose reciprocal obligations with other jurisdictions; (c) s.122 was no longer in force in the Cayman Islands, having been repealed by the

Insolvency Acts of 1985 and 1986, which rendered s.156 invalid; (d) even if the Grand Court could respond to a request from the Bahamian court, that power did not extend to granting to the Bahamian trustee in bankruptcy the benefit of s.107 of the Bankruptcy Law, as relief under s.107 could not be extended to the foreign trustee in bankruptcy; and (e) the court should not grant the relief sought under s.107 because the connection with the Cayman Islands was slight and the Bahamian trustee in bankruptcy was in fact forum shopping, seeking to take advantage of s.107, which was broader than the avoidance provision in The Bahamas.

Held, dismissing the appeal:

(1) The Grand Court had the power, under s.156 of the Bankruptcy Law (1997 Revision), to respond to the request from the Bahamian court. However, the power and duty to assist other courts, provided by s.156, did not extend to all bankruptcy courts in the world. Although the wording of s.156, ‘all the Courts in bankruptcy,’ necessarily encompassed courts outside the jurisdiction of the Cayman Islands, a world-wide meaning would have been ultra vires the Cayman legislature. Section 156 in fact referred to all British bankruptcy courts, following s.122 of the English Bankruptcy Act of 1914, thus including The Bahamas. Although ‘courts’ may have had a purely domestic meaning in the Jamaican predecessor sections to s.156, it was assumed that the Cayman legislature enacted s.156 in compliance with obligations imposed by s.122. Furthermore, the repetition in s.156 of the Empire-wide judicial assistance provisions of s.122 was not ultra vires the Cayman legislature, even though it did not itself have the power to make or change the law so stated, as s.156 was a correct statement of the prevailing law. Even if s.122 no longer applied in the Cayman Islands, s.156 was nevertheless valid insofar as it stated the powers and duties of the Cayman court to respond to requests from UK bankruptcy courts under s.426 of the present Insolvency Act, bankruptcy courts of independent Commonwealth countries which retained the benefit of s.122 and dependencies with similar assistance provisions (para. 27; paras. 34–37; para. 51).

(2) Under s.156 of the Bankruptcy Law, the Grand Court had...