Stutts v Premier Benefit Capital Trust

• Jurisdiction: Cayman Islands
• Judge: (Schofield, J.)
• Judgment Date: 16 November 1993
• Court: Grand Court (Cayman Islands)
• Date: 16 November 1993

Grand Court

(Schofield, J.)

STUTTS

and

PREMIER BENEFIT CAPITAL TRUST

Ms. C. Bridges for the applicant;

The respondent did not appear and was not represented.

Cases cited:

(1) Huntington v. Attrill, [1893] A.C. 150, dicta of Lord Watson applied.

(2) Kilderkin Invs. v. Player, 1984–85 CILR 63.

(3) Nanus Asia Co. Inc. v. Standard Chartered Bank, [1990] 1 HKLR 396, dicta of Cruden, Dep. J. applied.

(4) Raulin v. Fischer, [1911] 2 K.B. 93.

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

(6) Wisconsin v. Pelican Ins. Co.UNK(1887), 127 U.S. 265; 8 S. Ct. 1370.

Conflict of Laws-companies-foreign-appointed receiver-court may recognize receiver appointed by foreign court if sufficient connection between company and foreign jurisdiction-sufficient connection if company has domicile and primary place of business in foreign jurisdiction and officers already submitted to foreign court

Conflict of Laws-application of foreign law-foreign penal law-court not to enforce foreign penal law-Cayman court to determine whether substantively of penal effect, e.g. if prosecution and sentence for criminal offence or suit, e.g. disgorgement proceedings, brought by or on behalf of state for protection of revenue or municipal laws, involving pecuniary penalties including fines or compensation

Conflict of Laws-companies-foreign-appointed receiver-court will not recognize foreign-appointed receiver if gives effect to foreign civil law with penal effect

The applicant, a receiver appointed in the United States, applied for recognition in the Cayman Islands.

The applicant was appointed receiver of the respondent trust which was organized under the law of the District of Columbia, was registered in the Cayman Islands but conducted its business primarily in Florida. The former trustees and officers of the trust had submitted to the jurisdiction of the US court in proceedings brought by the Securities and Exchange Commission, a US Federal agency charged with the responsibility of enforcing the US securities legislation. The Commission had no authority to bring criminal prosecutions; all proceedings were commenced by civil complaint and proceeded according to the Federal Rules of Civil Procedure.

The complaint in the US proceedings against the respondent was that it had made sales of unregistered securities and had engaged in a scheme to defraud investors. Various equitable remedies were sought, including the appointment of the receiver, an accounting and disgorgement, the latter remedy being the marshalling of the assets of a corporate defendant by the receiver who organized their disposition among investors according to a plan approved by the court. The essential purposes of the Acts under which these proceedings were brought were to protect the investing public and to compensate aggrieved sellers and buyers for their losses. There was also provision for imposing civil fines or penalties, remedies that were also sought against the respondent.

The receiver applied to the Cayman court for an order that he be recognized as the receiver of the trust in the Cayman Islands. He submitted that in recognizing his appointment, the Cayman court would not be giving effect to a foreign penal law since it was clearly and well established in the United States that proceedings under the securities legislation were civil and the remedies provided were remedial.

Held, dismissing the application:

(1) The court had jurisdiction to recognize a receiver appointed by a foreign court if there was a sufficient connection between the company over whose assets the receiver had been appointed and the foreign jurisdiction in which the appointment was made. There was such a connection in this case in the light of the US domicile of the trust, its primary place of business as the United States and the submission to the jurisdiction of the US district court of its former trustees and officers (page 607, line 33 – page 608, line 2).

(2) However, the court”s jurisdiction was bound by the principles that it would not execute the laws of a foreign country and would not give effect to foreign penal laws. Despite the existing US authorities which stated that the US Securities Exchange Acts were civil in nature and remedial in effect, the court had to decide for itself the question whether they were in reality penal laws; by determining, first, the substance of the right sought to be enforced and secondly, whether its enforcement would, either directly or indirectly, involve the execution of a law that was penal in effect. For example, the statutory description of a fine or penalty as civil would not necessarily alter its essential penal nature and although it was possible to sever the penal part of a foreign statute from the remedial part so as to enforce rights arising only out of that part, this might not alter the nature of the problem. The general statement of principle applied not only to prosecutions and sentences for crimes and misdemeanours but to all suits in favour of the state for the recovery of pecuniary penalties for any violation of statutes for the protection ofits revenue and other municipal laws and to all judgments for such penalties. In this case, the disgorgement proceedings which have been taken pursuant to the provisions of the two US Acts were in the nature of a suit in favour of the state whose law had been infringed. Notwithstanding the compensatory aspects of the proceedings, the vindication of violations of the two Acts rested with a body (the SEC) which represented the state...