TMSF v Merrill Lynch

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 22 May 2008
• Court: Grand Court (Cayman Islands)
• Date: 22 May 2008

Grand Court

(Smellie, C.J.)

TASARRUF MEVDUATI SIGORTA FONU

and

MERRILL LYNCH BANK AND TRUST COMPANY (CAYMAN) LIMITED, KAFFEE LIMITED, BARLA FINANCE LIMITED, CUNUR CASH LIMITED, MEDRO LIMITED and YAHYA MURAT DEMIREL

S. Moverly Smith, Q.C. and M. Loberg for the plaintiff;

C.D. McKie and M. Livingston for the first to fifth defendants;

K. Farrow, H. Robinson and S. Dickson for the sixth defendant.

Cases cited:

(1) 160088 Canada Inc. v. Socoa Intl. Ltd., 1997 CILR 409, referred to.

(2) Att. Gen. (New Zealand) v. Ortiz, [1984] A.C. 1; [1983] 2 All E.R. 93; [1983] 2 Lloyd”s Rep. 265; (1983), 127 Sol. Jo. 307, referred to.

(3) Att. Gen. (U.K.) v. Heinemann Publishers Australia Pty. Ltd., [1989] 2 F.S.R. 631; (1988), 78 ALR 449; 62 ALJR 344, referred to.

(4) Austria (Emperor) v. DayENR(1861), 3 De G.F. & J. 217; 45 E.R. 861, referred to.

(5) Barclays Bank PLC v. Kenton Capital Ltd., 1994–95 CILR 489, referred to.

(6) Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853; [1966] 3 W.L.R. 125; [1966] 2 All E.R. 536; (1966), 110 Sol. Jo. 425, referred to.

(7) Codelco, In re, 1999 CILR 42, referred to.

(8) Colt Indus. Inc. v. Sarlie (No. 2), [1966] 1 W.L.R. 1287; [1966] 3 All E.R. 85; [1966] 2 Lloyd”s Rep. 163; (1966), 11 Sol. Jo. 468, referred to.

(9) Equatorial Guinea (President) v. Royal Bank of Scotland Intl., [2006] UKPC 7, dicta of Lord Bingham of Cornhill applied.

(10) Evans v. European Bank Ltd., [2004] NSWCA 82; (2004), 61 NSWLR 75; 1 BFRA 143; [2005] ALMD 6369; [2005] ALMD 6370; [2005] ALMD 6554, considered.

(11) Iran v. Barakat Galleries Ltd., [2008] 3 W.L.R. 486; [2008] 1 All E.R. 1177; [2008] 2 All E.R. (Comm) 225; [2007] 2 C.L.C. 994; [2007] EWCA Civ 1374, applied.

(12) Kalley v. Manus, 1999 CILR 566, referred to.

(13) Marada Global Corp. v. Marada Corp., 1994–95 CILR 546, referred to.

(14) Mbasogo v. Logo Ltd. (No. 1), [2007] Q.B. 846; [2007] 2 W.L.R. 1062; [2006] EWCA Civ 1370, applied.

(15) Norway”s Application (Nos. 1 & 2), In re, [1990] 1 A.C. 723; [1989] 2 W.L.R. 458; [1989] 1 All E.R. 745; (1989), 133 Sol. Jo. 290, referred to.

(16) Nouvion v. FreemanELR(1890), 15 App. Cas. 1, applied.

(17) Schemmer v. Property Resources Ltd., [1975] Ch. 273; [1974] 3 W.L.R. 406; [1974] 3 All E.R. 451; (1974), 118 Sol. Jo. 716, referred to.

(18) Schnabel v. Yung Lui, [2002] N.S.W.S.C. 15; 2002 W.L. 169651, dicta of Bergin J. applied.

(19) Stutts v. Premier Benefit Capital Trust, 1992–93 CILR 605, referred to.

(20) TMSF v. Demirel, [2007] 2 All E.R. 815; [2007] 1 Lloyd”s Rep. 223; [2007] I.L. Pr. 8; [2006] EWHC 3354 (Ch), applied.

(21) Wahr-Hansen v. Compass Trust Co. Ltd., 2007 CILR 55, referred to.

(22) Zuiderent v. Christiansen, 2004–05 CILR N[23], referred to.

Conflict of laws-recognition of foreign proceedings-finality of judgment-no jurisdiction to recognize non-final in personam judgment of foreign court-burden on plaintiff to show finality, e.g. recognized and enforceable as such in foreign jurisdiction and appeal procedure exhausted there-irrelevant that defendant may apply to court to set aside civil judgment under foreign law if acquitted of criminal charges based on same facts, as civil judgment final and conclusive until steps taken to set aside

Conflict of laws-recognition of foreign proceedings-public policy-no jurisdiction to recognize in personam judgment of foreign court if contrary to public policy to do so, e.g. involves recognition of foreign sovereign act-whether foreign sovereign act depends on central interest of foreign government-for Cayman court to determine substance of right sought to be enforced, e.g. may enforce action asserting proprietary rights on behalf of private parties as part of regime to compensate victims of fraud

The plaintiff sought summary judgment for the recognition and enforcement of a judgment obtained against the sixth defendant in Turkey.

The plaintiff was a Turkish government agency that insured bank deposits and regulated the Turkish banking sector, which included the restructuring and administration of failed banks. In October 1998, the management and supervision of one such bank was transferred to TMSF, which then became entitled to recover funds (US$30m.) found by the Turkish court to have been misappropriated from the bank by its controller, the sixth defendant. Approximately US$17m. of the misappropriated funds was believed to have been paid to the second to fifth defendants, which were beneficially owned by two Cayman trusts, established by the sixth defendant and of which the first defendant was the trustee. The plaintiff applied, in the present proceedings, for summary judgment recognizing and enforcing the Turkish judgment.

The plaintiff submitted that (a) the Turkish judgment was the final and conclusive judgment of the Turkish court which was recognized as such in Turkey, since the domestic appeal process there had been exhausted-and should therefore be recognized and enforced in the Cayman Islands; and (b) to enforce the Turkish judgment would be within the jurisdiction of the Cayman court, as the action was non-governmental in nature and could be regarded as merely an assertion of the rights of the defrauded depositors of the bank, which could equally be brought by those private individuals themselves.

The defendant submitted in reply that the Turkish judgment was impeachable and could not be enforced in the Cayman Islands, in accordance with settled common law principles governing the recognition and enforcement of foreign judgments, because (a) it was not final and conclusive, as he was charged with criminal offences in Turkey, based on the same facts as the civil judgment, which entitled him to apply to have it set aside, or retried, if he were acquitted; and (b) to do so would be contrary to public policy, as it would involve allowing the sovereign authority of another country (Turkey) to take effect in the Cayman Islands, which the court had no jurisdiction to permit.

Held, granting the application:

(1) The application would be granted and the Turkish judgment would be recognized and enforced without proceeding to trial. Although a non-final foreign judgment could not be recognized in the Cayman Islands and the burden of proving finality rested on the plaintiff, that burden had been discharged. There was no arguable basis on which to conclude that the Turkish judgment was anything other than final and conclusive, as it was recognized and enforceable as such in Turkey itself, the domestic appeal process there having been exhausted. There was no principle in Turkish law that a defendant acquitted of criminal charges based on the same facts as a civil judgment against him, could apply to the civil court to set it aside. Not only would such a principle be contrary to the Turkish Code of Obligations, it would in any case not make the judgment

non-final, as even if a judgment were liable to be set aside, it remained final and conclusive until steps were taken to set it aside, which the sixth defendant had not done. Similarly, the sixth defendant had not attempted to stay the Turkish judgment in the Turkish courts, pending the criminal proceedings, and a stay of the recognition and enforcement of that judgment in the Cayman Islands would therefore be inappropriate and not a proper exercise of the court”s discretion (para. 11; paras. 22–23; paras. 29–30; paras. 32–34).

(2) The Turkish judgment was, similarly, not impeachable on the grounds that of its recognition and enforcement in the Cayman Islands would be contrary to public policy. Although a court could not aid an attempt by a foreign state to act in excess of its jurisdiction, by recognizing and enforcing sovereign acts of that state outside its own territory, there was a distinction between such acts and acts of which the central interest was essentially non-governmental in nature. In their true context, the plaintiff”s actions, in seeking to enforce the rights of the depositors of the defrauded bank, without the use of any statutory provision during either the prosecution of the claim or in obtaining the judgment, could simply be regarded as assertions of proprietary rights, which could equally be brought by private individuals. It did not matter that the plaintiff could only bring the action because of a statutory assignment of the bank”s or its depositors” rights to it by way of a compulsory public acquisition by the state. Nor did it matter that the proceeds were to be paid to the Turkish treasury as, ultimately, the recovered sums would be repaid to the bank”s depositors. The plaintiff was merely part of a regulatory regime which, although it served a public interest, could not be classified as governmental, as it was designed purely to compensate victims of fraud. Turkey could not, therefore, be said to have sought to exercise its sovereign authority in the Cayman Islands and accordingly, there was no basis for refusing to exercise jurisdiction and grant recognition and enforcement of the Turkish judgment (paras. 41–47; paras. 50–51).

1 SMELLIE, C.J.: This is an application by the plaintiff, Tasarruf Mevduati Sigorta Fonu (‘TMSF’), for summary judgment against the sixth defendant, Mr. Demirel, for the amount of US$30m., plus related amounts of interest, costs and attorneys” fees, the amount awarded to TMSF, against the sixth defendant, in Turkey. This is an in personam judgment, arising from allegations of fraud against Mr. Demirel himself, as distinct from other claims, which exist against various banking and other corporate entities, which he owned, or controlled, in Turkey, among which was Bank Ekspres S.A. (‘Ekspres’), a Turkish bank.

2 Thus, TMSF”s application for summary judgment seeks this court”s

recognition and enforcement, at common law (in the prevailing absence here of a global statutory scheme), of the judgment that it obtained from the Turkish court. The application is...