TMSF v Wisteria Bay Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Taylor and Mottley, JJ.A.)
• Judgment Date: 17 July 2006
• Court: Court of Appeal (Cayman Islands)
• Date: 17 July 2006

Court of Appeal

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

TASARRUF MEVDUATI SIGORTA FONU

and

WISTERIA BAY LIMITED, UTTERTON LIMITED, AL-AYED and REGISTRAR OF SHIPPING

G. Cox, Q.C., R. Davidson, M.D.P. Jones and B.J. Hart for the appellant;

R. Millett, Q.C. and N.M. Sanders for the first and second respondents;

M. Morrison for the third respondent.

Cases cited:

(1) I Congreso del Partido, [1983] 1 A.C. 244; [1981] 2 All E.R. 1064, applied.

(2) Kuwait Airways Corp. v. Iraqi Airways Co., [1995] 3 All E.R. 694, applied.

Legislation construed:

State Immunity Act 1978 (c.33), as applied by the State Immunity (Overseas Territories) Order 1979 (S.I. 1979/458), s.2 and Schedule 1,

s.13: The relevant terms of this section are set out at para. 20.

s.14: The relevant terms of this section are set out at para. 22.

Administrative Law-state immunity-foreign governmental agencies-by State Immunity Act 1978, s.1, court lacks jurisdiction to prevent foreign government agency from carrying out governmental duties in own country-duties governmental under s.14(2) if could not be done by private firm, no profit to agency, or performed for governmental purpose (e.g. to maintain public faith in banking system)

Administrative Law-state immunity-foreign governmental agencies-by State Immunity Act 1978, s.13(2), explicit written submission by foreign government agency confers jurisdiction on Cayman court to restrain agency from carrying out governmental duties in own country-careless error by agency in requesting injunction by which later restrained insufficient submission

The appellant sought an injunction in the Grand Court to restrain the respondents” dealings with two ships, The Frequency and The Airwaves.

The appellant was an agency of the Turkish government charged with administering a fund to protect depositors against the consequences of bank failure. It operated by taking compulsory premiums from banks and by the seizure and sale of the assets of officials and shareholders of insolvent banks. It had seized in Turkish waters the two ships which were registered in the Cayman Islands in the names of the corporate respondents. The ships were believed, in fact, to belong to the controlling shareholders of a Turkish bank which had been made insolvent by the criminal misapplication of funds. The appellant applied ex parte to the Grand Court for an injunction to prevent the registration of mortgages against the vessels in favour of the individual respondent (on the ground that they had been granted fraudulently to prevent the vessels being auctioned), and also obtained an order restraining all further dealings with the vessels. Due to legal error in the application for the injunction, the appellant itself was also restrained from further dealings with the vessels until the matter came to trial. It nevertheless proceeded to arrange the auction of The Frequency, and was held in contempt of the Cayman court for breach of the injunction, but the sale fell through before completion.

The Grand Court refused to vary the initial injunction to allow the appellant to sell the boats.

On appeal, the appellant raised the issue of jurisdiction for the first time and submitted that (a) the Cayman courts did not have jurisdiction to make orders preventing it from carrying out governmental functions in Turkey because it was an agency of a foreign government, as defined by the State Immunity Act 1978, s.1 (as applied to the Cayman Islands by the State Immunity (Overseas Territories) Order 1979, s.2 and Schedule 1), and under that Act such functions could not be restrained by the Cayman court unless the appellant had agreed in writing to submit to its jurisdiction; (b) the act of selling the ships ought to be regarded as jure imperii (governmental in nature) because payments to the fund administered by the appellant were not voluntary but obtained through levies imposed by the government; the fund had no trading or profit making function but rather protected all bank depositors and maintained public confidence in the banking system; and (c) the appellant had not agreed to submit to the jurisdiction of the court in writing, and therefore had not conferred upon the Cayman court the authority to make the injunction.

The respondents submitted in reply that (a) the Cayman court did have jurisdiction to grant the injunction because although the appellant was an agency of the Turkish government, it was, in reality, more analogous to a private insurance company in the way it collected premiums and indemnified depositors who had suffered losses, and therefore its selling the ships should be treated as jure gestionis as, although done by a state agency, the act itself was not governmental but private in nature; and (b) in submitting the injunction to the Grand Court in the words it had used, the appellant had impliedly consented to the Cayman courts having jurisdiction over the matter.

Held, setting aside the injunction:

(1) The Grand Court lacked the jurisdiction under s.14 of the State Immunity Act 1978 to make the initial injunction restraining the appellant from further dealings with the ships, because the appellant was an agency of the Turkish government as defined by that Act. Jurisdiction could not be conferred on the Cayman courts under the exceptions provided in ss. 13 and 14 of the State Immunity Act, as the particular act of selling the ships was to be considered jure imperii, and the appellant had not given its written consent to submit to the jurisdiction of the court (para. 5; para. 22).

(2) Although the role of the appellant could be seen as analogous to that of a commercial insurance company, in practice it was very different as the funds it administered were obtained at least partly through governmental levies against the banks themselves, from which the appellant did not make a profit, and its function was not merely to indemnify those who had chosen to protect themselves against loss, but all those who sustained loss in order to promote a stable economy and ensure public faith in the

banking system. As the ships were being sold to recoup payments made from those funds, the act would be treated as jure imperii (para. 24; para. 26).

(3) Furthermore, the appellant had not conferred jurisdiction upon the court under s.13(3) and (4) of the State Immunity Act, as it had not explicitly done so in writing. That the appellant had itself presented to the court the injunction by which it was restrained was not sufficient to confer upon the court the jurisdiction to grant the injunction insofar as it restrained the appellant”s governmental function. However, the fact that the injunction was made in this way through the error of counsel for the appellant and that arguments as to jurisdiction were raised at such a late stage were to be considered for disposition of costs and therefore only half of the appellant”s costs would be granted (para. 5; para. 21; para. 29; para. 31).

1 TAYLOR, J.A., delivering the judgment of the...