Wahr-Hansen v Compass Trust Company Ltd

JurisdictionCayman Islands
Judge(Henderson, J.)
Judgment Date08 January 2007
CourtGrand Court (Cayman Islands)
Date08 January 2007
Grand Court

(Henderson, J.)


S. Rubin, Q.C., J. Higgo, G.F. Ritchie, Q.C. and D. Collier for the plaintiffs;

G. Vos, Q.C., Ms. C. Bingham, R. Leese, Ms. M. Mossman, C. de S. Pimentel and C. Easdon for the 1st–13th defendants.

The 14th and 15th defendants did not appear and were not represented.

Cases cited:

(1) Att. Gen. (U.K.) v. Heinemann Publishers Australia Pty. Ltd.UNK(1988), 78 ALR 449; 62 ALJR 344, referred to.

(2) Ayres v. EvansUNK(1981), 39 ALR 129, considered.

(3) Banco de Vizcaya v. Don Alfonso de Borbon y Austria, [1935] 1 K.B. 140; [1934] All E.R. Rep. 555, distinguished.

(4) Brokaw v. Seatrain U.K. Ltd., [1971] 2 Q.B. 476; [1971] 2 All E.R. 98, considered.

(5) Byrne v. Conroy, [1998] 3 I.R. 1, referred to.

(6) Equatorial Guinea (President) v. Royal Bank of Scotland Intl., [2006] UKPC 7, referred to.

(7) Huntington v. Attrill, [1893] A.C. 150; (1893), 62 L.J.P.C. 44; 68 L.T. 326, referred to.

(8) India (Govt.) v. Taylor, [1955] A.C. 491; [1955] 1 All E.R. 292, dicta of Lord Keith considered.

(9) James v. Catherwood(1823), 3 Dow. & Ry. K.B. 190; [1814–23] All E.R. Rep. 761, referred to.

(10) Kalley v. Manus, 1999 CILR 566, considered.

(11) Larkins v. National Union of Mineworkers, [1985] I.R. 671, referred to.

(12) Lord Advocate v. Tursi, [1998] S.L.T. 1035, referred to.

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

(14) Moore v. Mitchell(1929), 30 F. (2d) 600, considered.

(15) Norway”s (State of) Application, In re, [1990] 1 A.C. 723; [1989] 1 All E.R. 745, considered.

(16) Peter Buchanan Ltd. v. McVey, [1954] I.R. 89; [1955] A.C. 516 (Note), distinguished.

(17) Priestley v. Clegg, 1985 (3) S.A. 955, considered.

(18) QRS 1 ApS v. Frandsen, [1999] 1 W.L.R. 2169; [1999] 3 All E.R. 289; [1999] BTC 8023; (1999), 71 T.C. 515, distinguished.

(19) Reid, ReUNK(1970), 17 D.L.R. (3d) 199, considered.

(20) Rossano v. Manufacturers” Life Ins. Co., [1963] 2 Q.B. 352; [1962] 2 All E.R. 214, considered.

(21) Rothwells Ltd. v. ConnellUNK(1993), 119 ALR 538, referred to.

(22) Stringam v. Dubois, [1993] 3 W.W.R. 273; (1992), 135 A.R. 64, considered.

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

(24) Sydney Municipal Council v. Bull, [1909] 1 K.B. 7, referred to.

(25) Tax Commr. (Fedn. of Rhodesia) v. McFarland, 1965 (1) S.A. 470, considered.

(26) Tucker, In re, 1987–89 MLR 106; [2000] B.P.I.R. 859, considered.

(27) United States v. Harden, [1963] S.C.R. 366, referred to.

(28) Visser, In re, [1928] Ch. 877, referred to.

(29) Williams & Humbert Ltd. v. W. & H. Trademarks (Jersey) Ltd., [1986] A.C. 368; [1986] 1 All E.R. 129, considered.

(30) Wisconsin v. Pelican Ins. Co.UNK(1888), 127 U.S. 265; 8 S. Ct. 1370, referred to.

Trusts-tracing action-beneficiary”s right to trace-no right to trace trust assets if action effectively attempt by foreign government to collect tax-claim in substance attempt to collect tax if unsatisfied tax claim and all proceeds of claim will ultimately go to foreign tax authority

Conflict of Laws-application of foreign law-foreign revenue law-court not to enforce revenue laws of another state-party invoking rule as defence to show unsatisfied tax claim; all proceeds of claim will ultimately go to foreign tax authority; and claim in substance attempt to collect tax-claim not attempt to collect tax if (a) can be resolved without reference to foreign law; (b) plaintiffs are third parties not taxpayers; (c) claim proprietary in nature; (d) tax authority not in control of litigation; and (e) ordinary creditors will also benefit

The plaintiffs sought to trace and receive compensation for the proceeds of assets belonging to the estate of J. They alleged that the assets had been dishonestly misappropriated by M, of whom the first defendant was the personal representative, assisted by certain of the other defendants.

The plaintiffs claimed that J, who had been domiciled in Norway at the time of his death in 1982, had been the legal and beneficial owner of all 10,000 shares in Continental Trust Co. Ltd. (‘CTC’), a Panamanian company. M, who died in 1992, had held 2,000 CTC shares. The plaintiffs claimed that M had held the shares on resulting trust for J and had dishonestly misappropriated these and other of J”s assets, with the dishonest assistance or complicity of the 2nd–14th defendants. The first plaintiff was the administrator of J”s estate, the second plaintiff was a company owned by the estate and the third plaintiff was trustee of the Aall Foundation (‘AF’), a trust company whose assets included the remaining 8,000 shares in CTC.

Following J”s death, the Norwegian revenue authority made a retroactive tax assessment of US$125m. for the period from 1970 to 1982 on the basis that the CTC shares had been owned by him during that period. In 1991, the probate court, having been informed that the Ministry of Finance was dissatisfied with the then administrator of the estate and accepting that the Norwegian revenue authority was the principal creditor, appointed the first plaintiff as administrator with a mandate to locate and take control of any offshore assets owned beneficially by the estate. His actions as administrator included the negotiation of an agreement to pay 40% to a third party of any sum recovered in return for documents allegedly proving that J had owned the CTC shares. This agreement was approved by the Norwegian Government but only a restricted version of it was made available to the probate court.

By 1996, when the first plaintiff appeared to have achieved little in the interests of the estate, the probate judge began to question whether he was acting independently of the Norwegian Government, which was providing extensive funding to the estate. The judge began to take a more active role in the supervision of the estate, in some instances disregarding the first plaintiff”s advice and acting contrary to the express wishes of the Norwegian Revenue.

In 1994, the first plaintiff started proceedings in Norway against M”s bankers with financial assistance from the government. The proceedings were settled in 2001 with a payment to the estate of US$41.5m. and on this occasion, the probate court took into account the Ministry of Finance”s recommendation and approved the settlement, against the wishes of J”s widow and the second defendant. This allowed the estate to become self-funding. Shortly thereafter, the second defendant began bankruptcy proceedings against the estate. The Norwegian Ministry of Justice, acting on the advice of the first plaintiff, offered an ‘intervention payment’ to the second defendant in order to avoid bankruptcy, which was accepted.

The present proceedings were commenced here in 2004. In 2005, the Grand Court (Henderson, J.) granted the defendants” application for a trial of the preliminary issue of whether the plaintiffs” action should be dismissed as an indirect attempt to collect tax on behalf of a foreign revenue authority. The proceedings in the Grand Court are noted at 2004–05 CILR N [49].

The plaintiffs submitted that the ‘tax-gathering’ defence would not succeed because (a) whilst most of the proceeds of the claim would go to the Norwegian tax authority, there were three other claims on the estate (i.e. that of the third party under the agreement with him; the interest of J”s widow; and the sum owed to the Ministry of Justice for the intervention payment) and the rule did not apply when its application would disadvantage ordinary creditors; (b) it would be unconscionable to allow the defence to be used to defeat a proprietary claim for misappropriated assets; (c) the claim did not amount to a request that the court give effect to a foreign law, because there was no connection between the

plaintiffs” case-which was a private law claim-and the claim by the Norwegian tax authority; (d) the defence was not available to a third party, as in the present case, but only to a taxpayer who was in dispute with the revenue authority; (e) the estate was under the control of the probate court, whereas the rule only applied when the tax authority exercised such a degree of control over the estate that the administrator was effectively its nominee; and therefore (f) the claim was not, in substance, an attempt to collect foreign tax.

The defendants submitted in reply that (a) the Norwegian Revenue was, in effect, the sole creditor since the sum owed to the third party was no more than a cost of obtaining evidence; there was no prospect of any surplus being available for J”s widow; and the Ministry of Justice was not an ordinary creditor but part of the Norwegian Government; (b) there was no authority that the tax-gathering defence was not available to defeat a proprietary claim; (c) nor did the authorities demonstrate that a connection between the claim and the foreign revenue law was an essential prerequisite for the successful operation of the defence; (d) the qualification that the defence was only available to taxpayers was also not supported by authority; (e) whilst it was not an independent requirement that the tax authority exercise control over the estate, the administrator would, in any event, be acting in the interests of the tax authority alone as it was the sole creditor and the probate court would only intervene in case of dispute; and therefore (f) the claim was, in substance, an indirect attempt by a foreign government to gather tax.

The court also considered the question of the constituent elements of the tax-gathering defence.

Held, allowing the action to proceed to a full trial of the issues:

(1) The action to trace trust assets in this jurisdiction on behalf of the estate”s beneficiaries would not be dismissed as an attempt by a foreign government to collect tax. The...

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