William Ritter v Butterfield Bank (Cayman) Ltd
| Jurisdiction | Cayman Islands |
| Judgment Date | 29 May 2018 |
| Date | 29 May 2018 |
| Docket Number | CAUSE NO. G 224 OF 2015 |
| Court | Grand Court (Cayman Islands) |
CAUSE NO. G 224 OF 2015
IN THE GRAND COURT OF THE CAYMAN ISLANDS
Bank — customer-forged signature on transactions — payment by bank — action to recover money paid — customer's knowledge of forgery — estoppel — duty of disclosure — delay in informing the bank of forgery — representation — detriment and loss of remedy against forger — dishonest assistance — dishonesty
Ms. Sarah Dobbyn of Sinclairs for the Plaintiffs
Mr. Sebastian Said & Ms. Jane Hale of Appleby for the Defendant
The Second Plaintiff, Geneva Insurance SPC Limited (“Geneva”), was incorporated in the Cayman Islands on 28 March 2000 with the sole purpose to act as a captive insurance company serving the insurance needs of medical professionals practising in the United States. Geneva was Cayman Islands Monetary Authority (“CIMA”) regulated. The First Plaintiff, William Ritter (“Mr. Ritter”), is and was at all material times a Director, sole shareholder and beneficial owner of Geneva. David Self (“DS”) was a Director and the Company Secretary of Geneva.
From 12 May 2000 Geneva was managed by Monkton Insurance Services Limited (“Monkton”), a company licensed as an Insurance Manager which managed captive insurance companies in the Cayman Islands. Monkton was the corporate entity of DS who was its Managing Director. From 1 May 2006 it was resolved by Geneva that Monkton would act as its Secretary and as its Registered Office. DS was also the Insurance Manager of a number of other captive insurance companies with accounts at the Defendant, Butterfield Bank (Cayman) Limited (“the Bank”). One of those customers was Canadian Livestock Insurance Co. (“Canadian Livestock”) and another was Warco Insurance Corporation (“Warco”). DS was a signatory and the main point of contact in respect of both of those accounts.
Both Monkton and Geneva were CIMA regulated.
On 20 March 2008 Geneva opened a corporate bank account (“the Geneva Account”) with the Bank. The Bank was incorporated in the Cayman Islands on 22 November 1967, and holds a Class A banking licence registered with CIMA. The Bank provided banking services to Geneva between 2008 and 2011. Geneva remained a customer with the Bank until the Geneva Account was closed in October 2013.
It is common ground that there were nine fraudulent transactions made by DS on the Geneva Account between 28 December 2008 and 13 September 2010. These included eight forged payment transfer requests from the Geneva Account and one fraudulent request for a payment from another account into the Geneva Account. These payments were honoured by the Bank and the Geneva Account was debited for a total of US$725,177.02. DS also defrauded the bank accounts of other Monkton clients at the Bank.
Due to the fraudulent transactions, on 30 April 2012 a shareholder's resolution was passed for the voluntary liquidation of Geneva. By a Deed of Assignment dated 7 November 2012; Geneva acting through the appointed Joint Voluntary Liquidators assigned all its potential rights, remedies and claims against the Bank to Mr. Ritter. On 27 February 2015 Mr. Ritter was appointed as the sole voluntary liquidator of Geneva.
The Plaintiffs' claim is brought by a 54 page Amended Writ of Summons and Statement of Claim filed on 2 November 2016. The allegation therein is that the Bank is liable for breach of contract, negligence and dishonest assistance in facilitating a fraud carried out by DS. The Plaintiffs' claim:
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(i) damages for breach of contract;
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(ii) damages for negligence/breach of duty of care;
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(iii) damages and/or equitable compensation for breach of fiduciary duty/dishonest assistance;
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(iv) any necessary enquiries into damages;
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(v) compound interest of all claims from the date of each respective. loss in accordance with the rates in the Judgment Debt (Rates of Interest) Rules; and
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(vi) costs.
DS provided false bank statements for the Geneva Account to Mr. Ritter to conceal the fraud mentioned in paragraph 5 above and outlined in greater detail from paragraph 31 herein. The Plaintiffs contend that the Bank, by allowing the withdrawals of money from the Geneva Account based on forged signatures, is in breach of their mandate and that their resultant net loss (excluding lost interest) from the Geneva Account is US$529,191.72. 1 The Plaintiffs seek an order for reimbursement of that amount together with interest and costs.
In its Amended Defence filed on 8 November 2016, the Bank denies any liability, contending that it provided banking services to Geneva on its standard terms and thereafter conducted itself in accordance with those terms and with good banking practice. It contends that Geneva failed to comply with its duties as the Bank's customer, because when Mr. Ritter became aware of the forgery on the Geneva Account on 1 September 2011 he failed to inform the Bank of the same until 27 August 2012. It is further contended that this deprived the Bank of the opportunity to properly act to prevent a number of other transactions and to enable it to take steps towards recovering money wrongfully paid on the forged signatures. In such circumstances, the Bank argues that Geneva is estopped from asserting the forgeries upon which its claim is based.
The Bank submits that the main issues for the Court to determine are:
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(a) The date on which the Bank received notice of DS's forgery on the Geneva Account — The Bank claims this was on 27 August 2012 when the Joint Official Liquidators (“JOLs”) for Geneva informed them that Mr. Ritter was challenging payments on the Geneva Account.
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(b) Whether Mr. Ritter discharged a duty to disclose DS's forgery on the Geneva Account to the Bank — The Bank claims that Mr. Ritter failed to discharge his duty on 1 September 2011 immediately after he became aware that DS had forged his signature.
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(c) If the Court finds that Mr. Ritter had not discharged his duty to disclose the fraud, whether his silence amounts to a representation — The Bank submits that Mr. Ritter deliberately failed to inform the Bank of the forgery as he had a strategy to focus on the return of his money via a private arrangement with DS and that he intended to notify the Bank only if the money was not repaid by DS.
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(d) If the Court finds that there has been conduct amounting to a representation, whether the Bank has suffered material detriment — The Bank claims that it has suffered detriment in the form of material prejudice as it has lost the opportunity to seek recovery from DS, due to it paying out large sums on 2 September 2011 and incurring significant legal fees in proceedings in both Texas and in the Cayman Islands.
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(e) Whether the Bank dishonestly assisted in DS's fraud — The Bank denies that it or any of employees have acted dishonestly in the operation of the Geneva Account.
The Bank seeks an order from the Court dismissing the Plaintiffs' dishonesty claim, which is based on the same factual allegations relied upon by them for breach of contract and negligence, on the basis that there is a lack of evidence to justify such serious findings. It is also submitted that the claim is “defectively pleaded”, the Bank stating that the Plaintiffs have failed to identify any employee(s) at the Bank who they claim has acted dishonestly. The Bank highlights that Mr. Ritter made no allegation of dishonesty against the Bank in the Texas proceedings.
The Plaintiffs argue that the Court should dismiss the Bank's estoppel defence and should also find in their favour in relation to the claim that the Bank was liable to account as a constructive trustee for dishonest assistance.
It is agreed that if the Bank's estoppel defence succeeds, the Plaintiffs' breach of contract and negligence claims should be dismissed. The Bank agrees that if its estoppel defence fails, it will pay to the Plaintiffs (without admission of liability) the full amount of the fraudulent transfers claimed.
It is agreed by the parties that the question of consequential losses would be determined at a later date depending on the ruling of the Court on the main estoppel defence and the claim for dishonest assistance.
In 2008, following representations made to him by DS, Mr. Ritter agreed that Geneva's banking should be moved to the Bank. To enable the Geneva Account to be opened, six main Account Opening Documents had to be processed and these documents governed the bank/customer relationship and constituted the Bank's mandate.
The First Account Opening Document is an undated and unsigned Corporate Banking: Captive Insurance Company — Account Opening Checklist (“the Checklist”) 2. It was recorded in this form that the purpose of the Geneva Account was “for core cell operating funds.” The form also recorded that the nature of the anticipated transactions through the Geneva Account were “cell fees and charges paid in quarterly, operating expenses, licence fee, audit admin, fee paid out.” It is submitted by the Plaintiffs that it was an express term that the Geneva Account would be used only for the above purpose and that it was an implied term that payments other than those listed would be out of the ordinary course of business transactions. The Bank denies this contention, pointing out that the purpose of the checklist is to act as a general guide to the Bank as to the nature and dollar volume of the anticipated transactions through the account to enable it to comply with its obligations under the Proceeds of Crime Law and Money Laundering Regulations.
The Second Account Opening Document is the New Account Memorandum-Business (“the Memorandum”) and it was filled out by DS and signed by Mr. Ritter as...
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