Al Sabah and another v Grupo Torras SA and another

JurisdictionUK Non-devolved
JudgeLord Walker of Gestingthorpe
Judgment Date11 January 2005
Neutral Citation[2005] UKPC 1
CourtPrivy Council
Docket NumberAppeal No. 1 of 2004
Date11 January 2005
(1) Barbara Alice Al Sabah
and
(2) Mishal Roger Al Sabah
Appellants
and
(1) Grupo Torras S.A.
and
(2) Clifford Culmer as trustee of the property of Sheikh Fahad Mohammed Al Sabah, bankrupt
Respondents

[2005] UKPC 1

Present at the hearing:-

Lord Hoffmann

Lord Scott of Foscote

Lord Rodger of Earlsferry

Lord Walker of Gestingthorpe

Lord Brown of Eaton-under-Heywood

Appeal No. 1 of 2004

Privy Council

[Delivered by Lord Walker of Gestingthorpe]

Background

1

The appellants Barbara Alice Al Sabah and Mishal Roger Al Sabah are the wife and adult son respectively of Sheikh Fahad Mohammed Al Sabah ("the debtor"). The debtor was formerly head of the Kuwait Investment Authority in London. It embarked on a huge programme of investment in Spain through a Spanish company named Grupo Torras SA ("GT"). With the help of co-conspirators the debtor defrauded GT on a very large scale. The misappropriations were effected by four separate fraudulent schemes between 1988 and 1990. After a long civil trial in London the debtor was found liable for very large damages (see Grupo Torras SA v Al Sabah [1999] CLC 1, 469). There have subsequently been various proceedings in different parts of the world by which GT, and more recently the debtor's Bahamian trustee in bankruptcy, have sought to recover funds in order to satisfy the judgment. GT has so far recovered about US$178m from the debtor or trusts established by him, but that is only a small part of the total indebtedness.

2

The debtor is now resident in the Bahamas. On 29 June 2001 he was adjudicated bankrupt under the Bahamian Bankruptcy Act 1870. The bankruptcy was deemed to have commenced on 6 February 2001. GT's proof of debt was for a sum of the order of US$800m. On 30 July 2001 the first meeting of creditors was held and Mr Clifford Culmer, a partner in BDO Mann Judge of Nassau, was appointed as trustee in bankruptcy.

3

The debtor is the settlor in respect of two trusts governed by the law of the Cayman Islands. One is the Comfort Trust, which he established (under the name of The Chester Trust) under Bahamian law on 29 September 1992. On 30 December 1992 a corporate trustee resident in the Cayman Islands, Bank of Butterfield International (Cayman) Ltd, was appointed as trustee of the trust and on 12 February 1993 the trust's proper law was changed to that of the Cayman Islands, and its name was changed to its present name. The debtor is the principal beneficiary under this trust and the appellants are also beneficiaries. The other is the Eaglet Trust, established on 14 February 1992 and governed from its inception by Cayman law. The trustees are Pictet Trustee SA (a Swiss company) and Pictet Bank and Trust (Cayman) Ltd (a Cayman company). The appellant Mishal Al Sabah is the principal beneficiary under this trust.

4

The trustee in bankruptcy's case is that the two trusts own and control, through a network of companies, very valuable assets (the Comfort Trust alone is said to be worth over US$27m) which enable the debtor, despite his bankruptcy, to enjoy a life of luxury. On 31 August 1995 GT commenced proceedings in the Cayman Islands (cause no. 271 of 1995) against the trustee of the Comfort Trust and various companies owned by the trustee, pleading proprietary claims. The pleadings have been extensively amended and the proceedings are still on foot. GT has also obtained summary judgment from the Grand Court of the Cayman Islands in effect converting its English money judgment into a Cayman money judgment. These Cayman proceedings are of no more than background relevance to the claim by the Bahamian trustee in bankruptcy, which is of central importance in this appeal.

The letter of request and subsequent proceedings

5

On 14 February 2002 the trustee in bankruptcy made an ex parte application to the Bahamian Grand Court for an order under section 122 of the Bankruptcy Act 1914 of the United Kingdom (or alternatively under the inherent jurisdiction) requesting aid from the Grand Court of the Cayman Islands. On 12 March 2002 Lyons J gave a short reasoned judgment (mainly concerned with section 122 of the Bankruptcy Act 1914) and made an ex parte order for a letter of request to be issued seeking assistance under three heads: (i) that Mr Culmer's appointment as trustee in bankruptcy of the property of the debtor should be recognised in the jurisdiction of the Cayman Islands; (ii) that the trustee should be granted "all general law powers and the statutory powers accorded to a trustee in bankruptcy in [the jurisdiction of the Cayman Islands] and in particular… the powers under section 107 of the [Cayman] Bankruptcy Law (1997 Revision)"; and (iii) that he should be granted such other powers as the Grand Court of the Cayman Islands thought fit.

6

Section 107 of the Bankruptcy Law (1997 Revision) of the Cayman Islands provides that any voluntary settlement (an expression which is widely defined) of property is to be void against the trustee in bankruptcy if the settlor is made bankrupt (i) within two years after the date of the settlement or (ii) within ten years after the date of the settlement unless (in the latter case) the beneficiaries can prove that the settlor was, when he made the settlement, able to pay all his debts without the aid of the property comprised in the settlement (and that the settled property passed to the trustee on execution of the settlement). Although this enactment speaks of the settlement being "void" it is common ground that this should be interpreted as "voidable" in accordance with the decision of the English Court of Appeal in In re Hart; Ex parte Green [1912] 3 KB 6. If the Cayman trusts are to be set aside under section 107, that can be achieved only by an order of a court of competent jurisdiction, prima facie the Grand Court of the Cayman Islands.

7

The Bankruptcy Act 1987 of the Bahamas contains (in section 71) provisions similar to those of section 107 of the Cayman statute but they are not identical. In particular, the power conferred by section 71 of the Bahamian statute is exercisable only if the bankrupt settlor was (apparently at the time of the settlement) a trader (within the meaning of a rather old-fashioned statutory definition). Their Lordships heard no argument as to whether the debtor was at any time a trader within the meaning of the Bahamian statute and they express no view on the point. But it appears to have been one of the considerations which led the trustee in bankruptcy to seek a letter of request to the Cayman court. The other consideration may have been doubt as to whether the Cayman court would give effect to an order of the Bahamian court setting aside a trust governed by Cayman law. Their Lordships express no view on that point either; it was mentioned in the course of the hearing but was not fully argued, and is of no direct relevance to the outcome of this appeal (its only relevance is that if the doubt is well-founded, it shows that the Bahamian trustee in bankruptcy, like the Scottish trustee in bankruptcy in Galbraith v Grimshaw [1910] AC 508, 510 may still "find himself … falling between two stools").

8

The Bahamian court's letter of request came before the Grand Court of the Cayman Islands on 15 March 2002, when Smellie CJ considered it ex parte. He made an immediate order (followed by a written judgment delivered on 27 March 2002) acceding to the letter of request and (in particular) granting the Bahamian trustee in bankruptcy the powers conferred by section 107. The main points in his judgment can be summarised as follows: (i) that section 156 of the Bankruptcy Law (1997 Revision) of the Cayman Islands, and further or alternatively section 122 of the Bankruptcy Act 1914 of the United Kingdom, authorised the Grand Court to act on the letter of request; (ii) that the Grand Court should as a matter of discretion confer the section 107 powers, since any Cayman assets relevant to the bankruptcy were likely to be held in trust; and (iii) that the order could in any case be made under the Court's inherent jurisdiction.

9

The matter then came before Henderson J inter partes on three days in September 2002. Henderson J also had before him an application to join the trustee in bankruptcy as a co-plaintiff in cause no. 271 of 1995. He reserved judgment and handed down a written judgment on 8 November 2002. In relation to the letter of request Henderson J decided (i) that the Chief Justice had rightly exercised jurisdiction (although Henderson J took a rather different view as to the reasons); (ii) that the order should not be set aside on grounds of material non-disclosure (this is not an issue in the appeal to the Board); and (iii) that any further exercise of the Court's discretion should be postponed until after a full consideration of the evidence.

10

The appellants appealed to the Court of Appeal of the Cayman Islands and the appeal came before that Court (Zacca P and Rowe and Taylor JJA) in July 2003. On 1 October 2003 the Court of Appeal (in a reserved judgment of the Court delivered by Taylor JA) dismissed the appeal. The appellants now appeal to Her Majesty in Council with final leave granted on 5 December 2003. The principal issues in the appeal are as follows:-

The Legislation

  • (i) Was the Court of Appeal correct in its view that the Grand Court had jurisdiction under section 156 of the Bankruptcy Law (1997 Revision)?

  • (ii) If not, did the Grand Court have jurisdiction under section 122 of the Bankruptcy Act 1914 of the United Kingdom (on the basis that it was not repealed by the Insolvency Act 1985) or under its inherent jurisdiction?

  • (iii) If the Grand Court had jurisdiction under any of these routes, did it have power to confer the section 107 powers on a Bahamian trustee in bankruptcy?

11

In considering these issues it is necessary to look closely at the...

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