Anguilla’s banking saga continues: ECCB found not to have legal authority to take control of the offshore banks and NCBA wins key battle at the Court of Appeal

Regular readers may remember my 2016 article  in which I detailed the failure of Anguilla’s two indigenous banks, i.e., the National Bank of Anguilla Limited (NBA) and the Caribbean Commercial Bank (Anguilla) Limited (CCB), and the intervention by their regulator, the Eastern Caribbean Central Bank (ECCB) which took over control of them on Aug. 12, 2013.

As a consequence of this action, the ECCB also took control of the two wholly-owned subsidiaries of those institutions which were offshore banks, namely the National Bank of Anguilla (Private Banking & Trust) Limited (NBAPBT) and the Caribbean Commercial Investment Bank Ltd (CCIB), respectively. Since that time, there have been many developments and court cases resulting from the ECCB’s action which may throw the situation into an even deeper crisis than the one in which the ECCB intervened to solve in August 2013.

The first of these two decisions is extremely important to all members of the ECCB area since it examines the immunities which the ECCB claims and will affect the participating governments. The second decision is more important to the situation in Anguilla but is an excellent example of the approach a court should take when examining whether or not an injunction should be granted and will affect all members of the Eastern Caribbean Supreme Court system because it is from the Court of Appeal.

The resolution

As of early 2016, the ECCB was still in control of the banks, including the two subsidiaries under conservatorship as allowed for under Part IIA, Article 5B of the Schedule to the Eastern Caribbean Central Agreement Act, R.S.A.c.E5 of the laws of Anguilla (the Act/Agreement). However, on April 22, 2016 , shortly before said article was published, the conservatorship ended.  In announcing the resolution, the governor of the ECCB, Timothy Antoine and the Chief Minister of Anguilla Victor F Banks noted the following key points of the strategy:

  • Good assets and matching deposit liabilities up to a threshold of EC$2.8m (US$1.042m) from both NBA and CCB are being transferred to the National Commercial Bank of Anguilla Limited (NCBA);
  • Deposit liabilities over the EC$2.8m threshold from both banks will be transferred to a Deposit Protection Trust (DPT) . On transfer, these deposits will be transformed into long-term liabilities of the DPT. Depositors will hold a claim (not a deposit) against the DPT. These long-term claims will be matched by an annual amortizing bond with a 10-year maturity and 2.0 percent interest rate;
  • All remaining assets and liabilities will be placed in receivership. The assets in the receivership will be liquidated and the proceeds distributed based on the priority of claims established in the new Banking Act.

NCBA was incorporated in December 2015 as a domestic company under the local Anguillian Companies Act and is wholly-owned by the government of Anguilla as a bridge bank as part of the resolution strategy .  As noted above, NCBA took over some of the deposits of NBA and CCB. In his speech referenced earlier, the Chief Minister noted that:

“At its 81st meeting held on 24 February 2015, the ECCB Monetary Council took the decision to provide full protection for all depositors of the CCB and the NBA. That meant that whatever resolution strategy was adopted, depositors would not lose any of their funds held with the two banks. After careful and comprehensive analyses of the challenges that were affecting the operations of the CCB and the NBA, the Monetary Council and the government of Anguilla agreed that discontinuing the operations of the banks was the best option for safeguarding the deposits which were held at the banks. The government of Anguilla and the ECCB supported by the IMF, the World Bank and CDB devised a plan so that domestic deposits will be protected following the resolution.”

Banks went on to note that:

“The government of Anguilla is of the view that the Deposit Protection Trust is the best alternative method because it fully protects customer deposits. This fits with our principal objective. The alternative to being placed in the DPT is to be placed in the receivership.  In the receivership, claim holders are only entitled to proceeds from the liquidation of nonperforming loans based on their position in the hierarchy of claims as established by the Banking Act.”

As written in my May 2016 article, the resolution was funded by the imposition of local taxes and borrowings. However, what was not mentioned by either the Chief Minister or Mr. Antoine was how the depositors of the offshore banks would be dealt with. In effect, they were left to go through the liquidation/bankruptcy procedure and would not be protected like the depositors in NBA and CCB.

Offshore depositors go to Court en masse

As one would imagine, the offshore depositors who were left out in the cold in the resolution strategy did not take too kindly to it, so in Claim No. AXAHCV 2016/00051 Satay Limited v Martin Dinning et al , more than 60 of them took the ECCB and the persons who had been appointed by it as conservator during the conservatorship to Court. The depositors argued that further to the ECCB’s intervention into the affairs of NBA and CCB, it authorized the four conservators, including Martin Dinning, to take over the management of NBAPBT and CCIB.
The depositors claimed that when the ECCB took over the affairs of NBAPBT and CCIB and for the period during which the intervention subsisted, they acted without authority and negligently managed said institutions, which caused them, the depositors, to suffer loss and damages.

Specifically, the depositors claimed that:

  1. Article 5B does not endow the ECCB with the authority to take control of NBAPBT and
    CCIB, which were affiliates of NBA and CCB, respectively;
  2. The notices in the Official Gazette of the government of Anguilla, which effectuated the ECCB’s takeover of NBA and CCB as allowed for under the Agreement, could not and did not extend to NBAPBT and CCIB as these institutions were separate legal entities which were not regulated by the ECCB;
  3. By taking control of the management of NBAPBT and CCIB, the ECCB and its conservators acted as de facto directors of the said entities and owed a fiduciary duty to the depositors who are creditors of NBAPBT and CCIB to act in good faith and with due diligence in the custody and control of the property of the NBAPBT and CCIB. This responsibility was paramount as the ECCB and its conservators knew or ought to have known that NBAPBT and CCIB along with their parent banks, NBA and CCB were in a state of insolvency, on the brink thereof or were in doubtful solvency;
  4. By their conduct, the ECCB and its conservators acted negligently in the management of NBAPBT and CCIB and in breach of trust, thereby causing loss to the depositors. The depositors seek special damages in the amount of US$13,028 846.17 plus interests and costs.

In responding to the claim, the ECCB and conservators argued that the ECCB had statutory immunity pursuant to Article 50(1) of the Act which “confers certain status, immunities and privileges on various persons, entities and things in order to enable the Bank to fulfill the functions with which it is entrusted.” The ECCB specifically argued this based on Articles 50(2) and 50(7) of the Agreement:

50. (1) To enable the Bank to fulfil the functions with which it is entrusted, the status, immunities and privileges set forth in this Article shall be accorded to the Bank in the territory of each Participating Government.
(2) The Bank, its property and its assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process except to the extent that it expressly waives its immunity for the purpose of any proceedings or by the terms of any contract.
(7) The Governor, the Deputy Governor, the appointed Directors, officers and employees of the Bank –
(i) shall be immune from legal process with respect to acts performed by them in their official capacity except when the Bank waives this immunity;

While the above may seem very dense to the non-lawyer, it simply states that the ECCB and its employees are immune from any form of judicial or court action for any of their actions done in their official capacity unless said immunity has been waived. In other words, as long as the ECCB was acting in its official capacity, its actions in taking over the banks in Anguilla, including the two offshore banks, was legal and could not be challenged in court by anyone, including the depositors of the offshore banks.

After careful consideration of the immunity clauses in the Agreement, the manner in which the ECCB exercised its powers and the procedure of the takeover, the principles which the court applies when construing/interpreting immunity provisions in the statute, the court held that the ECCB, while having the authority specifically set out in the Act to take over NBA and CCB, did not have the authority to take over NBAPBT and CCIB, especially because these two institutions were licensed and regulated by the Financial Services Commission under the Trust Companies and Offshore Banking Act, R.S.A. c.T60 of the laws of Anguilla and are separate legal entities.

Master Raulston Glasgow, who ruled on the point, noted in his analysis that immunity clauses must be construed or interpreted narrowly and specific attention must be paid to the literal wording and meaning of the statutory clause which confers the immunity. Nothing more must be added to what the literal text says and the immunities cannot be expanded. The court found that there was nothing in the Act that extended the ECCB’s powers, especially in light of the fact that it was not the regulator of these institutions.

Its powers, as per the Agreement and as found by the court, were limited to investigating affiliated companies of NBA and CCB which are what NBAPBT and CCIB were as provided for under Article 5B(1)(i) of the Agreement. However, the court found that ECCB did more than investigate the affairs of the offshore subsidiaries but in fact, appointed the conservators to manage their affairs, restricted depositor withdrawals, revised interest rates on deposits, removed directors and officers and replaced them with ECCB personnel, etc.

As a consequence, the ECCB was found by the court to have exceeded its authority and it did not have immunity for its actions with regards to NBAPBT and CCIB because it had no legal basis to take them over. Having found that the ECCB does not have immunity, the court ordered it to file its defense and for the action to continue on the road to trial.

As a general comment, I remember wondering at the time of the takeover in August 2013 on what basis the ECCB proceeded and whether or not it had the consent of the Commission to proceed as it did, granted that said Commission regulates offshore banks. It is no small comfort to see that my concerns were genuine because if on appeal, and I am sure that it will, the ECCB is unsuccessful, then all the actions of the said ECCB are subject to judicial review.

If these actions are found to have damaged the depositors, eventually it will be the taxpayers of Anguilla who will foot the bill for the ECCB’s actions with regards to the depositors’ monies in the offshore banks. The decision of the court also calls into question the conduct of the Commission which appeared to have stood idly by and did nothing as the ECCB usurped its statutory authority without any resistance and or perhaps with its consent. The court has now ruled the ECCB’s actions to be outside of its statutory powers and again the failure of the Commission to act places, potentially, taxpayers at risk for paying out large sums of money to the offshore depositors.

NCBA wins at Court of Appeal

While the offshore depositors were winning a key victory at the case management level of the litigation process, over in the Court of Appeal, NCBA was finally able to gain access to frozen monies to the tune of around USD9.1 million held at Bank of America (BOA) in New York, which the Commission’s appointed administrator of NBAPBT and CCIB, William Tacon, had frozen since last year.

In AXAHCVAP2016/0009 National Commercial Bank of Anguilla Ltd and National Bank of Anguilla (Private Banking and Trust) Limited (in administration), the Court of Appeal overturned Justice Mathurin who refused to issue a mandatory injunction to Tacon, the administrator of NBAPBT who was appointed by the court earlier on the application of the Commission, to write to BOA to release the monies held in NCBA’s account with it. In layman terms, Anguillan High Court Judge Cheryl Mathurin refused to grant NCBA an order which it wanted to force Tacon to write to BOA to release the monies in NCBA’s BOA account which he had asked to be frozen in mid-2016.

As an aside, I have heard it said by at least one local lawyer in Anguilla that Justice Mathurin appears, based on her rulings over the years, not to like to grant injunctions and prefers matters to proceed to a full trial; thus her decision does not surprise me. Judges, like everyone else, based on temperament and their understanding of the law as well as experience, have certain preferences and ways of doing things and thus, the good lawyer always knows how to proceed. In larger jurisdictions with many judges, lawyers would go “judge-shopping” to find a judge who would have been more amenable to granting an injunction, but in a small place like Anguilla with only one judge, that is not possible.

Tacon claimed in an Anguillian court that such parts of NCBA’s funds or monies held in the BOA account that constitute monies claimed by NBAPBT are held on trust or on its behalf.  His U.S. lawyers wrote to BOA asserting NBAPBT’s claim to ownership or at a minimum, an interest in the funds at BOA and demanded that BOA freeze the account pending further instructions from him or from a court order.  In its application for the order, NCBA claimed that Tacon’s actions affected its operations since it had to make alternative arrangements to service its clients’ transactions at additional expense and inconvenience and possible loss of reputation.

While Justice Mathurin found that there were serious issues to be tried in a full trial, she did not find that the test the court has to apply when considering whether or not to grant an injunction favored granting one. She also found that even if NCBA had suffered losses which were not necessarily trivial, such losses had not been established to the required standard which the court needed to see, and in any event, NCBA could be compensated by an award of damages. She further ruled that there was no evidence that NBAPBT would not suffer irreparable harm or damage by the grant of the injunction.

The Court of Appeal overturned Justice Mathurin unanimously and granted NCBA its injunction.  Acting Court of Appeal Justice Paul Webster, who wrote the decision with which the other two Justices agreed, noted that Justice Mathurin did not take into consideration the fact that NBAPBT is insolvent and therefore cannot compensate NCBA for any loss it has suffered and continues to suffer. The court ordered Tacon to write to BOA, formally withdrawing the demand letter and its request for a freeze on the NCBA BOA account and to refrain from taking any action with respect to the account without the permission of the High Court of Anguilla. This is a noted win for NCBA, which it has been very happy to highlight  but more litigation is likely to continue.

Conclusion

The victory of the offshore depositors is one which will have lasting consequences for the banking sector in Anguilla and the resolution which the GOA implemented if it is upheld on appeal. It is also a case which should be read across the ECCB region because it clarifies the immunities which the ECCB has and makes it clear that these immunities only extend to activities for which the ECCB has authority to execute.

It is anticipated that more litigation is likely to follow as a consequence of this decision based on the fact that many persons were affected by ECCB’s actions and if the decision is upheld on appeal all the way to the Privy Council, more opponents of the ECCB and the resolution strategy will take it to court.

NCBA’s victory with regards to the monies held at the BOA account in New York is a needed respite but it too will see more litigation against it. From a jurisprudential perspective, lawyers across the region should read it because it explains in a very simple and straightforward manner, how applications for injunctions should be handled by a judge and when a Court of Appeal can impose its exercise of discretion in place of that of a lower court.

There is currently a stay or a hold on an action being brought against NCBA by the NBAPBT and CCIB.  It remains to be seen whether that decision shall be appealed further and what the outcome of the underlying matter will be if fully litigated in court.

Nearly four years after the intervention by the ECCB, and despite a formal resolution being in place, there is no end in sight for Anguilla’s banking saga as the action now moves from one of seeking to save the banks to the courtroom to resolve a myriad of issues, including a review of the ECCB’s actions in seeking to do just what the intervention was meant to achieve. It appears that I will have at least a few more of these updates to write over the next couple of years. Stay tuned.

SHARE
Previous articleData protection update
Next articleApplying the Cayman approach to virtual currency: A disruptive opportunity waiting to happen
Carlyle K Rogers

Carlyle K Rogers MBA, LLM is a barrister-at-law in Anguilla who practices in the areas of corporate and financial services law. He is also admitted in the BVI and New Zealand, owns and manages the Stafford Group of Companies.  He studied law in London at Queen Mary and Westfield College, University of London, where he obtained an LLB (Hons) degree in 2001 and with the University of London (International Programme) from which he obtained an LLM degree in Corporate and Commercial Law in 2005. He completed the Legal Education Certificate (LEC) at the Hugh Wooding Law School in Trinidad in March 2013 and was admitted as a barrister of the Eastern Caribbean Supreme Court in Anguilla and BVI in 2013. 
 

Carlyle K Rogers MBA, LLM
Stafford Group of Companies
201 The Rogers Office Building
Edwin Wallace Rey Drive
George Hill, Anguilla

T: 1 264 498 5858 + 1 264 498 5858 ; + 1 954 607 7239/7217
C: 1 264 476 5858 + 1 264 476 5858
F: + 1 264 497 5504
E: carlyle.rogers@stafford-trust.com 

 

Stafford Corporate Services

Stafford Group of Companies
201 The Rogers Office Building
Edwin Wallace Rey Drive
George Hill
Anguilla

T: 1 264 498 5858
T: + 1 264 498 5858
T: + 1 954 607 7239/7217
C: 1 264 476 5858
C: + 1 264 476 5858
F: + 1 264 497 5504 
E: carlyle.rogers@stafford-trust.com