In the never-ending saga resulting from the failure in 2013 of Anguilla’s two indigenous banks and their offshore subsidiaries, recent court decisions show that the litigation is not likely to end anytime soon.
The plethora of litigation is both extensive and complicated, so I will begin by giving an overview of where we are in the various actions as of the date of my writing this article. I will focus on the four main actions which took place just prior to and following the implementation of the banking resolution plan in April 2016.
It is worth noting that there was at least one action brought by a depositor in 2014, Charter Capital Limited, against both National Bank of Anguilla (NBA) and the Eastern Caribbean Central Bank (ECCB) to gain access to its funds which were frozen, but it was unsuccessful.
In addition, there was a minor case in which National Commercial Bank of Anguilla (NCBA) was finally able to gain access to frozen monies of around US$9.1 million held at Bank of America (BOA) in New York, which the Commission’s appointed administrator of the offshore banks had frozen in 2016. This was referenced in my last update on the banking litigation extensively, so I will not repeat herein1.
It is worth remembering that the failure of these institutions has many lessons for not only Anguilla but similar small jurisdictions in the region where the indigenous banks play a pivotal role in their economies and development.2
Financial Services Commission (FSC or Commission in the alternative) appointed administrator
Just prior to the implementation of the banking resolution plan which took effect on the April 22, 2016, on Feb. 22, 2016, the Commission sought and received a court order appointing an administrator for the offshore banks. In its press release, the Commission stated that William Tacon of FTI Consulting based in the British Virgin Islands was appointed to manage the business of the banks.
The administrator was empowered by the Anguillian Court, “to act in Anguilla or any foreign jurisdiction where he believes assets and property of the offshore banks may be situate[d] … [to] commence [or] continue … without further order of this Honourable Court any proceeding or action … in a foreign jurisdiction for the purpose of fulfilling his duties and obligations.”
The Anguilla Initial Proceedings (AIP)
On May 6, 2016, Tacon brought proceedings on behalf of the offshore banks in the High Court of Anguilla against their parent banks (NBA and CCB) and NCBA alleging that the conservator directors (who had been appointed by ECCB when the banks were taken over in replacement of the existing directors) and ECCB breached their fiduciary duties in their capacity as de facto directors of the offshore banks by transferring the funds to the parent banks.
More specifically, the offshore banks alleged that during their control, and while the parent banks were insolvent, the conservator directors procured or permitted the payment to, respectively, NBA and CCB of all monies received by the offshore banks from depositors, and the proceeds of all assets of the offshore banks realized or collected during the conservatorship in the amounts of US$174,959,675.75 and US$26,983,662.05.
The offshore banks argued that the up-streamed funds were received and held by the parent banks on trust for the offshore banks and they remained the assets of the offshore banks and they were entitled to the return of the funds and their traceable proceeds.
It is important to note that because the parent banks were in receivership at the commencement of the AIP, a stay (which means that the legal action cannot continue or is prevented from even beginning) was in effect as to all legal proceedings against them under section 143(c) of the Banking Act 2015 (the “Banking Act”). This provides “that upon the appointment of a receiver: All legal proceeding against the licensed financial institution or licensed financial holding company are stayed and a third party shall not exercise any right against the licensed financial institution’s or licensed financial holding company’s assets without the prior leave of the court unless the court directs otherwise.”
The offshore banks therefore required leave (permission) of the High Court to sue the parent banks. They did not seek leave before initiating the action and sought leave retrospectively. Although it was in all parties’ mutual interests to determine these claims and the refusal to lift the stay would leave the offshore banks unable to pursue their proprietary claims against the defendants, the High Court nevertheless refused to lift it, and the banks’ application was dismissed on Aug. 24, 2016.
The principal reason for the dismissal was their failure to join the conservator directors as parties. However, this decision was overturned by the Court of Appeal in July 2018 and the stay lifted. The case can now proceed but as of writing this article, it has not been decided.
The Satay decision
In my last article over a year ago, I discussed this decision in detail, so I do not aim to deal with it here. However, the appeal was heard in April 2018 and at the time of writing, the Court of Appeal had yet to give its decision.
Application for Judicial Review (AJR)
On March 10, 2017, the offshore banks filed an application for leave to apply for judicial review against the chief minister of Anguilla, the attorney general of Anguilla in his official capacity as a legal representative of the government of Anguilla, Gary Moving, the receiver of the parent banks and ECCB (referred to as the defendants). The application alleged that as part of the resolution plan, in or around April 2016, ECCB and the receiver agreed to transfer certain of the parent banks’ liabilities (including their liabilities for deposits up to EC$2.8 million) and an equal amount of assets to NCBA. At around the same time, the House of Assembly in Anguilla granted the government of Anguilla money to fund two trusts to protect the parent banks’ large depositors, defined as those depositors whose deposits exceeded EC$4 million. The intention was to fulfill the policy under which NCBA would assume the parent banks’ liability to their depositors up to EC$2.8 million while the balance of the deposits would be protected by the Trusts, thereby fully protecting the parent banks’ depositors.
The offshore depositors claimed that the defendants, unfairly discriminated against them by guaranteeing repayment of deposits of all onshore depositors but not of offshore depositors, who are non-residents of Anguilla.
The offshore banks sought (1) a declaration that the decisions were unlawful, and orders quashing them; (2) a declaration that ECCB and the chief minister must effect the transfer of the liability for the offshore deposits in the sum of EC$2.8 million per deposit to NCBA; and (3) a declaration that the offshore banks’ deposits with the parent banks must receive the same treatment and protections under the trusts from the chief minister and the receiver as the parent banks’ other, similarly situated, depositors. On June 14, 2017, the High Court stayed the judicial review action, until the earlier of either a “final determination” in the U.S. Adversary Proceedings or a final settlement agreement between the parties to said proceedings.
The US Adversary Proceedings (USAP)
After the Administrator failed to advance his case in the AIP, in May 2016 and then October 2016, he used the authority granted to him by the High Court as also explained above, to initiate two Adversary Proceedings in the United States Bankruptcy Court for the Southern District of New York (USSDNY) against ECCB, NCBA and the parent banks (the defendants).
Under U.S. Federal Law, Tacon was able to have the cases of the depositors brought before the U.S. Bankruptcy Court on the grounds that some of them were U.S. citizens/taxpayers, the deposits being sort were denominated in U.S. dollars and the fact that these monies were held in the U.S. banking system including monies held by Bank of America.
Tacon first used the chapter 15 section of the U.S. Bankruptcy Code to get the Anguilla Administrations granted by the aforementioned order issued by the Anguillian Court to be recognized by the Southern District of New York as foreign main proceedings and the administrator as the offshore banks’ foreign representative. He then filed two chapter 11 proceedings in the same district to enable him to bring avoidance claims under federal and New York law, as 11 U.S.C. § 1521(a)(7) does not permit federal and state law avoidance claims to be brought in a chapter 15 case, and, as freely admitted by the offshore banks, Anguillian law does not recognize constructive fraudulent transfer claims.
The defendants filed motions to dismiss the USAP and as the court in the Southern District noted, these raised “difficult issues of personal jurisdiction, subject matter jurisdiction, forum non conveniens, international comity, Foreign Sovereign Immunities Act defenses, extraterritorial application of federal and New York law, and the act of state doctrine.” As a result of the fact that the defendants, issues, arguments and counsel were the same, the two cases were combined and both judges gave one written decision on the Jan. 29, 2018, reflecting their separate conclusions which stayed the actions “based on the grounds of forum non conveniens and international comity, pending decisions of issues raised or that can be raised, and more appropriately should be raised and decided by the courts in Anguilla.” In other words, the U.S. Court prevented Tacon from proceeding with his actions to wait on the resolution of the cases in Anguilla.
In ruling the way it did, the Southern District of New York discussed in detail the two grounds mentioned above upon which said decision was made and it is to those that I now turn.
Forum non conveniens
Forum non conveniens is a “discretionary device permitting a court in rare instances to dismiss a claim even if the court is a permissible venue with proper jurisdiction over the claim.” In other words, the concept means that a court can reject an action being brought before it, although it has the authority to hear it, if it feels that said court is not the correct forum or court/location for the action to be heard. The USSDNY noted that whether to dismiss an action on forum non conveniens grounds is a decision that lies wholly within the broad discretion of the court and should be reversed only if that discretion has been clearly abused. It went on to say that the court may dismiss an action under forum non conveniens when considerations of convenience, fairness, and judicial economy so warrant. Further, the district court noted that U.S. courts apply a three-step process to determine whether to dismiss an action for forum non conveniens. The judges detailed this as stated below.
First, the court must determine the degree of deference properly accorded to the plaintiff’s choice of forum. Second, after determining whether the plaintiff’s choice is entitled to more or less deference, the court must determine whether an adequate alternative forum exists. Third, the court must then balance a series of factors involving the private interests of the parties in maintaining the litigation in the competing fora and any public interests at stake.
After considering the facts of the cases against the law, the court concluded that the banks and Tacon were engaged in a clear example of forum shopping. In a brutal takedown, the judges stated the following (edited): “The banks’ choice of forum was not motivated by convenience. The banks were incorporated in Anguilla, do not operate in the United States (other than having accepted U.S. dollar deposits that were deposited in the parent banks’ New York bank accounts), and Tacon resides in England. The conservator directors, the key witnesses in these cases, reside in Anguilla, the Eastern Caribbean or London, and aside from banking documents in New York, access to which does not appear to present any difficulties even if the suits were pursued in Anguilla, all of the evidence and witnesses for these cases are located in the Eastern Caribbean or elsewhere, but not in the United States. Finally, the defendants are amenable to suit in Anguilla. The banks had already sued the defendants in Anguilla as part of the AIP before they commenced these USAP, and the all parties are represented by legal counsel there.”
The court also examined the issue of whether an alternative forum was available. It noted that an alternative forum is ordinarily adequate if the defendants are amenable to service of process there and the forum permits litigation of the subject matter of the dispute.
The court found that Anguilla is an adequate alternate forum because, amongst other reasons:
“… the parties did not contest, and the same court had previously found, that the Anguillian courts were competent to adjudicate disputes as per In re HBLS, L.P., 468 B.R. 634, 640 (Bankr. S.D.N.Y. 2012) (where the court explained that “the courts of Anguilla are available and competent to adjudicate these issues. There is no need for this Court to inject itself into proceedings that have already been or can be handled in Anguilla”). Further, the offshore banks initially sued the parent banks and NCBA in Anguilla in connection with the subject matter of this dispute, and cannot, therefore, contend that the Anguillian forum was inadequate.”
Secondly, although Anguillian law does not recognize a claim to avoid and recover a constructive fraudulent transfer, this does not render the Anguillian forum inadequate.
Moreover, the Fraudulent Dispositions Act, R.S.A c.F60 does provide a remedy to avoid and recover intentional fraudulent transfers and the offshore banks can prove their cases, they will be able to recover the same remedy as if they proceeded under the Bankruptcy Code.
Thirdly, other causes of action asserted by the offshore banks in the AIP also provide the same remedy that they are seeking in this court – the recovery of the upstreamed funds and transferred property. Therefore, Anguilla is an adequate alternate forum for the litigation of the subject matter of the dispute.
In determining whether the doctrine of forum non conveniens should be applied, the judges stated that a court should also consider factors of public interest and the private interests of the litigant. In weighing the litigants’ private interests, a court should consider the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of the premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive.
The court also identified several public interest factors that it should consider when faced with a motion to dismiss based on forum non conveniens. These included administrative difficulties relating to court congestion; imposing jury duty on citizens of the forum; having local disputes settled locally; and avoiding problems associated with the application of foreign law.
Again, after examining the issues of the cases against these legal factors, the judges found that Anguilla was the proper location for resolving them and granted a stay of the proceedings on the grounds of forum non conveniens.
The second ground that the court based its decision on was that of international comity. I will not go into great detail here because for purposes of this article, the forum non conveniens argument is more important as I will address below in my comments. Suffice to say that as per the court that:
“Comity, in the legal sense, is neither a matter of absolute obligation, on the one hand, nor a mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.”
When the judges applied these principles to the actions brought by Tacon, they concluded that said actions should be stayed on the ground of comity amongst courts.
The USAP which raises some serious questions with regards to the manner in which the process has manifested itself. The resolution of the USAP means that the AJR which was stayed in June 2017 can now proceed.
Firstly, the order of the Anguillian High Court was needlessly broad and in retrospect was fatally flawed in allowing for useless and expensive litigation which will only serve to negatively affect the depositors and creditors of the offshore banks. The court gave Tacon the power to commence legal proceedings in foreign jurisdictions without having the need to seek its approval before doing so. It is my view that this was wrong and shortsighted and had a requirement to seek permission been a part of the order, then Tacon would not have been able to proceed with needless and costly litigation in U.S. courts given the fact that two recent decisions of the same district court made it clear that on matters of this nature, the correct forum is Anguilla and not the U.S.
I am unaware if either Tacon or the court or anyone involved in this matter is or was aware of these decisions, but this is now the third ruling in the last six years from this same court that addresses this point. I have already mentioned above the decision in In re HBLS, L.P. but there was also the decision in Thornton Tomasetti, Inc. v. Anguillan Dev. Corp., 2015 WL 7078656, at *4 (S.D.N.Y. Nov. 13, 2015) which was handed down just months before the administrator was appointed and commenced his legal actions.
It is my hope that going forward, no Anguillian Court or dare I say no part of the Eastern Caribbean Supreme Court will grant such a wide-ranging order again without the requirement of the administrator to seek its permission before commencing costly foreign litigation especially where there is clear evidence, as was available here, that said litigation is likely to fail. In addition, no administrator should seek and the FSC or any similar body should even seek said order given the clear legal position of the Southern District of New York, which I am sure will be followed not only in that court but similar U.S. courts.
Granted that the parent banks and the ECCB had to end up hiring costly U.S. law firms to defend themselves against the administrator’s actions, the question must be asked as to why none of them used their right under paragraph 20 of the order to rein in the administrator before he went off on a frolic of his own? The same question needs to be posed to the Commission, as well as to why it would seek such a wide-ranging order which has only now served to dissipate some of the recoverable assets of the offshore banks which would be due to their depositors and creditors? These are legitimate questions which must be posed, granted the large fees which I am sure the lawyers engaged by the parties, on all sides, in the U.S. were paid and the fact that the administrator’s fees are secured, subject to the approval of the court.
This is not to cast any aspersions on the motives of anyone involved but in a bankruptcy scenario, the interests of the creditors, and in this case, the depositors of the offshore banks, must be paramount. All parties involved including the FSC and the court must therefore act with their best interests in mind. I submit then that the order should not have been requested in such broad terms by the Commission, the court should not have granted it and the parent banks and ECCB should not have agreed to its terms and even after they agreed, at the point that the Administrator sought to commence expensive U.S. litigation, they should have intervened to stop him or get the approval of the Court in Anguilla. The only losers here are the depositors and creditors of the offshore banks.
These actions on the part of all concerned will only serve to negatively affect Anguilla’s reputation as a place for banking in the eyes of the international community and this should not be lost sight of when analyzing these developments.
2 These issues were discussed in my original article: https://www.caymanfinancialreview.com/2016/05/23/anguillas-indigenous-banking-crisis-an-in-depth-analysis-and-lessons-for-the-region/