Guernsey Legal Resources

The first plaintiff is an attorney-at-law and a director of the second plaintiff, a law firm, whose headquarters are in Richmond, Virginia, United States. The first and second plaintiffs are the receivers of the assets of Vavasseur Corp., a company incorporated in The Bahamas. Vavasseur was controlled from the United States by a Terry Dowdell, who orchestrated an international Ponzi scheme, raising more than US$70m. from investors in the United States and abroad through the sale of fictitious securities in a trading programme purportedly operated by Vavasseur.

2 In March 2001, Dowdell represented to the US Securities and Exchange Commission (“SEC”) that Vavasseur had terminated its relationship with Dowdell and had ceased doing business in the United States. Shortly thereafter, Dowdell transferred the ownership of Vavasseur to a corporation controlled by one Ian Collins, a UK citizen. Collins and Dowdell continued to operate the scheme together with two other UK citizens, Shinder Gangar and Alan White, who were partners in an accountancy firm called Dobb White & Co.

3 On February 14th, 2003, the US District Court for the Western District of Virginia, Charlottesville Division, in proceedings entitled Securities and Exchange Commission v. Terry L. Dowdell and Others, appointed the plaintiffs as receivers of Vavasseur (the “receivership order”).

4 Under the terms of the receivership order, the receivers are appointed “for the benefit of Vavasseur’s investors, to marshal, conserve, protect, hold funds, operate and, with the approval of the court, dispose of any wasting assets, wherever those assets may be found.” A receiver’s powers and duties include bringing “such legal actions based on law or equity in any state, federal or foreign court as he deems necessary or appropriate in discharging his duties as receiver, or on behalf of investors whose interests he is protecting.”

5 I am told in the first plaintiff’s affidavit (sworn on December 14th, 2005) that the SEC sought the appointment of receivers for Vavasseur

6 On April 7th, 2004, a co-operation agreement was entered into between the plaintiffs and one Colin Haig, who, with effect from January 12th, 2004, had been appointed by the High Court in London as liquidator of Dobb White & Co. and as trustee in bankruptcy of Gangar and White, who, as I have said, were partners in that firm. The co-operation agreement was subsequently approved and sanctioned by the High Court in London on April 8th, 2004 and then by the US District Court on April 26th, 2004.

7 In the course of investigating the whereabouts of the assets of Vavasseur, the plaintiffs have identified two deposit accounts held with Butterfield Bank (Guernsey) Ltd. (“the bank”) in Guernsey, in the name of Vavasseur, namely, Sterling Account No. 01/D02/026941 with a nil balance as at June 14th, 2002; and US Dollar Account No. 02/D02/026941 with a credit balance of US$2,554,506.51 as at June 14th, 2002.

8 The plaintiffs are seeking the following order: that the appointment of the plaintiffs as the receivers of Vavasseur in Guernsey be recognized by the Royal Court of Guernsey.

9 If this application is successful, there will be a further application for the removal or repatriation of the moneys on notice to the parties interested in the moneys. I was told that it is the intention of the plaintiffs to seek an order that they be permitted to transfer the moneys to an account in England which will be subject to the terms of the co-operation agreement.

10 Advocate Davies, on behalf of the plaintiffs, in his very helpful submissions to me, said that he had not been able to identify any case where the Royal Court has recognized a receiver appointed by a foreign court.

11 He drew my attention to the case of Rothuizen v. Lok (1), where the court implicitly recognized a trustee in bankruptcy appointed by a foreign court. Mr. Rothuizen was the trustee in bankruptcy of Mr. Lok and was seeking to recover assets of Mr. Lok located in Guernsey. On his application, the Royal Court declared Mr. Lok’s affairs in Guernsey to be en désastre.

12 The background to the leading English case of Schemmer v. Property Resources Ltd. (2) is that the SEC brought proceedings in the US District Court for the Southern District of New York alleging that a number of

“I shall not attempt to define the cases where an English court will either recognise directly the title of a foreign receiver to assets located here or, by its own order, will set up an auxiliary receivership in England. To do either of those things the court must previously, in my judgment, be satisfied of a sufficient connection between the defendant and the jurisdiction in which the foreign receiver was appointed to justify recognition of the foreign court’s order, on English conflict principles, as having effect outside such jurisdiction. Here I can find no sufficient connection.”

    (i) Unlike PRL, which had never carried on business in the United States, Dowdell was the central mind and management of Vavasseur and conducted its operations from Charlottesville.

    (ii) The appointment by the US court of the plaintiffs as receivers over the assets of Vavasseur would be recognized in The Bahamas, the place of incorporation of Vavasseur, according to an opinion prepared by Philip Dunkley of Higgs & Johnson, counsel and attorneys-at-law in Nassau, The Bahamas. He also pointed out that being an international business company, Vavasseur was required to carry on its business outside The Bahamas; hence, there would be no reason to justify the intervention of the courts of The Bahamas.

    (iii) With the exception of The Bahamas, the jurisdiction to which Vavasseur was most closely connected is the United States.

    (iv) Although Vavasseur did not submit to the jurisdiction of the US court, Dowdell did so and admitted the jurisdiction of the US court over himself.

“These circumstances seem to obtain where the foreign court had jurisdiction over the defendant whose property is made subject to the receivership. Such jurisdiction has been said to exist if there is a ‘sufficient connection between the defendant and the jurisdiction in which the foreign receiver was appointed to justify recognition of the foreign court’s order.’ When a sufficient connection will exist cannot be definitively stated. However, first, it seems that an appointment by a court in the country where the company is incorporated will be recognised. Secondly, it is also likely that the appointment will be recognised if the defendant submitted to the jurisdiction of the court by whose order the appointment was made, although such a submission by a subsidiary of the defendant company is likely to be regarded as an insufficient basis for such recognition. Thirdly, it is possible (but no higher than that) that an English court would recognise the order of the foreign court if that order would be recognised by the law of the place where the defendant company was incorporated. Fourthly, there is something to be said for recognising an appointment made by a court in a country where the central management and control of the company is exercised, particularly, perhaps, if there is no likelihood of intervention from the courts of its place of incorporation. Similarly, the relevant connection may be found to exist if the appointment is made by the court of the country where the company carries on business, particularly if that is the only country where business is carried on.”

The first two circumstances do not exist in this case. Instead, Mr. Davies relies on the third and fourth categories, in support of which he also referred me to Picarda, The Law Relating to Receivers, Managers & Administrators, 3rd ed., at 662 (2000), which suggests that “it might even be the case that if the law of the company’s place of incorporation would recognize the receivership order, an English court would do so.”

15 Lightman & Moss, The Law of Receivers and Administrators of Companies, 3rd ed., para. 25–035, at 501 (2000) states:

“A sufficient connection, for these purposes, ought to include factual connection between the company and the relevant jurisdiction where the appointment is made. Accordingly it is, in principle, possible to support the view that an appointment made by a court in a country where the central management and control of the company is exercised should be entitled to recognition. The claim to recognition on this ground will, perhaps, be stronger if there is no, or little,

16 In this case, I accept Mr. Dunkley’s opinion that the appointment of the plaintiffs as receivers of the assets of Vavasseur would be recognized in The Bahamas, the country of incorporation of the company. I am also satisfied that the appointment was made in the jurisdiction where the central management and control of the company was exercised (the United States) and that it is unlikely the courts of The Bahamas would have reason to intervene.

17 Before granting the order sought, I must be satisfied that the plaintiffs are not seeking to enforce a penal judgment. In Schemmer (2), Goulding, J. concluded that the 1934 Act was a penal statute and hence unenforceable in the English courts. The plaintiffs submitted to me that there may have been some inadequacies in the materials placed before him and also that, in any event, there may be factual differences that distinguish the two cases. They drew my attention to the decision of the Supreme Court of British Columbia in United States SEC v. Cosby (4), which distinguished Schemmer, and to that of the English Court of Appeal in United States v. Inkley (3). In the latter case, Purchas, L.J., after reviewing a number of authorities, stated ([1989] Q.B. at 265):

“From these authorities the following propositions seem to emerge which are relevant to the present appeal: (1) the consideration of whether the claim sought to be enforced in the English courts is one which involves the assertion of foreign sovereignty, whether it be penal, revenue or other public law, is to be determined according to the criteria of English law; (2) that regard will be had to the attitude adopted by the courts in the foreign jurisdiction which will always receive serious attention and may on occasions be decisive; (3) that the category of the right of action, i.e. whether public or private, will depend on the party in whose favour it is created, on the purpose of the law or enactment in the foreign state on which it is based and on the general context of the case as a whole; (4) that the fact that the right, statutory or otherwise, is penal in nature will not deprive a person, who asserts a personal claim depending thereon, from having recourse to the courts of this country; on the other hand, by whatever description it may be known if the purpose of the action is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, it will not be entertained; (5) that the fact that in the foreign jurisdiction recourse may be had in a civil forum

18 Applying those principles to the facts of this case, I note that the main purpose of the receivership order is to compensate defrauded investors. The District Court imposed a civil penalty on Vavasseur in the sum of US$600,000, but directed that it be paid to the receivers and that it would not be payable to the US Treasury unless investors had been fully reimbursed. The amount Vavasseur was ordered to pay by way of disgorgement is US$121,235m. plus interest. Any moneys available will be distributed by the plaintiffs to Vavasseur’s investors in accordance with the statutory provisions in the US Bankruptcy Code for pro rata distribution to unsecured creditors. I was told that the plaintiffs will not recover sufficient to enable investors to be fully reimbursed, so there is no likelihood of the civil penalty being paid and hence no risk that any of the moneys held by the bank in Guernsey would be paid to the US Treasury were I to decide to recognize the receivership order.

19 I can find no policy reason to deprive the defrauded investors of the opportunity to recover, via the hands of the plaintiffs, the benefit of the moneys held by the bank in Guernsey in Vavasseur’s name. Quite the contrary, the courts of this Island will not tolerate those who attempt to misuse Guernsey’s financial services for illegal or improper purposes. Having carefully reviewed the authorities cited, I am of the opinion that, on the facts of this case, the Royal Court has the power to make an order recognizing the receivership order.

20 At a later date, the plaintiffs will ask for a further order to enable them to collect the funds held at the bank and, at that time, consideration will have to be given to the question of whether there are any competing claims over the money. Advocate Mark Ferbrache, who appeared on behalf of the bank, did not oppose the making of the order I make today, but he made it clear that the bank wishes to ensure that anyone who may have an interest in the moneys will be heard when the next application is made.