The Royal Court has clarified for the first time the application of the Royal Court Civil Rules (the “Rules”) in relation to the use of the summary determination and judgment procedure in interpleader actions. The Judgment in the case of EFG Private Bank (Channel Islands) Limited v BC Capital Group SA (in liquidation) & Others (Royal Court, 14 July 2014) provides some helpful guidance as to the factors that will be considered when interpreting the Rules to determine whether or not a particular procedural order sought by a party falls within the Court’s jurisdiction.
The interpleader proceedings were issued in March 2013 by EFG Private Bank (Channel Islands) Limited (“EFG”) in respect of assets held in accounts in Guernsey (the “Assets”), on behalf of a number of hedge funds which were incorporated in the BVI (in one case, in Anguilla) (the “Hedge Funds”). The Hedge Funds are in liquidation, with two BVI insolvency practitioners appointed as joint liquidators (the “BVI Liquidators”).
The need for the interpleader proceedings arose as a result of two civil complaints being brought in the United States of America. The U.S. Securities and Exchange Commission (the “SEC”) and the U.S. Commodity Futures Trading Commission (the “CFTC”) filed civil complaints against Nikolai Battoo and a number of entities owned or controlled by him as a consequence of an allegedly fraudulent scheme which he employed to mask losses suffered by various investment portfolios due to the Madoff Ponzi scheme. It is alleged that Mr Battoo induced investors to invest further funds into the portfolios in order to fund redemption payments to existing investors.
Monies invested as part of that process are alleged to have been transferred to the Hedge Funds for onward investment. The CFTC obtained an order appointing a Receiver over the assets of Mr Battoo and his related entities (the “US Receiver”) and liquidators have been appointed over a number of the defendant entities in the US proceedings (the “Bahamas Liquidators”). The BVI Liquidators, the Bahamas Liquidators, and now the US Receiver have been formally recognised by the Royal Court of Guernsey and are contesting title to the Assets.
Further detail on the background to the interpleader proceedings is set out in the following briefing notes:
APPLICATION FOR SUMMARY DETERMINATION
Following the submission of evidence by the Bahamas Liquidators and the US Receiver, the BVI Liquidators brought an application for summary determination of the interpleader proceedings on the basis that there was no real prospect of the Bahamas Liquidators or the US Receiver succeeding in any claim to the Assets. The Bahamas Liquidators and US Receiver opposed the summary determination application on the basis that, inter alia, the application was premature as pleadings had not yet been ordered in the proceedings.
At a preliminary hearing, the Court clarified an important point regarding the use of the summary determination procedure in interpleader actions.
Rule 27(2)(a) of the Rules relates specifically to interpleader actions and provides the court with power to summarily determine the question at issue (the “Summary Determination Rule”). In the current case, the issue to be determined is which party has title to the Assets. The BVI Liquidators sought to rely on the Summary Determination Rule as an alternative to the “summary judgment” rule set out in Rule 19 of the Rules (the “Summary Judgment Rule”), which, on a strict reading, only applies to matters that have been entered on the Rôle des Causes à Plaider. A matter is only entered on the Rôle des Causes à Plaider once a “cause” (a claim) has been tabled before the Court and a defendant has intimated his intention to defend the action. The very nature of an interpleader action means that this stage may not be reached (at least until much further down the line) by reason of the fact that there is no cause and subsequent exchange of pleadings, as there would be for the typical civil claim.
The Court was not aware of any other case in which a party had sought to rely on the Summary Determination Rule in this way. The rule itself had only been introduced for the first time in 2007; interpleader proceedings themselves did not feature in the Rules prior to then, parties relying instead on a general “catch-all” power within the Court’s rules for the launching of such actions.
At a preliminary hearing, the Court set out its interpretation of the Summary Determination Rule and the application of it procedurally, highlighting the potentially draconian consequences of an unsuccessful application brought pursuant to it. The BVI Liquidators, Bahamas Liquidators and US Receiver all made their submissions on the basis that the applicable test for summary determination applications is the same test used by the Court when considering summary judgment applications. Furthermore, the parties considered that the outcome of a successful summary determination application would be as for a successful summary judgment application; a “win” on the application would see judgment granted in favour of the applicant party and a “loss” would send the matter to a full hearing.
The Court, however, took a different view and provided helpful clarification for parties seeking to obtain a summary decision in an interpleader action before the Guernsey Court.
The Court agreed with the BVI Liquidators that the test to be applied in respect of summary determination applications is the same test which applies to summary judgment applications, being (a) the plaintiff has no real prospect of succeeding on the claim or issue, or (b) the defendant has no real prospect of successfully defending the issue. The standard of proof is a high one and the burden is on the applicant party to show that the application should succeed.
Further, the successful applicant of a summary determination application would receive judgment in its favour, as it would for a successful summary judgment application. However, if the applicant was not successful on a summary determination application, the interpleader would not proceed to a full hearing (as it would do for summary judgment).
Instead, the responding party would automatically obtain summary determination in its favour, notwithstanding the fact that its own claim might be weak or unmeritorious. Put simply, if the BVI Liquidators were unable to meet the high threshold test to show that the Bahamas Liquidators and US Receiver had “no real prospect of succeeding on the claim or issue”, the Bahamas Liquidators and US Receiver would receive all of the assets held in the accounts in Guernsey. The fact that those parties themselves had yet to demonstrate ownership of the assets would be irrelevant. In effect, the Court viewed the Summary Determination Rule as a “winner takes all” provision.
APPLICATION FOR SUMMARY JUDGMENT
In light of the above, the BVI Liquidators amended their application to seek an order pursuant to the Summary Judgment Rule. The Bahamas Liquidators and US Receiver opposed the amended application on the basis that the Court had no jurisdiction to hear it, pleadings not having been inscribed on the Rôle des Causes à Plaider (a pre-requisite to the use of the Summary Judgment Rule, on a strict interpretation of the wording of the rule). As the operation of interpleader proceedings under Part V of the 2007 Rules does not involve inscription, then on the US Receiver’s analysis, no summary judgment application in respect of interpleader proceedings could ever be brought.
Furthermore, the US Receiver and Bahamas Liquidators disregarded the BVI Liquidator’s contention that the Court in any event had the power to allow an application pursuant to the “overriding objective” set out in Rule 1 of the 2007 Rules to actively manage cases and prevent the trial of unmeritorious or weak claims.
DECISION OF THE COURT
The Court rejected the arguments of the Bahamas Liquidators and US Receiver that the procedure under the Summary Determination Rule was the only which could be adopted in an interpleader action where a party sought to have a case decided summarily. The Court agreed with the BVI Liquidators stating that interpleader proceedings could also be resolved summarily by way of the Summary Judgment Rule. In reaching its decision, the Court considered the entirety of the 2007 Rules, the overriding objective to actively manage cases and the general powers available to the Court to make any order it thinks just.
In arriving at its conclusions, the Court agreed with the BVI Liquidators that the fact that the proceedings were not on the Rôle des Causes à Plaider was not a bar to the bringing of an application under the Summary Judgment Rule, the reason being that proceedings were already well beyond the equivalent stage of inscribing an action on the Rôle des Causes à Plaider.
The Court concluded that, even if it were wrong to consider that it could rely on the powers conferred on it by the Rules, it would have concluded that allowing the application to be brought was a proper exercise of the Court’s inherent jurisdiction.
Accordingly, the BVI Liquidators were permitted to bring an application for summary judgment on behalf of the Hedge Funds. The BVI Liquidators were successful in their application in respect of one of the respondent Hedge Funds, that particular Hedge Fund owning approximately 50% of the Assets. Those assets were subsequently remitted to the BVI Liquidators.
The decision is a welcome one as it demonstrates the Court’s willingness to adopt a pragmatic approach in taking any measure it deems appropriate to actively manage cases before it, underpinning that approach either by the general powers contained within the 2007 Rules or the Court’s inherent jurisdiction.
It must be open to the Court to rule at an early stage in proceedings whether or not an argument that a claim is unmeritorious and should be dismissed summarily can be sustained, regardless of the type of proceeding or stage the parties have reached. It follows that a well-considered application will not be rejected purely on the basis of a technicality, where allowing the application would otherwise enable the Court to deal with a case efficiently, proportionately and economically. This aligns closely within the Court’s case management powers to adopt whichever measure it considers appropriate to resolve matters in the most cost-effective and timely manner.