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Cite as: [1999] 2 IR 221, [1998] IEHC 98

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Bennet Enterprises Inc. v. Lipton [1998] IEHC 98; [1999] 2 IR 221 (19th June, 1998)

THE HIGH COURT

1998 No. 5663P

BETWEEN

BENNETT ENTERPRISES INC., BONAIRE ENTERPRISES INC., EMPRESAS ENTERPRISES, de BRONCE S.A., EMPRESAS CAPRICORNIO CANAL S.A., HARMONY SERVICES INC., KARPUS ENTERPRISES INC., KEY SERVICES INC., LLOYDS ENTERPRISES INC., NOBLE TREE ENTERPRISES INC., ORTHOMEDIA FOUNDATION INC., PANOS ENTERPRISES INC., PENTHOUSE PLACE ENTERPRISES INC., PICCOLO MUSIC ENTERPRISES INC., PILOT ENTERPRISES INC., SHAMROCK GUARDIAN INC., WINTERGREEN ENTERPRISES INC., VILLA CATARTATA AZUL S.A., VISONEER ENTERPRISES INC., VOYAGE ENTERPRISES INC. AND ZANIBAR ENTERPRISES INC.

PLAINTIFFS

AND

JOHN LIPTON, DAVID JOHNSON, TONY JONES, J. LASHLEE, ARNOLD MITCHELL, BILL NURICK, WILLIAM KIRKHAM, VICTOR PRESTON, MIKE PUTTINAM, JOHN YU, RICHARD LEONARD AND TERESA VOGT (being sued as Trustees of and/or in a representative capacity on behalf of both the Genesis Trust Fund and the Exodus Trust Fund)

DEFENDANTS

JUDGMENT of O'Sullivan J. delivered the 19th day of June 1998.

1. The Plaintiffs are applying for an interlocutory world-wide Mareva type injunction restraining the Defendants from reducing the monies in the two trust funds referred to in the title of these proceedings below $5 million, secondly, for the appointment of a new trustee of the said funds, and, thirdly, for an order joining a new party, Wintex Investment Corporation, to the proceedings.

2. Before briefly describing the factual background to these applications, I will deal with two preliminary points raised by the Defendants.

3. The first is that the Affidavits grounding the application have not been taken before an Irish representative or agent as required by Order 40 Rule 7 of the Rules of the Superior Courts. As will be seen by a perusal of Rule 7 where such a representative or agent is not conveniently available, the Affidavits can be taken before the other categories of official referred to in Rule 7. The evidence is that an Irish representative or agent of the specified categories were not conveniently available and in these circumstances I consider that the Affidavits filed are in order and comply with the aforesaid Order and Rule.

4. A second preliminary point is that this Court has no jurisdiction to entertain the application.

5. The evidence shows that the instruments creating the trust funds already referred to specify that the funds are domiciled in Ireland and that they are subject to Irish law. Furthermore, the Defendants have appeared on this application and argued the case on its merits. In these circumstances, I am satisfied that this Court has jurisdiction to entertain the Plaintiffs' application.

6. The factual background to this application is that save for the three mentioned parties in the next paragraph each of the Plaintiff companies is an investment vehicle for a client or clients of a further company, namely, Privacy Consultants International Inc. ("Privacy Consultants"), which is a company having offices in both Panama and Costa Rica as well as a mailing address in Miami, Florida.

7. The principals behind Privacy Consultants are Mr. George Sprague, who has sworn the principal Affidavit on behalf of the Plaintiffs in this application, and his wife Ms. Rosibel Gonzalez Sosa. Privacy Consultants provides international off-shore and management investment services to its clients. Villa Catartata Azul S.A. is beneficially owned by Ms. Sosa and Lloyd Enterprises Inc. and Orthomedia Foundation Inc. are beneficially owned by Mr. Sprague. Each Plaintiff is incorporated in either Panama or Costa Rica. The affairs of each Plaintiff, including investments, is conducted by Mr. Sprague.

8. During the period from 1994 to 1997, the Plaintiffs invested various sums in the two funds referred to in the title of these proceedings. The founder of both these funds was the first named Defendant, John Lipton, who owns houses in California and Costa Rica.

9. The two funds (hereinafter "Genesis" and "Exodus") are involved in foreign exchange cash currency trading. According to their prospectuses they are "Irish domiciled" . The difference between the two is that investments of less than US$100,000 are made through Exodus: larger investments are made through Genesis. Both funds have accounts with International Bright Investments Limited ("IBI"). There are two IBI companies, one in Macau and one in Hong Kong. Genesis and Exodus have master trading accounts with IBI. These accounts in turn contain sub-accounts representing the investments made by the clients, including the Plaintiffs, of Genesis and Exodus.

10. Until December 1997, Genesis and Exodus furnished monthly Statements of Account to Privacy Consultants in respect of the investments of the Plaintiffs in these two funds. Since then no Statements of Account have been forthcoming.

11. In May 1997 specific rules regarding withdrawal of monies from the Genesis and Exodus Trust Funds were put in place. The Plaintiffs say that these rules were put in place unilaterally, the Defendants say these rules were put in place by agreement. A number of investment programmes were introduced, some long term and some short term. Different notice periods for withdrawal applied. The Plaintiffs opted for various investment programmes and in the case of five Plaintiffs (Orthomedia Foundation Inc., Panos Enterprises Inc.., Visoneer Enterprises Inc., Penthouse Place Enterprises Inc. and Bennett Enterprises Inc.) notice of withdrawal was given between May and August 1997 and it is common case that such notice complied with the new rules and that monies due to these Plaintiffs amounting to some $300,000 became due in November 1997. These monies have not been paid.

12. The Defendants say that the reason why these monies have not been paid is that they fear that Mr. Sprague will not pay the appropriate beneficiaries entitled and they say that the Plaintiffs would have to disclose the identity of the beneficiary before such payment is made.

13. Relations deteriorated between the sets of parties and the Defendants have stated that they will no longer accept instructions from Privacy Consultants but they have indicated that the Plaintiffs' funds would be "quarantined" and inter-pleaded into a Court system for adjudication and disbursement. At the hearing of this motion, this was clarified to mean that the Defendants would not pay these funds forthwith to the Plaintiffs but would make them available on a phased basis commencing with a payment of almost $1.8 million in mid-September of this year and comprising further periodic payments totalling just over $5 million in approximately 18 months time. The Defendants have indicated that they would not pay out money direct to Privacy Consultants or any of its representatives or affiliates.

14. The Plaintiffs say that the attempt unilaterally to impose new withdrawal conditions constitutes a fundamental breach of contract by Genesis and Exodus and they also say that the introduction of the quarantining provision, the refusal to accept instructions as before from Privacy Consultants, their failure to furnish Statements of Account and an apparent dissolution of Exodus referred to by Mr. Lipton in his replying Affidavit all constitute fundamental and repudiatory breaches of contract.

15. An interim Mareva type injunction was granted by me on the ex parte application of the Plaintiffs on the 8th day of May 1998 and on the following day, which was a Saturday, similar Orders were granted to the Plaintiffs by the Court in Hong Kong and these Orders in both jurisdictions are continuing in effect. The Defendants say that it is onerous on them that they should be obliged to meet the Plaintiffs' cases in two jurisdictions but the Plaintiffs respond that the curtailing of the initial and any subsequent Orders (in line with the restriction adopted by the Court of Appeal in Babanaft International Company S.A. v. Bassante and Another (1990: 1: Ch: 13) implies that proceedings in one or more jurisdictions are likely if not inevitable. They also say that the Irish proceedings were instituted first in time and that the more appropriate jurisdiction is the one already chosen by the Defendants themselves.

16. It is against this background that the Plaintiffs now seek the Orders referred to above. The Defendants have raised a number of points in response to this application and I will deal with these one by one as follows.

17. In reliance on the tests set out by the Supreme Court in O'Mahony v. Horgan (1995: 2: IR 411), the Defendants say, firstly, that the Plaintiffs have failed to make full and frank disclosure of all relevant facts and that therefore they are not entitled to the relief claimed.

18. This point relates to two matters, namely, the fact that Mr. Sprague, who has sworn the principal Affidavit on behalf of the Plaintiffs, is himself the subject of federal indictments in relation to alleged revenue offences committed in the early to mid-1980's in the United States.

19. This fact was, however, known to the Defendants from the beginning of their relationship with the Plaintiffs and with Mr. Sprague but despite this, they were prepared to deal with him and Privacy Consultants up to approximately November 1997. In these circumstances I am not satisfied that this is a non-disclosure which is relevant to the instant application.

20. Secondly, the Defendants say that Mr. Sprague's Affidavit failed to disclose either at all or with sufficient clarity the fact that the Defendants' refusal to pay the admittedly owing money (namely, the sum of $300,000 referred to above) was upon the basis that the identity of the beneficiaries was not being revealed to the Defendants and that therefore this constituted a failure to make full and frank disclosure in the Affidavit grounding this application. This matter is dealt with at paragraph 60 of Mr. Sprague's Affidavit sworn on the 5th May, 1998 and, in my view, there is sufficient disclosure of this matter in what is a lengthy and complex Affidavit accompanied by voluminous documentation. Accordingly, I cannot agree with the Defendants that the application should be dismissed upon the basis that full and frank disclosure has not been made.

21. The second point taken by the Defendants is that particulars of the Plaintiffs' claim have not been adequately set out. This point was not strenuously pressed by the Defendants at the hearing before me, possibly because the application has been accompanied by voluminous documentation. I do not think that the application should be refused on this ground.

22. Thirdly, the Defendants assert that the Plaintiffs have not set out any evidence to show that the Defendants have assets within the jurisdiction.

23. This is true: it is clear that there are no assets within this jurisdiction.

24. The Plaintiffs respond, however, that if there were sufficient assets or any assets within this jurisdiction, this would eliminate or reduce the need for a world-wide Mareva type injunction or an injunction having extra territorial effect. Counsel for the Plaintiffs relies in particular on the judgment of the Master of the Rolls, Lord Donaldson in Derby & Co Limited v. Weldon (Nos. 3 and 4) (1990: 1: Ch: 65 at page 79) as follows:-

"The normal form of order should indeed be confined to assets within the jurisdiction although the practice has changed since the decision in the MBPXL case and such an order could well extend to the disposition of a freehold interest in a house .... The reason why at present the normal form of order should be so confined is that most defendants operate nationally rather than internationally. But, once the Court is concerned with an international operator, the position may well be different.

In my judgment, the key requirement for any Mareva injunction, whether or not it extends to foreign assets, is that it shall accord with the rationale upon which the Mareva relief has been based in the past .... namely, that no Court should permit a defendant to take action designed to frustrate subsequent orders of the Court. If for the achievement of this purpose it is necessary to make orders concerning foreign assets, such orders should be made, subject, of course, to ordinary principles of international law. .......

Returning to Mr. Bompas' submission, I can see neither rhyme nor reason in regarding the existence of some asset within the jurisdiction of however little value as a precondition for granting a Mareva injunction in respect of assets outside the jurisdiction. The existence of sufficient assets within the jurisdiction is an excellent reason for confining the jurisdiction to such assets, but, other considerations apart, the fewer the assets within the jurisdiction the greater the necessity for taking protective measures in relation to those outside it".

25. Earlier in the same judgment, the learned Judge had said (page 77):-

"We live in a time of rapidly growing commercial and financial sophistication and it behoves the Courts to adapt their practices to meet the current wiles of those defendants who are prepared to devote as much energy to making themselves immune to the Courts' orders as to resisting the making of such orders on the merits of their case. Hence it comes about that, as was pointed out by Neil L.J. in Babanaft International Company S.A. v. Bassante (1990: Ch: 13, 37F) and by May L.J. in Derby v. Weldon (No. 1) (1990: Ch: 48, 54c-d), this is a developing branch of the law. To that I would add that a failure or refusal to grant an injunction in any particular case is an exercise of discretion which cannot, as such, provide a precedent binding upon another Court concerned with another case, save insofar as that refusal is based upon basic principles applicable in both such cases".

26. I would point out that in the Babanaft case (1990: 1: Ch: 13), Kerr L.J. (page 33) had noted that:-

"But it should also be said, with equal emphasis, that some situations, which are nowadays by no means uncommon, cry out - as a matter of justice to plaintiffs - for disclosure orders and Mareva type injunctions covering foreign assets of defendants even before judgment".

27. I should also point out that in O'Mahony v. Horgan the Supreme Court were not dealing with a claim for an order affecting assets outside the jurisdiction. In these circumstances I do not consider that the alleged failure of the Plaintiffs to establish that there are assets within the jurisdiction is necessarily fatal to their application. On the contrary, I can see force in the observation of the Master of the Rolls, Lord Donaldson in Derby (Nos. 3 and 4) to the effect that the fewer the assets within the jurisdiction the greater the necessity for taking protective measures in relation to those outside it. Accordingly, I do not accept the Defendants' submission that the application must fail on this ground.

28. A further ground advanced by the Defendants is that there is no evidence to establish a risk of the assets being removed or dissipated by the Defendants as contemplated by the Supreme Court in O'Mahony v. Horgan . The Chief Justice, Hamilton C.J. at page 418 said:-

"Consequently a Mareva injunction will only be granted if there is a combination of two circumstances established by the plaintiff, i.e. (i) that he has an arguable case that he will succeed in the action, and (ii) the anticipated disposal of a defendant's assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts".

29. Later (at page 419) the learned Chief Justice said:-

"Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the Court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts".

30. I fully accept these quotations. It is clear, of course, that if any dissipation of assets were to occur in the ordinary course of business, this of itself would not justify the granting of a Mareva injunction. The anticipated dissipation must be for the purpose of the defendant evading his obligation to the plaintiff. Equally, however, I consider that direct evidence of an intention to evade will rarely be available at the interlocutory stage. I consider it is legitimate for me to consider all the circumstances in relation to the case and I do not consider that this approach is in any way prohibited by or at variance with the principles set out in the Supreme Court judgment in O'Mahony v. Horgan . The Plaintiffs point to a number of specific matters which, they say, give rise to a reasonable apprehension that the assets will be dissipated (or removed from the jurisdiction of the Courts) with a view to depriving the Plaintiffs of their monies in the event that they succeed in their action. I will not refer to all of the specific matters which are set out in extenso in the Plaintiffs' written legal submissions dated the 11th June, 1998. Some of these considerations are:-

(a) the Defendants have failed to repay five Plaintiffs monies agreed to be owing since November 1997;

(b) they have sought to impose additional obstacles in the way of the Plaintiffs withdrawing monies and in particular have insisted on an indication of the identity of the beneficiaries;

(d) they are ambivalent in their own description of the Genesis and Exodus Funds describing them as trust funds in the relevant prospectuses and correspondence but in other correspondence as an "equity partnership";

(e) Mr. Lipton, who swore the principal replying Affidavit, has used and insisted on the use of aliases, namely "Dominique" and "Vincenzo". This is averred to by Mr. Sprague in his Affidavit and although denied by Mr. Lipton, the Plaintiffs say that there is internal documentary evidence, arising from correspondence signed "Dominique" or "Vincenzo" which make it more probable that Mr. Sprague's evidence on this point is correct;

(f) the Defendants have failed to furnish the Plaintiffs with monthly Statements of Account since December 1997 notwithstanding the fact that their own documentation indicates that monthly accounts are available;

(g) the reason given for the refusal of the Defendants to conduct an audit of the two trust funds, to the effect that this would be impossible, is unbelievable;

(h) the failure of the Defendants to lodge the admittedly due monies in Court or to "inter-plead" same even in the course of these proceedings;

(i) the absence of any address for Mr. Lipton in his own Affidavit, the absence of any identifiable or tangible presence for Genesis and Exodus in any country, including the failure to identify trading addresses or offices for these funds;

(j) the furnishing of documentation to the Plaintiffs which show IBI as having an address at premises which turns out to be a handbag shop and the vague existence of IBI as a currency trader trading in a premises which shows no signs of currency trading;

(k) the fact that the Defendants have not exhibited any documentation to substantiate their claimed valuation of the overall Genesis and Exodus Trust Funds at $70 million;

(l) the intimation by Mr. Lipton that the Exodus Fund never operated as a separate trust fund and has been dissolved;

(m) the fact that the responding Affidavit sworn by Ms. Lam with almost one month's notice provides no information in relation to the value of these trust funds and exhibits no bank statements or anything which might allay the fears of the Plaintiffs that these funds are in danger of being dissipated or removed from the jurisdiction of the Courts;

(n) the claimed value of these trust funds at $70 million in Mr. Lipton's Affidavit contrasts with an earlier estimate of a year ago of $29 million without any apparent explanation.

31. In addition to the foregoing, a consideration of the documentation generated by the operators of the Genesis (and Exodus) Funds leaves one with the impression that the whole arrangement is disturbingly vague and free of identifiable structures. For example, in a document entitled "Security with Genesis" which is exhibited to an Affidavit sworn by Edmund Fry on the 27th May, 1998, the following appears under the heading "Privacy and Asset Protection" :-

"Genesis is an Irish formation trust. All participants in Genesis are equity partners. Genesis has a contractual relationship with International Bright Investments Limited ("IBI"), who is a Macau-based currency dealer (operating similarly to, but not quite the same as a commodities broker in the United States). ....

The Board acts as the fund's fiduciary and directs the administrative responsibilities including the accounting which is performed by three accountants. Only one of these accountants, Centrix Management, a Vanuatu (in the South Pacific) based company, has the (confidential) detailed information about each participant in the fund. The other two US-based accountants have no participant detail available to them. The three accountants reconcile their records monthly with IBI which emulates a monthly audit.

The details of each participating account cannot be disclosed by IBI or by Hong Kong Shanghai Bank to any regulatory agency or judicial system since they have no such detail. The release of confidential information by Centrix could only be done under a Vanuatu Court order. There is no reciprocal relationship between the United States and Vanuatu or Ireland and the United States, or Vanuatu and Ireland for that matter. If you want more information on Vanuatu and Ireland, you can get this easily through the Internet.

If some party wanted to seize your assets which included your holdings in Genesis, they would have no way of seizing those funds, since those funds belong to the Irish trust (Genesis), not you. The entity through which you participate (in Genesis) would be the only party under whose authority the release of your funds (held by Genesis) could be effected".

32. In my view the apprehensions of the Plaintiffs that the assets will be either dissipated or removed from the jurisdiction of the Courts with a view to depriving the Plaintiffs of their money are reasonably founded and I consider that the Plaintiffs have established sufficiently that there is a risk that the assets would be either removed from the jurisdiction of the Courts or dissipated with a view to an evasion by the Defendants of their obligations to the Plaintiffs in the event that the Plaintiffs succeed. Accordingly, I hold that the Defendants have not established that the Plaintiffs should fail to be granted relief on this ground.

33. The Defendants further say that the Plaintiffs have given no satisfactorily backed undertaking as to damages in the event that they fail at the hearing of the action.

34. It is true that the Plaintiffs have no assets within this jurisdiction. On the other hand, they respond to this point by saying that the Defendants admittedly are in possession of $5 million belonging to the Plaintiffs. The Defendants in return claim that a Mareva style injunction prohibiting the Defendants world-wide from reducing their assets below $5 million could tie up the entire fund claimed to be valued at some $70 million with the result that losses in the order of $15 or $20 million could be sustained. They have given no detailed or specific account as to how this might happen and, in my view, the Defendants cannot be heard to say that the Plaintiffs have given no adequate undertaking or security in the circumstances that the Defendants are in possession, as they admit, of $5 million worth of the Plaintiffs' funds.

35. Apart from the foregoing defences, a general point is made by the Defendants to the effect that it is only in very special circumstances that a world-wide Mareva type injunction should be granted by this Court.

36. The Plaintiffs say that such special circumstances apply in this case. They say in the first instance that the very business of the Defendants is to trade internationally, that the Courts must adapt their practices to meet the current wiles of such Defendants (to borrow the phrase of Lord Donaldson M.R. in Derby (No. 3 and 4) ) and they point to the fact that the Defendants have boasted that they can move funds internationally in nano seconds. Accordingly, the Plaintiffs say that in the particular circumstances of this case, justice will be done and will only be done if a world-wide Mareva type injunction is granted.

37. The Plaintiffs further offer the Court undertakings that they will not issue proceedings in any other jurisdiction unless they first apply to this Court for permission so to do and they are also prepared to undertake to proceed against the Defendants in the Irish proceedings (who are also Defendants in proceedings in Hong Kong) in this jurisdiction and not to proceed against those Defendants in the Hong Kong jurisdiction unless ordered or permitted so to do by the Court in Hong Kong. They also accept that any Order will be subject to the limitation which has come to be known as the Babanaft proviso.

38. Having considered the voluminous documentation and the lengthy and comprehensive submissions on behalf of both parties, my view is that I should give an interlocutory order in principle as sought by the Plaintiffs and I will discuss with Counsel the precise form of the Order together with any limitations thereon and also the appropriate undertakings to be given to this Court on behalf of the Plaintiffs.

39. With regard to the application to replace the trustee of the Genesis or Exodus Funds, I consider that at the interlocutory stage I should not do this even if I had power so to do because I think that the Plaintiffs are sufficiently protected by the Order which I will make as indicated in the foregoing.

40. With regard to the application to join Wintex Investment Corporation, I consider that once the solicitors for the Defendants have formally stated that they have no instructions from this Corporation that an appropriate Order in relation to service of Notice of Motion seeking to join them to these proceedings should be made. Considerable difficulty relates to the specified address for Wintex in Limerick. Equally, I am not persuaded of the reality of serving this Corporation at the address in California given. In light of the fact that Dick Leonard, on behalf of the Genesis Steering Committee in a letter dated the 10th December, 1997 addressed to Mr. Sprague, specified that:-

"Your office should know that any legal documents and/or formal notices that may affect any member of the Steering Committee individually and/or severally or any other person in a position of responsibility with or connected to Genesis in any way must be directed to Mr. Curran, the fund's solicitor".

41. I consider that I should make an Order giving the Plaintiffs liberty to substitute service on Wintex Investment Corporation by serving Mr. Curren, solicitor, who is acting for a number of the Defendants in these proceedings and who has sworn an Affidavit herein.