Suisse Security Bank & Trust Ltd v. Governor of the Central Bank of the Bahamas (Bahamas)  UKPC 11 (13 March 2006)
Privy Council Appeal No 66 of 2004
Suisse Security Bank & Trust Limited Appellant
(in the capacity of Governor of the Central Bank
of the Bahamas) Respondent
THE COURT OF APPEAL OF
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JUDGMENT OF THE LORDS OF THE JUDICIAL
COMMITTEE OF THE PRIVY COUNCIL
Delivered the 13th March 2006
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Present at the hearing:-
Lord Hope of Craighead
Lord Walker of Gestingthorpe
Lord Brown of Eaton-under-Heywood
[Delivered by Lord Mance]
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"3. (1) No banking business shall be carried on from within the Bahamas whether or not such business is carried on in The Bahamas except by a person who is in possession of a valid licence granted by the Governor authorising him to carry on such business.
. . .
14. (1) The Governor may -
(a) by order, revoke the licence of a licensee -
(i) if, in the opinion of the Govenor, the licensee is carrying on its business in a manner detrimental to the public interest or to the interests of its depositors or other creditors or is either in The Bahamas or elsewhere contravening the provisions of this or any other Act or of any order or regulations made under this Act, or any term or condition subject to which the licence was issued,
(ii) if the licensee has ceased to carry on banking business or trust business, or
(iii) if the licensee becomes bankrupt or goes into liquidation or is wound up or otherwise dissolved,
and he shall subsequently advise the Minister of his decision;
(b) apply to the Supreme Court for an order compelling the licensee to comply with the direction, cease the contravention or to do anything required to be done where the licensee -
(i) is contravening or has failed to comply with a direction of the Governor.
(ii) is contravening the Act, or
(iii) has omitted to do anything under the Act that is required to be done by the bank or trust company;
(c) impose, amend or vary conditions upon the licence;
. . .
(f) at the expense of the licensee, appoint a receiver to assume control of the licensee's affairs in the interest of creditors who will have all the powers of a receiver under the Companied Act, 1992; and
(g) require such action to be taken by the licensee as the Governor considers necessary.
(2) Whenever the Governor is of the opinion that any action under subsection (1)(a)(i) and (b) should be taken against a licensee, he may forthwith suspend the licence of such licensee and before taking such action the Governor shall give that licensee notice in writing of his intention so to do setting out in such notice the grounds on which he proposes to act and shall afford the licensee within such time as may be specified therein, not being less than seven days, an opportunity of submitting to him a written statement of objection to such action, and thereafter the Governor shall advise the licensee of his decision.
(3) Whenever the Govenor shall suspend a licence under subsection (2) he may cause notice of such suspension to be published in the Gazette.
(4) Any suspension of a licence under subsection (2) shall be for a period of ninety days, or until the Governor takes action under subsection (1)(a)(i) or (b) or until the Governor notifies the licensee that the suspension is removed, whichever period is the shorter.
(5) Where the Governor suspends or revokes a licence under this section, he may apply to the Supreme Court for an order that the licensee be forthwith wound up by the court in which case the provisions of the Companies Act, 1992 relating to the winding up of a company by the court shall, mutatis mutandis, apply.
. . .
22. (1) An appeal shall lie to the Supreme Court from any decision of the Governor -
(a) revoking a licence under section 4(6), section 7(5) or section 14;
(b) withdrawing any approval under section 7(4);
(c) requiring a licensee to take certain steps which the Governor may specify under section 14.
. . .
(6) The Supreme Court may adjourn the hearing of the appeal and may upon hearing thereof confirm, reverse, vary or modify the decision of the Governor or remit the matter with the opinion of the Supreme Court thereon to the Governor.
(7) An appeal against a decision of the Governor shall not have the effect of suspending the execution of such decision."
Under s.17 of the Court of Appeal Act, an appeal from the Supreme Court acting in its appellate jurisdiction lies on a matter of law.
(i) By suspending, then revoking SSBT's licence, the Governor acted in breach of an interlocutory injunction granted by Longley J on 2nd March 2001 in separate judicial review proceedings commenced by SSTB against the Governor on 22nd February 2001.
(ii) The Governor, in breach of principles of procedural fairness, failed to give notice to SSBT prior to or on 5th March 2001 that he was minded to suspend its licence on the grounds on which he actually suspended it on that date, together with an opportunity to respond before he took any such step.
(iii) The Governor, in breach of principles of procedural fairness and/or of the terms of s.14(2), revoked SSBT's licence on 2nd April 2001 on grounds different from, or additional to, those of which he had given notice on 5th March 2001, without giving SSBT an opportunity to respond to such new grounds, and/or in circumstances in which he did not regard the grounds of which he had given notice on 5th March 2001 as justifying such revocation.
The facts in detail
"… an application for judicial review in the form of declarations as follows:
1. That the licence issued to the Applicant dated the 20th day of July, A.D., 1993 and signed by the Minister is unconditional, Chapter 285 and 287 excepted.
2. That the licence issued to the Applicant dated the 20th day of July, A.D., 1993 and signed by the Minister is unrestricted, Chapter 285 and 287 excepted.
3. That the provision of Debit Card Services by the Applicant is banking business within the meaning of the Bank and Trust Companies Regulation Act.
4. That the provision of Visa Account services by the Applicant is banking business within the meaning of the Bank and Trust Companies Regulation.
5. That the 'direction' by Igbal Singh, the Central Bank's Manager, Bank Supervisor Department, contained in letter dated 24th August, A.D., 2000, whereby the Applicant was called upon 'to seek to attract significant institutional shareholder, particularly from the banking field, acceptable to the Central Bank . . . within the shortest possible time frame, but in any event within the next six months' is made in excess of or without jurisdiction.
6. That the imposition/restriction on the Applicant's ability to provide new banking business as contained in letters by the said Igbel Singh and Beth D. Stuart, dated 24th August 2000 and 22nd December, 2000, respectively, is made without or in excess of jurisdiction.
7. That the Central Bank's 'directive' contained in its letter dated the 1st December and the 22nd December, 2000 under the hand of the said Beth Stuart that a special audit of the Applicant's 'debit card accounts' be undertaken and that the accounting firm of Deloitte & Touche be used to conduct such an audit for is made in excess of or without jurisdiction.
8. That the Central Bank's 'condition' contained in letter dated the 6th day of May, 1993 that the Applicant maintain a ratio of banking business (i.e. liability to third parties) to capital of 5 to 1 is made in excess of without jurisdiction.
9. That the 'direction' stated in the letter dated the 24th August, A.D., 2000 and more particularly described at paragraph 5 herein is inconsistent with or in contravention of Article 24 of the Constitution of The Bahamas.
THAT in the event the Declaration sought in to items 1 thru 9 are made orders as follows:
1. That the Applicant is not compelled or obliged to discontinue or cease or suspend its Debit Card Operations.
2. That the Applicant is not compelled or obliged to discontinue or cease or suspend its Visa Card account operations.
3. That the Applicant is not compelled or obliged to comply with the 'directive' of Igbal Singh to seek to attract a significant institutional shareholder, particularly from the banking field, acceptable to the Central Bank.
4. That the Applicant is not compelled or obliged to not increase its customer deposit and other funding activity to pre-June 30th, 2000 level.
5. That the Applicant is not compelled or obliged to engage the services of the accounting firm of Deloitte & Touche to conduct the audit of its 'debit card accounts.'
6. That the Applicant is not compelled or obliged to maintain a ratio of banking business (i.e. liability to third parties) to capital of 5 to 1.
(ii) FURTHER or in the alternative that all necessary and consequential directions be given.
(ii) AND FURTHER or in the alternative an application for judicial review in the form of an Order for Prohibition directed to the Governor of the Central Bank of The Bahamas ('the Governor') prohibiting the said Governor from suspending, restricting or in any way adversely dealing with the Applicant's licence or the activities of the Applicant for failure to comply with the questioned directions until after the hearing of the Originating Notice of Motion or further order."
"Re: Provisions with Respect to Blocked Assets.
Further to our meeting of the 1st instant, we wish to confirm, as discussed with you and your legal and accounting advisors, the Bank's urgent requirement of the following:
(a) US$1.6 million litigation:
Evidence of Suisse Security Bank & Trust Ltd. having received collateral - satisfactory to The Central Bank - in support of the 'commitment' by the bank's principal shareholder to 'underwrite any potential loss resulting from this matter' [see note (9) to September 30, 2000 audited Financial Statements].
(b) US$3 million litigation/JVW Investments Ltd.:
Formal authorization by Suisse Security Bank & Trust Ltd., addressed to the bank's U.S. attorneys, Millbank, Tweed, Hadley & McCloy LLP, New York, and any other counsel or advisors to Suisse Security who may hold details of this transaction, to release all required information relating to this dispute to The Central Bank of The Bahamas, and/or its attorneys Hogan & Hartson [the Central Bank's Washington attorneys] …., and to fully inform The Central Bank of any details requested in this regard.
As we would need to immediately proceed with our assessment of (b), and to satisfy ourselves with regard to (a), as agreed with you, we look forward to receiving your responses to the above later today, if at all possible, and in any event by Monday morning, March 5. ….."
To this Mr Lunn replied immediately - but non-communicatively or, as the Court of Appeal put it, adversarially - advising that the Bank's letter had been "referred to our legal advisers, who are actively preparing a reply".
"It is hereby notified that the Governor is of the opinion that the banking and trust licence granted on 20th July 1993 to Suisse Security Bank & Trust Limited should be revoked on the ground that the licensee is carrying on its business in a manner detrimental to the public interest and to the interests of its depositors and other creditors.
It is further notified that the Governor, pursuant to Section 14(2) and 14(4) of The Banks and Trust Companies Regulation Act, 2000, hereby suspends the said banking and trust licence of Suisse Security Bank & Trust Limited.
The Suspension Order results from the inability of the said bank, at this time, to formally fulfil certain prudential requirements and satisfy The Central Bank of The Bahamas as to its affairs.
Suisse Security Bank & Trust Limited is hereby invited to submit to the Governor of The Central Bank of The Bahamas on or before the 15th March A.D., 2001, a written statement of any objection it may have to the proposed revocation of its licence.
Given at Nassau this 5th day of March, A.D., 2001."
Please be further advised that we are in receipt of a letter from Mr. Iqbal Singh and Notice of Suspension, under your hand dated the 5th March, 2001 and have been asked to respond thereto.
In this regard we ask that you respond on an urgent basis, providing our client with the particulars as to the 'prudential requirements' which our client have failed formally to fulfil. We are also asking that you advise, with full particulars, of the 'affairs' of Suisse Security Bank & Trust of which you have not been satisfied at this time.
As you can appreciate our client cannot make proper representation to you unless it is known the particulars of the 'prudential' norms and the 'affairs' of which you require to be addressed."
The Governor responded on 12th March 2001, referring to the Central Bank's letter dated 5th March. On 15th March 2001 Lockhart & Munroe wrote saying that the collateral for the $1.6 million frozen in Florida "has been 'a letter of comfort' offered by the principal shareholder, Mr Harachji" and "accepted by the auditors and the [Central] Bank in the prior year". Their Lordships observe that this response failed palpably to meet the Bank's first requirement. Even the suggested letter of comfort has never been produced or found.
"We have been instructed to advise that by this letter the Bank is hereby authorized to make whatever enquiries of Messrs. Millbank, Tweed, Hadley & McCloy LLP that it deems necessary with respect to the litigation surrounding the $3.0 million."
These assurances have proved equally insubstantial. However in their light Mr Singh of the Central Bank wrote on 19th March 2001 to Millbank Tweed requesting that all information relative to the litigation be forwarded to it and/or its Washington attornies. On 21st March 2001 Mr Singh wrote to Lockhart & Munroe asking for a copy of the letter of comfort, and requiring as acceptable collateral either a freely available and irrevocable deposit of $3 million with a prime Bahamian banking institution or an equivalent guarantee from such an institution, within 5 working days.
"It is our client's express instructions that you may disclose to the Inspector of Bank and Trust Companies your considered opinion as to the need to make provision relative to the litigation in which you act for the above captioned bank.
We would request that you confirm that the documents concerned in the aforesaid litigation are matters of public record available to inspection by the public including the attorneys of the Central Bank of The Bahamas."
Their Lordships interpose that this was very far from meeting the Central Banks' second expressed requirement set out in its letters of 2nd and 5th March 2001.
"13. By letter dated 15th March, 2001, the Company through its attorneys Lockhart & Munroe stated its objection to the revocation of its licence.
14. Your Petitioner, having taken into consideration, the statement of objection of the Company, determined that the licence of the Company should be revoked.
15. The determination of your Petitioner to revoke the licence of the Company is based on the following events:
(1) It came to the attention of your Petitioner and The Central Bank of The Bahamas (hereinafter referred to as 'the Bank') by means of the report of the Company's external auditors, Ernst & Young for the year ending September 30th, 1999, that during 1999, the Company had filed a Notice of Appeal in connection with a judgment entered against it as a co-defendant, along with a former customer, in litigation in the United States. According to the auditor's report, the company, in order to prevent the accrual of further interest charges, paid approximately US$1,600,000 (the amount of the judgment plus accrued interest), into a trust account subsequent to the end of the year. The Company failed to report this matter, at or near the time of its occurrence, to the Bank.
(2) Officers of the Company represented to the Bank that a Letter of Comfort had been issued by the principal shareholder Mohammad Harajchi in respect of the said sum of US$1,600,000 expressing his intent to underwrite any loss of the said sum. However, the Company has not provided to the Bank any such Letter of Comfort.
(3) The Company has failed, despite requests by your Petitioner and the Bank, to furnish evidence that it has in place collateral satisfactory to the Bank that would protect the company in the event of loss of the amount in question.
(4) On or about 14th November, 2000, District Judge Sweet of the United States District Court for the Southern District of New York confirmed his preliminary Order attaching $3,000,000.00 of the Company's assets in an account at the brokerage firm Tucker Anthony in New York in an action to which the Company was made a third party defendant, viz., Correspondent Services Corporation v J.V.W. Investments Ltd., et al and Suisse Security Bank & Trust Ltd. No. 99 CTV, 8934 (RWS).
(5) The Company did not inform the Bank of the Existence of this Order attaching the Company's assets until inquiries were made by your Petitioner and other officers of the Bank at a meeting between the Bank and the representatives of the Company on or about 7th December, 2000.
(6) The said sum of $3,000,000 represents approximately 47 per cent of the Company's capital.
(7) Despite requests for your Petitioner and the Bank for current information on the status of this action, the Company has failed and/or refused to provide the same. The Company has asserted that the risk presented by the potential loss of the $3,000,000 is covered by an insurance policy issues on 23rd August 2000. The Receiver has provided your Petitioner with a copy of the said policy, however, it has not been established to the satisfaction of your Petitioner that the said policy would provide the Company with protection against the loss of the amount in question.
(8) According to the prescribed unaudited quarterly financial statements of the Company as at 31st December 2000, the Company had a total capital position of $6,300,000 comprising a share capital of $3,000,000 and retained earnings of $3,300,000. If the total sum of $4,600,000 involved in the litigation in the United States Courts is deducted from the aggregate capital position, the Company will be left with the residual capital corpus of $1,700,000, placing it in a highly vulnerable position, given its liabilities.
(9) The Receiver was unable to provide your Petitioner with a financial statement as at a recent date owing to the non-co-operation of the management and other concerned staff of the company.
(10) The Receiver produced his first Report dated 9th March 2001 and indicated therein that he requires the co-operation of the Company's employees in order to gain access to the Company's computer system for the purpose of taking control of all of the Company's assets.
(11) By letter dated 30th March, 2001, together with attachments thereto, the Receiver indicated to the Inspector of Banks & Trust Companies, inter alia, the continued failure of the company to co-operate with him.
(12) In a letter dated 30th March 2001, the Receiver confirmed that as of the 5th March 2001, he was able to locate cash and investment assets of the Company totalling only $5,845,000. This is in contrast to the latest prescribed quarterly report received from the Company as at 30th December 2000, that the Company owns cash and investments on-balance sheet aggregating $34,820,000.
16. Based on the position which the Receiver has been able to establish at this time, there is no evidence that the Company is viable; nor is there evidence which supports a decision to allow it to continue its operations.
17. In view of the foregoing your Petitioner has concluded that no further confidence can be placed in the ability of the principals of the Company to responsibly oversee the affairs of the Company, nor can confidence be placed in the competence and reliability of Senior Management of the Company.
18. For the reasons set out in paragraph 15 hereof, your Petitioner revoked the licence of the Company by issuance of an Order of Revocation dated 2nd April 2001. The said Revocation Order is designated Statutory Instrument No. 55 of 2001.
"Paragraph 1(1) of Part D provides for a 'notice, announcing his intention of temporarily managing the bank from such date and time as may be specified.' As a matter of ordinary language this provision does not seem to contemplate a requirement of prior notice. This impression is reinforced by the express provisions requiring prior notice in the case of Part C (cease and desist orders) and in the case of Part E (suspension or revocation of licence). But, if, contrary to their Lordships' view, it is assumed that the language is capable of letting in more than one meaning, the contextual scene removes any doubt. A prior notice of any intention to assume temporary management may cause grave problems. Would it be appropriate for the directors who are given prior notice of the minister's intension to continue to accept deposits or honour cheques? The directors would be in a most invidious position in regard to carrying on the operations of the bank. The risk of advance notice of the minister's intention leaking out, once it is communicated to the bank, must also be substantial. Such a leak would be headline news in Jamaica. It would tend to alarm depositors. It might very well lead to a run on the bank. Confidence is the lifeblood of banking. A run on a bank may not only finally destroy any prospect of reconstruction of a bank but it may have systemic consequences in the sense of adversely affecting the banking sector as a whole and thus the national economy. Finally, there is the risk that directors or other insiders, who have been responsible for unsound practices, may destroy incriminating records. The context therefore supports their Lordships' view that paragraph 1 of Part D does not require prior notice."
"39. The danger I saw was that this was an institution three quarters of whose capital was frozen by the courts in the United States. I saw no sign that the management and the owners appreciated the gravity of the situation. This state of affairs pointed in my mind to an institution which was badly run and represented a threat to depositors and to the good name of our financial system. The situation could not, in my opinion, go on. I should stress that I did not come to this opinion lightly. I fully recognized the serious nature of the step being taken, not least as regards SSBT's forty or so employees, but I was and remain firmly of the opinion that this was the correct course. I would have been prepared to reconsider that view following suspension had our concerns as regards the frozen money been addressed but they were not. Instead the Receiver was continuously obstructed in carrying out his duties."
The Governor recounted the course of communications in March and went on:
"46. In paragraph 51 of his affidavit, Mr Lunn purports to give an explanation of this matter. He states that the Receiver's liability to assess SSBT's financial status was due to him having terminated SSBT's employees' contracts of employment. He also says that the comparison with the figures as at 30th December was 'practically worthless.' He omits to mention that the explanation is entirely different. In his first report dated 9th March 2001, the Receiver makes mention of accounts at Barclays Bank in the Bahamas in the name of Suisse Security Investments Inc ('SSI'), and at UBS in Switzerland in the name of Suisse Security Holders Ltd. ('SSH'). He refers to the fact that these accounts appear to hold funds of SSBT's clients. It is now clear that balances which should have been in the name of SSBT, were in fact in the names of these two companies. The companies were both International Business Companies (IBCS). Though their names include the words 'Suisse Security', they were not owned by SSBT, but by the principals of SSBT. This is a grave and unacceptable matter. One result is that the Receiver (and later Provisional Liquidator appointed by the Court) has never been able to access these accounts. He was in due course obliged to apply for an injunction in attempt to freeze the money, but it transpired that the money in the Barclays accounts had been transferred out of the jurisdiction sometime late in April 2001. Neither the money in the UBS accounts nor the money in the Barclays accounts has yet been recovered …
47. The Receiver's inability to locate more than a small amount of SSBT's cash and investment assets, coming on top of the other matters referred to above, led me to conclude that the public interest, and the interests of the depositors and other creditors, required that SSBT's licence be revoked. This had been a very real prospect at the time of the suspension in early March, but the events of that money underlined the problems that had earlier emerged. In reaching that conclusion, I took full account of SSBT's statement of objections of 15th March 2001, but it did not change my mind. Accordingly, the licence was revoked on 2nd April 2001 by Order pursuant to section 14(1)(a)(i) of the Act …
48. My reasons for revocation are summarised in paragraph 15 of the winding-up petition verified by myself on affidavit on 5th April 2001… . I hereby confirm that this paragraph accurately summarises my reasoning. I also confirm the view expressed in paragraphs 16 and 17 of the winding-up petition. Based on the position which the Receiver had been able to establish, there was no evidence that SSBT was viable. I do not believe that it was viable. Nor was there any evidence which supported a decision to allow it to continue its operations. In view of what had happened, I concluded that no further confidence could be placed in the competence and reliability of the SSBT's senior management."
"Where the reasons given by a statutory body for taking or not taking a particular course of action are not mixed and can clearly be disentangled, but where the court is quite satisfied that even though one reason may be bad in law, nevertheless the statutory body would have reached precisely the same decision on the other valid reasons, then this court will not interfere by way of judicial review. In such a case, looked at realistically and with justice, such a decision of such a body ought not to be disturbed."
Their Lordships consider that the present situation is a fortiori. First, the Governor had already to be of the relevant opinion on the basis of the two notified considerations as at 5th March 2001, in order to issue the notice he then did. There is no reason to question his statement in the notice that he was of that opinion, and it is supported by paragraph 39 of his affidavit. The additional considerations which had come to light by 2nd April 2001 can only have confirmed his opinion, but that does not mean that they were critical to it.