Central Bank of Ecuador et Al v Ansbacher (Bahamas) Ltd et Al
| Jurisdiction | Bahamas |
| Judge | Adderley, J. |
| Judgment Date | 03 June 2010 |
| Court | Supreme Court (Bahamas) |
| Docket Number | CLE/GEN No. 648 of 1996 |
| Date | 03 June 2010 |
Supreme Court
Adderley, J.
CLE/GEN No. 648 of 1996
Mr. Richard Salter, QC; Ferron Bethel) and Camille Cleare with him for the plaintiffs.
Mr. Julian Malins, QC; Courtney Pearce with him for the third to sixth defendants.
No Appearance on behalf of the first and second defendants.
Tort - Fraud and deceit — Breach of fiduciary duty — Civil conspiracy — Offshore jurisdictions and tax avoidance — Whether financial transactions bona fide or done for fraudulent or deceitful purposes — Intent to cause damage through unlawful means — Lack of knowledge and / or intent on the part of the defendants mean claims must fail.
This action involves an alleged international banking fraud of more than US$ 150 million on a Bahamian Mutual Fund managed by Ansbacher Bank and Trust (“Ansbacher”) in The Commonwealth of The Bahamas (“The Bahamas”) and involving the jurisdictions of the Republic of Ecuador (“Ecuador”), The Netherlands Antilles, British Virgin Islands (BVI) and Florida in the United States of America. Banco Continental SA (“Banco Continental”) was the fifth largest bank in Ecuador with assets of 1,624 billion sucres in the local currency or over US$555 million, in excess of 260,000 depositors, which represented 16% of the banking system's deposits, and about 18% of total banking sector loans. As of 31 December 1995 it was in Ecuador akin to a Lehman Brothers in the United States before its failure in 2008; it was considered by the Central Bank of Ecuador (“the Central Bank”) and the authorities to be too big to fail.
The case concerns certain transactions undertaken between 1994–1996 relating to Banco Continental and its wholly-owned subsidiary in the Netherlands Antilles Banco Continental Overseas NV (“BCO Curacao”) which led to the bank's insolvency and impending liquidation.
According to the allegations, a miscalculation of the interest rate risk, an imprudent level of related party lending, an illegal and fraudulent pyramidization of its capital, and an indiscriminate use of interbank and central bank borrowing by the Ortega family who had majority ownership and allegedly effective control of the bank through their company Conticorp S A (Conticorp), the third defendant, led the bank to a state of insolvency on a cash flow as well as on a balance sheet basis.
Knowledge of the insolvency and the imminent threat of liquidation of the bank, it is alleged, drove the defendants to commit fraud on Inter-American Asset Management Fund Limited (“IAMF”) which they allegedly also controlled, and by fraud without considering the best interests of IAMF and its shareholders between December 1995 and 6 March 1996 stripped IAMF of all of its assets amounting over US$ 150 million immediately prior to the takeover by the Central Bank on 23 March 1996.
The assets of IAMF, primarily hundreds of loans which were acknowledged to be good, were cancelled in favour of or transferred to Conticorp in exchange for Global Depository Receipts (“GDRs”) which represented shares in Grupo Financiero Conticorp SA, (“GFC”) a subsidiary whose major single asset was Banco Continental.
According to the plaintiffs, the GDRs had little or no value at the time of the transfers/cancellations and the defendants knew that. Nevertheless, they arbitrarily valued them to make it appear that an adequate consideration was being given to IAMF in exchange for releasing the loans. By this means it stripped IAMF of its assets and left their company, Conticorp, debt free before the Central Bank took over.
At all material times the Ortegas beneficially owned 51% or more of and allegedly controlled the board of directors of Conticorp which, according to the plaintiffs, gave the instructions to Michael Taylor, the sole director of IAMF, to approve the fraudulent transactions on behalf of IAMF. They claim that Michael Taylor was a cipher of Conticorp and the Ortegas.
Banco Continental was dissolved and merged with Banco Pacifico SA on 10 October 2000. None of the depositors of the bank lost their money because after the Central Bank assumed control of the bank, in the absence of deposit insurance, all deposits were made good. A bailout of approximately US$325 million of State funds was used to restore the bank to the stage where it could be merged with the second plaintiff, Banco Pacifico, at an appraised value of about US$82 million (Booz Allen and Hamilton March 2001 Report using discounted cash flow method for a four year period and macro economic assumptions agreed by Ecuador and the International Monetary Fund). The bailout funds included those made available by way of liquidity loans, a subordinated loan from the Central Bank, and a special credit equivalent to an additional special loan of s/463,500 million (approximately US$159 million) in November 1996. In the Special Law for the Capitalisation and Sale of Banco Continental passed by the Ecuadorian Congress in July 1997 which capitalised all the loans it was recited that with the sale of the shares in Banco Continental the Central Bank would be able to recover its funds. The shares were to be sold seven years thereafter. Shareholders as of 23 March 1996 when the Central Bank took over, which included the defendants and their family and related companies (“the Ortegas”), were precluded from purchasing them. Up to the time of trial, the shares had not yet been sold and the merged bank, Banco Pacifico, was still a profitable going concern.
Banco Pacifico was substituted for Banco Continental in this action by Order of Lyons, J. dated 17 June 2002. The Central Bank is claiming by way of subrogation to the rights of BCO Curacao.
The case is of continuing public interest in Ecuador. At the commencement of the trial Mr. Diego Borja, the current Minister of Finance of Ecuador and President of the Central Bank, Mr. Christain Ruiz the General Manager, and other high ranking officials of the Banking Board and Central Bank of Ecuador were present in court. Ms. Laura Patino (“Ms. Patino”) former Inspector of Banks and Financial Institutions stated in her evidence: “I believe that the outcome of this action would have huge political significance in Ecuador. It would vindicate that [sic] extraordinary steps that were taken by the regulatory authorities in 1996 (for which they came in for criticism) and more importantly demonstrate that people who abuse the financial system cannot be allowed to do so with impunity”. This statement, of course, has an underlying subliminal assumption that the defendants abused the system and that the court will so find.
Why was the action brought in The Bahamas when Spanish is the native language of all of the witnesses of fact some of whom speak little or no English? The Central Bank's report on the capitalisation dated 6 June 1996 called “the Blue Book” stated that the Central Bank chose the jurisdiction of The Bahamas for the key role that IAMF played and because the contracts pertaining to the transactions in question are subject to the jurisdiction of The Bahamas. Also at this trial a witnesses for the Central Bank expressed the view that because of the ongoing political implications in Ecuador there is a better chance of obtaining justice in The Bahamas.
An action was brought in a Florida court which dealt with similar issues but on the application of the defendants it was dismissed by a Florida judge on the principle of forum non conveniens. Ansbacher has settled with the plaintiffs but the terms are not known to the court.
The hearings in this matter lasted for 40 days over two and a half months commencing 18 January and ending 1 April 2010, Holy Thursday, the ending of the 40 days of Lent. There were 80 trial bundles, five volumes of transcripts, fifteen witnesses of fact including four expert witnesses, and one affidavit of a deceased witness, Henrik Schutte, admitted pursuant to section 58 of the Evidence Act. Adequate notice to admit the hearsay evidence was given by the plaintiffs under Order 38, rule 4.
In the process of writing this decision the sentiments first expressed by the French philosopher and theologian Blaise Paschal in his Lettres Provincials came to mind when he apologised for the length of one of his letters because he did not have time to make it shorter. Likewise, perhaps I should apologise for the length of this judgement; because time did not permit me to make it shorter. With an enormous amount of detailed facts the court's task was not made any easier by counsel's failure to deliver an agreed statement of facts in accordance with their promise to use their best endeavours to do so. It is therefore possible that some facts may be inaccurately recited or omitted, but hopefully not materially so. Therefore, if certain matters have not been referred to that does not necessarily mean that they have not been reviewed and considered by the court.
The first plaintiff is and all material times was the central monetary authority of Ecuador.
It was at all material times empowered by the laws of Ecuador to conduct litigation both within and without Ecuador to inter alia recover money unlawfully or wrongfully taken from it.
The second plaintiff is a bank which comprises the merger of Banco Continental and Banco Pacifico both licensed banks under the financial laws of the Ecuador.
The third plaintiff, Banco Curacao was at all material times a bank incorporated under the laws of the Netherlands Antilles with its head office in the City of Willemstad, and at all material times licensed to carry on banking business in Curacao but at the time of trial was in liquidation.
The fourth plaintiff, IAMF, was incorporated as an International Business Company under the provisions of the International...
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